Selling the Hospital Building

It was mentioned before that the hospital board and the county commissioners held a meeting with their joint committee in April 1969, to review the recommendations of the Medical Care Commission that they should consider building a new building in another location instead of expanding and renovating the old one. One option that they discussed was that of selling the hospital building. This would take the county out of the healthcare business except for the public health functions of the county health department. It would also make it unnecessary to go to the people on a bond issue, which would require intensive campaigning without guaranteeing success, and if it failed would waste all the time and money that had been put into planning.

In May 1969, the joint committee met with the ECU Regional Development Institute to request help in seeking potential buyers for the hospital building. The commissioners, after receiving the recommendations of the trustees and medical staff, decided to avoid the decision and settle the hospital issue by presenting it to the citizens as a bond referendum. The approval of the bond issue in November 1970 put the question of privatization to rest until over 10 years later, when it came up again in entirely new circumstances. Its recurrence was not brought about by the need to deal with bed shortages, lack of space, or other inadequacies in the existing hospital. Rather, it was caused by widespread changes in the healthcare community, changes outside the control of any individual hospital or local governing body.

                                                          Changes in Healthcare Financing

With regionalization and increasing competition, PCMH began to meet the problems that were plaguing other hospitals, especially publicly operated ones and academic centers throughout the country. The difficulties hospitals faced were not new ones. At the same time that hospitals had been forced to shift emphasis away from philanthropic and religious goals to financial considerations, physicians began to intervene more actively in patients’ treatment, with surgical procedures and antibiotics. The length of hospital stays shortened and the level of patient care intensified, requiring more employees with a broader range of skills, and raising personnel costs without boosting the income from housing patients. That is, physicians, surgeons and other healthcare workers received higher incomes, without any corresponding increase in the charges that hospitals could pass on to patients. One result was an increase in operating costs per capita, recoverable only by raising charges for services.

Before 1965, individuals paid for 80 percent of expenditures for medical care out of their own pockets or by health insurance that they purchased for themselves. When the public health insurance amendments to the 1935 Social Security Act were signed into law by President Lyndon Johnson in 1965, there were loud noises from both proponents of private enterprise and champions of government intervention in social welfare. Medicare, Title XVIII of the act, was viewed as an extension of Social Security, and was generally supported. Medicaid, Title XIX, was widely seen as a welfare program and generated most of the opposition. Insurers and purveyors of healthcare took up a position against admitting the government into an arena where they contended that individuals were entitled to free choice. In support of their well-funded agenda, they called on the American tradition of rejecting dependence and relying on self-help.

On the other side, equally vocal if less well financed lobbies reminded everyone about the millions of elderly and indigent citizens denied free choice because they were unable to pay for even minimal health care. In their turn, they drew on the Christian tradition of taking care of the sick and needy, on the image of the good Samaritan who will not pass on the other side but will give help to a neighbor or a stranger.

The compromises between these contradictory viewpoints led to a medical care system that was a complicated mixture of public and private payment, with resources unevenly distributed and with inequities in the availability of care. Medicare made doctors and hospital care available to most of the elderly residents of the United States, and to most permanently disabled persons, including those with kidney failure. Medicaid provided health insurance for low-income families, with all but minimum eligibility determined by individual states—the federal government reimbursing the state, depending on what it could afford, for half or more of the cost.

The cost of the medical care system began to rise from its very inception at a rate twice and sometimes three times the general inflation rate. When the program was first put into effect, reimbursement of hospitals was for cost plus 2 percent, so that serving Medicare patients offered no incentive for efficiency. Most hospitals expanded their capacity, upgraded their technology, and added facilities often duplicating those already in place in nearby hospitals. The greater part of the increase in the cost of medical care came at first from rising hospital costs. Physicians were not much concerned with this, since they wanted to have access to the latest equipment to avoid referring their patients elsewhere and possibly losing them. They carried out diagnostic procedures on an inpatient basis, and extended hospital stays because hospital insurance covered them. Insurance generally did not cover less expensive outpatient services.

