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Count Hillsboro physician Michael Reeh as a skeptic when it comes to a proposed $1.5 million city bond issue for construction of privately owned Hillsboro Community Hospital.
HCH has secured a $9.7 million loan through the Bank of Hays to build the new hospital, but Reeh is concerned about the risk the city would assume by issuing the bonds to complete the finance package.
He believes private investors should assume that risk, even though the principal, interest, and costs of the bond issue are to be paid back to the city by HCH.
“I have a private business,” he said. “I don’t expect Hillsboro to give me any money to run it. Who gets to do their business that way? I think it’s always going to be hanging over Hillsboro’s head.”
HMC/CAH had a private investor lined up with similar co-financing agreements for HCH and several other hospitals in 2010. When the investor backed out of the arrangement in 2011, HMC/CAH halted those projects. HMC/CAH filed Chapter 11 bankruptcy later that year, reorganized, and emerged from bankruptcy in 2013.
“That’s part of business that I thought was never viable, to use bankruptcy laws to get out of paying things,” Reeh said. “Maybe I’m just old-fashioned.”
Reeh also believes city officials should revisit their decision because of the abrupt closure in May of an HMC/CAH hospital in Yadkinville, North Carolina.
Despite a Wake County Superior Court order to remain open, Yadkin Valley Community Hospital closed May 22. In June, the hospital was ruled to be in civil contempt of court by a federal district judge.
Public records indicate Yadkin County, which owned the building, decided in October 2014 to look for a new hospital operator. Yadkin Valley Community Hospital claimed the resulting uncertainty over the hospital’s future caused patient count and revenues to drop and employees to leave, creating a situation where “patient safety was at issue” when they closed May 22. If it had stayed open through the end of its lease July 31, the hospital projected losses of around $300,000, court records said.
Legal wrangling over settlement costs from the contempt judgment is ongoing, but Reeh believes the combination of the ruling, potential settlement costs, and past bankruptcy could jeopardize repayment of Hillsboro’s investment.
“It’s significant,” Reeh said. “The city needs to look everything over again. Does this change our risk comfort? Are we sure we want to do this?”
Reeh was disappointed with the response he received when he raised these issues at a city council meeting Aug. 4.
“My opinions aren’t any better than anyone else’s opinions,” he said. “I’m not an expert in this area, it’s just that it worries me. I’d like them to be more transparent so things make sense.”
City , owner respond
City administrator Larry Paine said the city has a history of supporting private business, pointing to industrial revenue bonds issued for development in the industrial park.
“A good number of the expansions that occurred are a direct result of those activities,” Paine said.
Rural Community Hospitals of America operates HMC/CAH hospitals, and CEO Larry Arthur said Hillsboro’s involvement was a positive influence in obtaining a USDA guarantee for the Bank of Hays loan.
“It allows us to get the hospital built on a quicker time frame than if we were out searching in the capital markets,” he said.
RCHA executive vice president Trent Skaggs said that the situation with Yadkin Valley differed greatly from that of HCH and Hillsboro.
“Just the mere fact that the city of Hillsboro is willing to work with us, and is supportive of us is the reason we can do this replacement,” Skaggs said.
Arthur agreed.
“The situation in Hillsboro has been 180 degrees opposite,” he said. “They’ve done everything they can to make this deal work.
Hillsboro has built a $500,000 contingency fund to be used if, once the new hospital is built, HCH would default on its loan. Paine would like to see it grow large enough to cover the bond issue.
There’s risk associated with investments, and it should be assessed on factors specific to a particular situation, Paine said.
“None of us that are looking at it can predict whether it will be a good deal or a bad deal,” he said. “We have to look at what the options are as they pertain to the city of Hillsboro.”
In this case, the potential benefits of a new hospital for bringing higher quality health care through physical and staff recruitment, and in keeping more patients at home are worth the risk, Paine said.