Meeting addresses hospital undertaking

It was standing room only Tuesday evening at the Hot Springs County Government Annex, for a town hall meeting hosted by Hot Springs County Memorial Hospital to discuss the hospital addition and renovation.

The start of the meeting saw hospital CEO, Margie Molitor, speaking to the guiding principles of the project, which include building for the future, using existing walls, being ever aware of the budget, involvement of staff in the design so it functions well, phasing the project to minimize patient care interruptions and resolve facility issues and getting as much done in the first phase as possible to minimize loss of patient services and revenue. Molitor noted the first phase is all new build, and once it’s completed they can move services into it, which will allow for the remodeling to commence.

Dan Odasz with Taylor Lee from Plan1 Architects presented slideshows of the overall schematic, as well as renderings of what the new hospital entrance, patient rooms and operating areas could look like. Odasz said the entire design is intended to be very needs-based and specific to this community as to what services would be most appropriate. Most of the construction, he noted is very frugal and common sense, with a focus on as much usable square feet for their money.

With regard to the adjoining Gottsche facility, Odasz noted they’ve been working collaboratively with the architect for Gottsche’s proposed project – including a new parking area and handicap accessible entrance – to come to a common agreement on how the two projects fit together.

The process for the hospital project is a bit of a “shell game,” Odasz said, with new construction starting on the east side of the current hospital. As new construction finishes, services are moved into it. This frees up space for the remodeling of existing space. He pointed out the process is set up in such a way that hospital departments stay in operation during the entire course of construction.

Jeffrey Fivecoat with financial consultant Piper Jaffray explained about the USDA Community Facilities Direct Loan and Grant program and why it was selected as a solution for financing.

Fivecoat explained the USDA offers a program through which not-for-profit or municipal entities can apply for federal funding to support essential community services. To be eligible, the community has to have a population of 20,000 or less and funds can be used to purchase, construct or equip facilities that provide essential services.

The big item they are looking to obtain, Fivecoat said, is a USDA direct loan, which is direct financing from the federal government for a term of 30 years with a fixed interest rate. As of Tuesday, he said, that rate is 3.5 percent and that does not change. What was put in the application is an assumed rate of four percent, though Fivecoat mentioned the USDA resets its rates every quarter and assuming a rate that’s half a percent higher is being prudent.

The USDA does like to see public funds combined in with their direct loan, and for the application being considered 80 percent of the overall financing from direct loans and 20 percent from local banks; this 20 percent would likely be tax exempt.

In terms of numbers, the USDA direct loan is $21.345 million, the bank placement loan is $5.336 million and the hospital equity is $250,000. The figure of $26,931,000 is the total source of funds, Fivecoat said, noting there are two series within the direct loan. One series will be about $11.8 million, supported by the sales tax and put in a separate account to make payments. Collections will last about 14-15 years, Fivecoat said, and has to service the debt for 30 years. The remaining roughly $9.5 as well as the $5.336 million will be funded by hospital operations, which will have the benefit of the district mill levy and increased Medicare reimbursement for the costs associated with the project.

Uses of funds include $17.344 million in construction costs, $3.355 million in equipment and furnishings, $1.991 million in architect, engineering and other fees, $1.884 in contingencies, $1.575 million in construction period interest and $782,000 in issuance and financing fees.

The special purpose tax, Fivecoat said, will cover roughly 45-50 percent of the debt service and operations will cover the remainder.

Following the presentations, there was a period for questions and comments. Among the questions was how the hospital could get the loan when it recently acquired Red Rock Family Practice, which is profitable.

Hospital Chief Financial Officer (CFO), Shelly Larson, noted the acquired clinic will become a department of the hospital and no longer function as a separate entity. Fivecoat further added, on the USDA side, the bylaws, founding articles and financial reports of an organization are submitted to the office of general council for the USDA to determine eligibility. The hospital was deemed eligible as a municipal entity.

A hot topic was how much the hospital paid for Red Rock Family Practice. Hospital Board Chair Bill Williams said there were months of negotiation going into the acquisition, and the figure would be available in the hospital’s 990. It was noted the hospital owned the building where Red Rock is, and the acquisition was of the practice itself.

Another question was raised as to whether the hospital could continue to expand as Thermopolis grows. Though the foundations could be structured to possibly add a second level, that is not being done now. The site has been maximized, and expansion in 30-40 years would likely involve the building of a new hospital.

A concern was raised as to whether there would be another change to the money needed for the project, as it was initially estimated at about $16 million and the loan application is for more than $20 million.

Williams understood the concern, and noted the project was set up in such a way that they wouldn’t have to keep coming back to taxpayers for additional monies. The bottom line, Molitor noted, is there will be no further taxes beyond the already approved special purpose tax and mill levy.

With regard to the three-mill levy, it’s projected to generate an average of $400,000, though the amount varies from year to year based on county valuation.

Also in the financial arena, it was noted that with about half a percent of head room above the current expected rates, the total debt service – principal and interest annually – is about $1.54 million of all the components. The plans for projected revenue to pay those debts does take into account private and federal interest rates.

During the hospital board meeting later in the evening, the board approved signing the application for the USDA loan in the amount of $21,345,000 with a total the project amount of $26,931,000.

In other action, the board approved the creation of a new bank account for the hospital doing business as Red Rock Family Practice so it can be used as a depository for proceeds from the practice. Also approved was a public records request policy, under which the charge will be $1 for the first page and 50 cents for each page thereafter, though there was some discussion about charging for an hourly rate of work for large requests.