A major overall pressure on the price of healthcare came from rising levels of expectation by patients. No one was willing to settle for less than the latest technology. In addition, physicians had to protect themselves from the flourishing industry of malpractice suits. They practiced defensively, using more laboratory tests, X-ray examinations, and enlisting specialists in diagnosis. With a great reduction in infectious diseases and improved management of the ills of aging, the number of older people increased. While people over 65 made up a little less than 15 percent of the population at that time, more than 25 percent of all medical services went to them.

The federal government’s intervention in healthcare was possibly an inflationary force, as it would probably have been if Congress had passed only the Medicaid modifications in the Social Security Act in 1965, to provide care to the poor. However, including the elderly, handicapped and disabled guaranteed a large infusion of money into the healthcare system, with prices rising as demand increased.

The cost of healthcare and disproportionate inflation became major issues for federal lawmakers and the executive branch of the government. It was not acceptable to appropriate more and more tax dollars to pay for medical care. On the other hand, even when some medical providers were inefficient or went too far in meeting patients’ wishes rather than their needs, most individuals in the government were reluctant to interfere with professionals freely exercising their judgment.

The great complexity of the healthcare delivery system, with its built-in contradictions, made some confusion unavoidable. One thing that was clear was that for a least three decades all across the United States a virtual revolution went on in how healthcare was being furnished and financed.

The health maintenance organization, or HMO, became the major form of managed care. Before 1965, individuals or private health insurance companies had paid out 80 percent of all expenditures for health care. Federal legislation passed in the 1970s removed legal barriers to HMOs, and provided financial incentives to encourage their formation. By the late 1980s nearly 1,000 HMOs had 30 million enrollees. That year Americans spent $247 billion on healthcare, or 8.9 percent of the gross domestic production. A decade later, the expenditure was $697 billion, 12 percent of the GDP. This rate of increase was intolerable, so managed care organizations raised copayments and reduced standard benefits. Their efforts were successful enough to keep expenditures on healthcare in 1995 at $998 billion, 13.6 percent of the GDP. In 1997, the American Association of Health Plans claimed credit for healthcare savings from 1990 to 1996 of $116 to $181 billion.

At the end of 1999 about 100 million Americans were covered by some form of managed healthcare. Most was arranged through HMOs, some with fixed per-member fees, some with salaried physicians and other health care workers, and still others utilizing groups of independent doctors who saw patients in their own offices, for a capitation, or per-member payment.

The course of development of PCMH and its predecessor hospitals in Pitt County had not followed the national pattern, but reached much the same end. They went from a privately built and funded, efficient operation, through a period of unprofitability, to becoming a county-owned and -operated hospital with facilities advanced enough to attract a full range of specialists to the area. PCMH was also fortunate in being able to recruit effective managers who ensured efficient administration and sound fiscal management. Though sometimes operating on narrow margins, especially when the area suffered from recession and a shortage of money, the healthcare industry in Greenville and its environs grew vigorously and maintained its profitability. With the initiation of cost accounting in the Medicare system, and especially with the advent of DRGs, PCMH faced a new and fearsome predicament.

DRGs

Federal bureaucrats did little besides talk about the growth in healthcare costs until 1983, when Congress put into place a new illness classification system Diagnosis Related Groups, or DRGs for payment to hospitals. Initially, 467 illness categories were distinguished and used to classify hospital stays in terms of diagnosis and treatment, patient age, sex, and other factors. The basic set of DRG codes set up by the Health Care Financing Administration were those for adult Medicare billing, with adjustments being made for children and others who did not quite fit. Hospitals were paid a predetermined amount for treatment, regardless of the actual charges incurred. This system encouraged keeping costs down, but also increased the risk that severely ill patients would not be given adequate treatment. Over time, the system was refined to reflect actual costs somewhat more closely, but at the beginning it caused many difficulties to all hospitals, and PCMH was not exempt from these.

