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Lee Memorial board may consider changing public hospital to private, or tax district

Fort Myers, FL - March 25, 2012

The sting to the Lee Memorial Health System could last a long time.

How can a public hospital, tasked with treating the sickest of the sick, stay on course if the benefit of immunity from large medical malpractice judgments is stripped away by the Legislature? Lee Memorial's board faces that question after state lawmakers approved a $15 million claims bill for a permanently injured former patient, a child.

To the chairman of Lee Memorial's hospital board who is asking questions, the answer might be to change from a public hospital to a private one. Or instead, could a taxing district to raise money to support Lee Memorial become an option, as it is for other public hospitals in Florida?

"At some point, we are going to have to have the discussion about a policy for errors and omissions and if it makes sense to be a public entity anymore," said Richard Akin, chairman of the publicly elected board. "If our immunity isn't there any more, does it make sense to be a public entity?"

A special board meeting has been scheduled for Thursday, March 29, to begin the task — expected to unfold over months — of how to address the claims bill. The headier subject is the long-term implications.

"We do expect it will open the door to other claims bills," Akin said. "This won't be the last."

Operating a public hospital, Lee Memorial's board must comply with Florida's public records and open meetings laws and its board members are elected by registered voters. Private hospital boards aren't run that way.

A public hospital also has sovereign immunity protection, similar to government agencies, which limits damages to $300,000 per case. If a medical malpractice case goes to trial and a verdict larger than that is handed down against a public hospital, the state Legislature and governor have to approve the claim.

That was the case this past legislative session for 14-year-old Aaron Edwards, who is confined to a wheelchair and has severe cerebral palsy after mistakes during his birth at Lee Memorial. A jury in 2007 awarded Edwards and his family nearly $31 million. A claims bill went nowhere during the 2011 legislative session, when Aaron and his mother traveled to Tallahassee.

The question about remaining a public hospital system comes up particularly because Lee Memorial doesn't have taxing authority for financial assistance from the community like other public hospitals in the state have, he said.

The nearest is Sarasota Memorial Healthcare System, which received $43.7 million last year in local taxpayer support, according to Sarasota Memorial's financial records. Its taxing district was established in 1949.

Tony Carvalho, president of the Safety Net Hospital Alliance of Florida in Tallahassee, said Lee Memorial is the only large public hospital in the state without local taxpayer support.

Bay Medical Center in Panama City is converting from a public institution to a private nonprofit system this spring and Munroe Regional Medical Center in Ocala is looking for proposals to sell or lease its hospitals, he said.

It's difficult to survive as a public hospital without taxpayer support, Carvalho said.

"That's a decision for the Lee County community," he said, adding that Lee Memorial is a well-managed hospital system.

"The challenge Southwest Florida faces is, it was one of the hardest hit areas of the country (during the recession) and Lee Memorial has had to navigate maintaining access to services and maintain programs at a time when its (population of) uninsured patients and medical indigent patients has gone up," he said.

For the other public hospitals in the state, the Edwards claim is cause for concern.

"The size of it is precedent-setting and could foster more lawsuits," Carvalho said. "It was a very, very aggressive advocacy program for the claims bill, but then again, that is part of the process."

At the same time, he doesn't think anyone would argue against a mechanism for relief against the sovereign immunity cap on the basis that every case is different.

Trudi WilliamsState Rep. Trudi Williams, R-Fort Myers, who voted against the Edwards claim, points out the child has Medicaid and Medicare coverage for life, so all his medical needs are addressed. Lee Memorial's offer of an annuity with annual income of $300,000 was the more prudent way to go, she contends.

"The fact is it is 10 times larger than any other (claims bill)," she said.

Besides the lobbying that went into the bill's passage, Akin said some people in the community and some of the state lawmakers who supported it believe Lee Memorial has deep pockets.

The hospital system has far more debt than investment income; and this past year's operating margin of $29 million, profit after expenses, doesn't go far with equipment replacement costs, he said.

Mike German, Lee Memorial's chief financial officer, said the state Legislature looked at how much cash the hospital system has on hand — $485 million.

"But that was money we borrowed," German said. "We owe $692 million to various financial institutions."

German said he and his staff are looking at all options for paying the claim. That includes taking money from investments, program cuts, staffing changes and borrowing money.

"The $15 million we are required to pay would have gone a long way in providing services to the community," German said. "That is money we use to fund those programs and now, how do we fund those programs? It's no different than your personal budget. We may spread it around. We haven't gotten that far in our discussion."The board at Thursday's meeting won't be given a list of options of how to proceed with paying the money, Lee Memorial spokeswoman Mary Briggs said.

"I think the discussion will be much broader and at a higher level," Briggs said.

"It may be that nothing changes," Akin said of the bigger picture. "I feel like there's got to be some changes. We don't have a big pot of money to pay for all of these things."

Despite that, the board isn't deterred from going ahead with plans for a new children's tower adjacent to HealthPark Medical Center. The tower will expand the number of children's beds from 98 to 150, and will free up beds inside HealthPark for adults. All told, the project cost is $250 million.

The children's population in Southwest Florida is growing and there aren't enough beds for adult patients, Akin said.

"We've known all along we have to build it,'' he said. "How do we pay? We're not sure of the mix yet. We are still raising money and we will finance some of it."