At one time in the transition from adding a surcharge of a fixed percentage of cost to the new code-driven system, the hospital was in such poor shape fiscally that draconian economies were launched. Patients’ beds were normally outfitted with two sheets and a blanket. Both to decrease the expenditure for sheets and to lower costs of laundering them, in October 1983 housekeeping was told to remove the top sheets from each bed. The response from the medical staff was immediate and forceful. Dr. Wayne Kendrick, a local physician practicing at the hospital, saw what had been done, and when he had finished his rounds he went to the president’s office and objected strenuously. The hospital had gone too far. It was bad enough to be sick and in the hospital. It was totally unacceptable for patients to have to put up with rough blankets against their skin. The administration hastened to remedy the situation, and found $100,000 with which to buy additional sheets.

Hampered Competition

By the middle 1990s, PCMH was competing with an increasing number of managed-care organizations while being hindered in its operation by the growing encumbrances of bureaucracy: public hearing before any serious decision could be made, decisions made slowly at best, rigid procurement rules that denied confidentiality to many negotiations, and restrictions on raising capital. The hospital could not set up a nursing-care facility, enter into joint ventures with private firms, improve data handling capabilities, or spend substantially for any other major development without approval by the county commissioners. Such approval usually came, but sometimes only after a long wait.

The particular restrictions of public ownership were seen by some as aggravations added to the extraordinary degree of regulation applied to every health-related enterprise: continual audits by the state and the federal governments, and complicated labor regulations. An abundance of OSHA regulations, covering the tensile strength of plastic liners used in trash cans, the handling and disposing of refuse, particularly biohazardous waste, and controlling virtually every item used in running a hospital, also complicated operations.

Into 1996, the hospital continued its efforts to diversify and extend its services to the people of the region, who suffered from chronic health problems, limited transportation, scarce medical professionals, and low income. It ventured into the northeastern corner of the state, where people tended to go to hospitals in southeastern Virginia. It joined Albemarle Hospital in Elizabeth City in discussions about opening a primary healthcare center in Dare County. It proposed to put up a building in Avon jointly with the Hatteras Medical Center and provide a physician to work there, supported by funds from the medical school’s Generalist Physician Program that was aimed at increasing the number of primary care physicians in underserved areas.
On November 17, the Greenville Daily Reflector reported an interview from the week before with Dave McRae, who said that the hospital had two alternatives that would make it more competitive: affiliate with smaller hospitals in the region, and become a private, not-for-profit organization. Discussions were going on with at least six smaller hospitals in the region about leasing or buying or managing the smaller institutions.
McRae said that such affiliations were being driven by changes in the healthcare market, namely managed care, so that it was becoming increasingly difficult for community hospitals to survive independently. Managed care companies sought to contract with larger hospitals, leaving smaller ones liable to financial failure unless they could link somehow to larger hospitals or corporations.

Exploring Privatization

The county commissioners had frequently repeated their intention to keep the county-owned hospital public, but a committee of four commissioners and four members of the hospital board had been exploring since October the implications of becoming a private, nonprofit hospital. When a public meeting was scheduled on December 17 to discuss the forms that a private hospital might take, there was a good deal of furor. County Manager Tom Robinson told the commissioners, “This communication on the part of the hospital is way premature at very best. It has been the position of this board to ask the hospital what the particular problems are . . . and research what the possible solutions are.”

The public meeting included comments from hospital consultants on the corporate structure of community general hospitals, as well as integration opportunities.

McRae said that the purpose of the meeting was to clarify the statutes and the legal issues involved in health care changes.

County commissioners were being careful to avoid the appearance of an illegal private meeting by making sure to avoid having a quorum present. According to the county manager, commissioners had so far heard nothing to convince them that a private, nonprofit structure was needed. They were committed to making sure the medical center remained competitive, but wanted to be told what the problems were, not the solutions.

North Carolina law narrowly restricted public hospitals. Three of these restrictions were that as public facilities, they could not make the same kinds of investment as private hospitals; public hospitals had difficulty entering ventures with private business and doctors’ offices; and hospitals must publicly disclose business transactions, including those with insurance companies.

Under NC General Statute 131E-8, the hospital could change its status from public, nonprofit to private, non-profit and avoid these constraints. The statute allowed the public to maintain a certain level of control over the hospital. County commissioners would be able to appoint members to the board of trustees, require hospital meetings to be open, and require the hospital to continue providing care to the poor and uninsured. PCMH’s relationship with the ECU School of Medicine would continue. If the hospital failed to abide by any of these stipulations, the county would have the right to regain its property.

McRae said that becoming private was the best option available, because it was not feasible to get all the changes made in the laws that would make the hospital more competitive. The hospital was at risk financially in the changing healthcare industry.

After the meeting, Robinson said, “The board of commissioners has stated very emphatically that’s not the course of action they want to pursue. The board of commissioners is, at this point, not convinced that a change in structure is warranted.” The commissioners advised hospital officials to explore other options besides privatization, especially the option of lobbying the General Assembly to change laws that limited the way public hospitals could operate and compete. PCMH officials were disappointed in the county’s reaction.

In January, 1997, PCMH was near agreement on buying an HMO, Carolina Summit Healthcare Inc., a North Carolina agency. Acquiring the organization, formed two years earlier by Summit Healthcare Holdings of Lakeland, FL, would enable the hospital to expand its managed-care offerings. The HMO had been set up mainly to enroll Medicaid recipients in Mecklenburg County, but the plans had been dropped when some of its physicians decided not to participate. The organization was licensed to do business in 60 North Carolina counties, but PCMH intended to limit it roughly to an area east of Interstate 95. The HMO had no members and no employees, but PCMH planned to begin hiring a staff within weeks.

Besides setting up a panel of four commissioners and four hospital trustees in October 1996 to discuss the hospital’s needs, the commissioners had hired two healthcare consultants from Chicago at $2,500 a day to attend the panel’s meetings and advise the board. Ken Kaufman, of Kaufman and Hall, was a financial consultant, and Stephen Kite, of Gardner, Carton and Douglas, was an attorney. The consultants had been chosen, among other reasons, because they had never worked for the hospital, but only for the county commissioners, who wished to be advised by someone they believed objective.

At the regular board meeting in February 1997, several Pitt County residents questioned the objectivity of the healthcare consultants the commissioners had retained. They raised the questions when they learned that PCMH was reimbursing the county for the consultants’ fees, which had totaled $64,000 by the previous December. The county initiated the contracts, Robinson said, and the hospital had no control over what the consultants recommended. The consultants stated that they did not know that the county was being reimbursed for their services. They came from two different firms, each committed to advising the county on state law and national trends, calling on their experience with other public and private hospitals.

Slow Motion Toward Privatization

A paid advertisement from PCMH announced that on February 18, the hospital board of trustees voted to seek permission from county commissioners to change its operating structure from public hospital to private, non-profit hospital. The vote had followed a report by an independent consultant to the commissioners that the approaching shift to managed care could put PCMH out of business.

According to the Daily Reflector, Pitt County commissioners were moving toward legislative changes rather than privatization. After a two-hour meeting on February 21, at the Beef Barn restaurant, commissioners Ed Bright, Mark Owens, Charles Gaskins, and Eugene James instructed Robinson and his staff to prepare a package of possible legislative changes. Robinson, McRae, and hospital trustees Kelly Barnhill, David Brody, Lawrence Davenport, and Ed Monroe had attended the meeting. State senators Ed Warren and Bob Martin and representatives Linwood Mercer and Henry Aldridge also had been present.

Robinson said that afternoon that the meeting had been open to the public, but the Daily Reflector and at least one local television station reported that they had not been notified of the meeting. Following a telephone tip from an unknown source, a reporter from WNCT-TV went to the restaurant, and was asked to leave. There was a question whether the meeting may have violated the state’s Open Meetings Law.

The discussions of February 21 violated the state’s Open Meetings Law, County Attorney JoAnne Burgdorff acknowledged, by not providing adequate public notice of the meeting. Procedures had been put in place to ensure that there would be no recurrence.

Steven Kite, Chicago attorney and consultant to the board, prepared a list distinguishing some seven areas in which he said that legislative changes should be made because the hospital was at a competitive disadvantage to private hospitals.

1. As a public hospital, it could not issue revenue bonds to fund branch facilities outside its home county. While it could operate facilities outside the county, PCMH could not issue revenue bonds to finance them. Consequently, it could not take advantage of the low-cost, tax-exempt debt in 28 of the 29 counties it served. Private, non-profit hospitals were permitted to finance such ventures on a
tax-exempt basis.
2. PCMH could not borrow money from sources other than revenue bonds or purchase-money financings. Kite suggested the hospital should be able to borrow money through the county from banks.
3. Changes were needed so that the hospital could keep records such as staff salaries secret.
4. Since private hospitals could keep confidential financial terms or other competitive health care information in contracts, public hospitals should have the same rights if they were to avoid an inferior competitive position.
5. Kite also proposed that Chapter 132 of the N.C. General Statutes, scheduled to end in 1997, should be made permanent. Under that statute, public hospitals were able to keep secret the financial terms or other competitive information about contracts with managed care organizations, insurance companies, employers, or other payers for healthcare. If the statute expired, PCMH would be put at a significant disadvantage because competitors would be able to learn its pricing terms.
6. Public hospitals were required to hold public hearings and solicit five bids before transferring hospital property. These competitive bidding requirements should be changed to give equality with private hospitals, which had no such restrictions imposed on them. It should be possible for public hospitals to convey assets to one another as freely as privately owned hospitals could.
7. The last change Kite proposed would give public hospitals the same freedom in investing money that private hospitals enjoyed. Under the existing laws, public hospitals could invest only in certain safe securities. Private hospitals, without appreciably increasing their risks, could earn yields several percentage points higher than public ones could.
At their meeting on March 3, the county commissioners postponed recommending changes in hospital legislation, pending a public hearing scheduled for March 20.

The Pressures Increase

On March 7, the ECU Board of Trustees reiterated their earlier endorsement of making PCMH into a private nonprofit corporation. Trustees D. Jordan Whichard III and Dr. Valeria O. Lovelace were absent from the meeting, but the 11 who were present supported without public discussion the reorganization of the hospital.

The dean of the medical school, Dr. James Hallock, connected the success of the school with its affiliation with PCMH. He said that he thought privatization would allow the hospital to be more competitive, and permit the school to ensure the academic integrity of its programs.

The hospital ran an informational publicity spot titled “Health Care’s New World” in the March 9 Daily Reflector. The spot said that PCMH would eventually lose patients to powerful private competitors if it were not transferred to private control by local citizens. The 731-bed hospital was the center of a regional health system dramatically different from what prevailed when the county had built its 270-bed hospital on the outskirts of Greenville 22 years earlier.

The spot questioned whether the hospital could continue to succeed or even continue to exist if it remained a public entity. Increasing competition and new rules of operation that rewarded flexibility and speed had transformed the world of healthcare. The odds were that patients would begin again to travel to the competing private hospitals in Raleigh, Durham, and Norfolk. Revenue would diminish and eventually there would be fewer jobs. It would be just like the old days before a new hospital had been built making it possible for patients to receive the best of modern treatment without traveling out of the region.

On March 11, the Daily Reflector published in the feature “Spotlight” a letter to the editor from Dave McRae. He wrote to respond to questions that the readers of the newspaper had raised about the proposed change in the hospital’s ownership. In it he said the hospital had to be able to operate more efficiently to demonstrate its continuing leadership in healthcare for the eastern part of the state, against the obstacles of managed care organizations coming into the region and a persistent shortage of physicians and other healthcare professionals.

Dr. William E. Laupus, retired dean of the ECU School of Medicine, wrote to the editor of the Daily Reflector, “I submit that utilization of this statute [permitting public hospitals to become private, not-for-profit] now will provide win-win circumstances for both the hospital and the county whose affiliation agreement in 1975 promised to bring the best of health care to the community and region. I believe that Leo Jenkins would want us to continue to keep that promise by making whatever adjustments to the changing healthcare environment are necessary.”

The question of caring for the indigent kept arising in connection with the privatization issue, being answered each time it came up, then being asked again. County Commissioners Farney Moore and Jeff Savage demanded to know, according to a news article in March 20 Daily Reflector, how the indigent and underinsured would get treatment if PCMH were to reorganize as a private corporation. Savage said, “That is a concern for a lot of people,” then went on to answer his own question. “There are provisions that we could stipulate terms necessary to protect that population. We don’t have to reinvent the wheel on this. It has been dealt with by other hospitals that have privatized.”

In the March 16, 1997, “Local Perspective” commentary in the Daily Reflector, Dr. Richard Eakin, chancellor of ECU, wrote that the proposal to privatize PCMH was as important as the decision by the General Assembly to create the medical school. The hospital and the medical school were inextricably linked, he said. Because the proposed change in ownership would benefit both institutions, the ECU Board of Trustees had endorsed it the week before. Eakin commented that it was not only appropriate, but essential, for the hospital to shift to a citizen-controlled, not-for-profit corporation, if it was to continue to maintain its status as a leading regional referral medical center.

The hospital administration continued to publish publicity announcements that at the same time supported the change to private, not-for-profit and gave detailed information about the hospital’s probable future in the event of changing or not changing its governance. On March 16, a series of “Straight Answers to Your Questions About the Future of PCMH” made the following points:
– The change being sought was not an innovation.
– It was necessary to keep the hospital competitive with private hospitals.
– There would be no interruption in care for charity patients.
– It was more likely that privatization would lower than raise hospital prices.
– Trustees’ meetings would be public and a yearly audit report would be made on the hospital’s    performance.
– No employees would be laid off.
– No patients would be denied care.
– The same corporation then managing the hospital would continue to do so after it became the               hospital’s owner.
– The citizens of Pitt County would continue to control the hospital.
– Improving PCMH’s competitive position by legislative changes—10 of them at last count—would be              too slow and uncertain.
– If the hospital continued as it had, it was more than likely that it would begin to lose patients to more    efficient private hospitals in Raleigh, Durham, and Norfolk.

An accompanying information insert from the county’s consultants on changes in hospital ownership and governance outlined in greater detail the issues addressed in the advertisement.

Loyal Opposition and Controversy

The privatization issue continued to polarize Greenville and Pitt County citizens. During a press conference outside the main entrance of the hospital on March 17, a group of citizens, including three local government officials, Commissioners Jeff Savage and Farney Moore, and Greenville Mayor Pro tem Rufus Huggins revisited several questions about the proposal to privatize PCMH. “We’re calling for greater public accountability, more debate, and greater discussion on this issue,” Savage said.

The commissioners did not anticipate taking any action until after discussions with their consultants and public hearings. Mark Owens, chairman of the board, said he did not foresee the board taking action until it had heard what the public had to say and had incorporated that with what it felt and understood was best for the general public.

A hearing was scheduled for March 20, at which three alternatives were to be discussed: maintaining the status quo, privatizing the hospital under General Statute 131E-8, or requesting legislative changes.
Supporters of privatization dominated the public meeting on March 20. About 275 people attended. Only about 35 of at least 60 people who asked had time to speak. Commissioner Savage said he didn’t think speakers at the meeting showed a fair sampling of the public.

The public meeting was set to continue on April 1. The county commissioners wanted to hear viewpoints other than those that had dominated the first meeting, most of whose speakers were connected with the health professions.

On March 31, an anesthesiologist from Chesapeake, VA, Dr. Robert Su, a member of the Coalition of the Public and Physicians for Sensible Health Care Reform, advised against being too concerned about managed care and championed keeping PCMH public. County commissioner Jeff Savage had invited Su to speak against privatization at a press conference.

The second public hearing on the future of PCMH yielded more diverse standpoints than the first one. About 175 people attended, and 37 people spoke, more than two-thirds of them in favor of making the hospital private and not-for-profit. Of those in favor most were affiliated with the hospital, but several speakers who preferred privatization were not associated with medical care fields.

Kurt Fickling, an insurance professional, said that of the nine companies to which he sells insurance, five had gone into managed care contracts. Some of their employees had to go to Durham and Charlotte for treatment under workman’s compensation. “I don’t want to see Pitt Memorial lose these patients,” he said.
Others speculated about a situation in which they or their relatives might have to travel long distances for care, as had been necessary before PCMH expanded to provide a full range of services. They were concerned that managed care might take away the supply of paying patients that permitted the hospital to earn profits that could be used to pay for uninsured patients.

Most of those who spoke against making the hospital private did not have concrete proposals to offer, but asked for more information. “If you asked me tonight, I’d vote no,” D. D. Garrett said “I wouldn’t vote no because I’m against progress. I would not vote no because I’m against privatizing. I would vote no because I don’t know enough about what you’re talking about.”

On April 7, the board of commissioners voted 6-3 against pursuing legislative changes in the attempt to make PCMH competitive while remaining a public facility. Several commissioners indicated they strongly preferred taking the route of privatization.

In the May issue of the Greenville Magazine, an editorial commented on one of the troubling byproducts of the debate on PCMH’s future. Some members of the board of commissioners and other residents of Pitt County had questioned the integrity of the board of trustees and administration of the hospital.

The article said that the vote to exclude the option of seeking legislative changes precipitated attacks on the honesty of the board of commissioners’ outside consultants, and brought about the disclosure of feelings that hospital officials had a hidden agenda. McRae had perhaps been the biggest loser in the furor that followed that vote.

McRae and the trustees did not go into this discussion unprepared. They had been warned by county officials that the controversy would be gory. No doubt they would have avoided the dispute if that had been possible, but hospital administrators and trustees could not avoid making the public aware of the incursion of managed care into medicine.

In May, the Pitt County Republican Party endorsed the hospital’s efforts to become private and not-for-profit.

The privatization proposal prompted minority leaders to present a resolution to the county commissioners regarding the hospital’s structure, services to the indigent, hiring practices, and dealings with minority vendors. The “Resolution of Reconciliation” was on the agenda for the board meeting June 16. It had been drawn up by Don Ensley, chairman of the Department of Community Health at ECU’s School of Allied Health, along with 15 to 20 minority leaders including Dr. Andrew Best, hospital Trustee Walter Morehead, Barbara Fenner, director of the West Greenvillle Community Development Corporation, former mayor Ed Carter, two local NAACP officials, Gaston Monk and Sylvester Hughey, Rev. Randy Royal, and Bobby Hardy, owner of Headlines II.

Indecision and Wavering

The commissioners planned to consider a motion at their regular meeting on July 21 to have a proposal prepared for privatization of PCMH. Until some agreement between the county and hospital was reached, the present public, nonprofit status would continue, even if there were a risk of competitive disadvantages. County Manager Tom Robinson included in the meeting agenda a motion to privatize drafted by Commissioner Ed Bright. Robinson said he wished to get clarification from the board on what they planned to do, but did not think they would consider privatization without compensation to the county or that they were in any hurry to bring matters to a close. He said the hospital would like to have the issue resolved fairly quickly,
By the time they met, the county board had drawn back from its position, and rejected 6-3 Bright’s motion to begin drafting an agreement on privatization, saying that further research was still needed. There was unanimous agreement that the county staff should compile questions from the commissioners to prepare for discussions, and do the necessary research.

At the beginning of the meeting, the commissioners tried to block discussion by having the motion pulled off the agenda. Ms. Warren arrived late because of another engagement, leaving the board locked in a 4-4 vote that left the motion on the agenda.

McRae said that hospital officials would continue waiting for the commissioners to become comfortable with the issue. “Every day is important,” he said, “but it is equally important to ultimately develop an arrangement that is perceived to be fair to all the parties. We do not want to rush and create a solution that does not work. It is important that we move ahead and position the medical center to be able to provide medical care to the region and medical education into the next century.”

He said he had not seen the motion, which referred to “reasonable and appropriate compensation.” “There’s been no discussion about monetary consideration to date. If and when that should occur, the hospital would be open to looking at the logic and would hope that others would hear the hospital’s concerns related to depletion of its revenue in the environment we’re moving to.”

Property Questions and Conditions

During attempts to balance the budget in May, the commissioners had scheduled county Attorney JoAnne Burgdorff to review the status of various properties that had been transferred from the county to the hospital since the new campus on Moye Boulevard was built. The review might determine how much money the county would seek if the hospital became private. The property issue had been raised when Commissioner Tom Johnson suggested that the hospital should reimburse the county for property used for a day-care center. A debate grew out of the discussion as to other properties, prompting the request for Ms. Burgdorff’s review. What needed to be established was whether the different properties had been donated by the county to the hospital, purchased by the hospital, leased, or traded. The value of this parcel close to the county office building on Falkland Highway had been estimated at that time to be $300,000-$500,000. Transactions between the county and hospital had a complex history, and officials had differing memories of the conditions of transfer, Ms. Burgdorff said.

On August 4, the county attorney showed the commissioners a map detailing the ownership of a number of properties occupied by PCMH. The values of the properties were not available at the time, and it had still not been settled whether the commissioners would ask for compensation for any of them if the hospital became a private entity. It was expected that by August 13 when the commissioners held a workshop with their two outside consultants a point-by-point report of property transactions between the county and PCMH would be ready.

Several commissioners said they were interested in having the properties appraised. “That’s some valuable real estate that was shown today,” Commissioner Jeff Savage said. “I think it illustrates the need for the county to move forward and obtain an appraisal of the property and the land the county has appropriated for use in the medical district.”

On August 13, 1997, the county commissioners learned at a workshop closed to the public what steps they would have to take to give up control of PCMH. Consultants Steve Kite and Kenneth Kaufman provided a list of 10 steps the county should take in transferring control of PCMH to the hospital corporation. The county commissioners met with their two consultants on September 24 to examine a list of provisions that could form a basis for negotiations with PCMH on making the hospital a private, nonprofit enterprise. The terms the consultants suggested extended from the appointment of trustees to provision of care to underinsured and uninsured patients. None of the commissioners said that they had so far come to any conclusion even on whether to pursue discussions, or had discussed what compensation would be appropriate.

Under the provisions listed in the consultants’ draft, PCMH would have to agree to a fixed purchase price and in addition pay off outstanding county revenue bonds issued for hospital construction and equipment. The hospital also had to maintain its current bond rating. It would be enjoined to preserve its status as a community hospital operating as a nonprofit, charitable enterprise. It would also be required to make annual payments to the county in lieu of the taxes that would be lost through being tax-exempt.

The hospital board would probably be obliged to hold its meetings in public just as county boards did, even if the institution was made private. The hospital would be bound to retain its affiliation with the ECU School of Medicine. If PCMH failed to meet the terms of the privatization agreement, ownership would revert to the county.

The board devoted a large part of the meeting to considering the role the county could maintain in hospital governance. Some of the commissioners were in favor of a stronger role in making appointments to the board of trustees, to the executive committee of that board, and to the boards governing subsidiaries that the hospital set up. Kite said that the county could require some representation on subsidiary boards, but permitting commissioners to appoint a majority of members would defeat the purpose of privatization.

The question was raised whether the hospital would have to get county approval before disposing of assets or transferring property. Under the draft terms, the hospital could dispose, in any year, of up to 5 percent of its property, priced at its book value. Kite responded that this would be “an impermissible level of county control,” if the hospital was to be able to operate flexibly. “There are certain things that the hospital has to be able to do without your control—if this is going to work from the tax analysis,” he said.

The level of services for indigent patients continued to be a main issue. The consultants had suggested that the county should measure the level of service to the poor using the amount of care provided in 1997 as a baseline. In the next fiscal year, the hospital would adjust the amount of service it gave on the basis of changes in the Medical Care Cost Index of the Consumer Price Index.

                                                               Finally, Direct Discussions

After completing an open session October 1, 1997 the county commissioners went behind closed doors for further discussions of possible terms under which they might agree to privatization of PCMH. State law permitted commissioners to go into closed session when discussing such matters as competitive healthcare activities. The deliberations would be concerned with the strategy and terms for converting the hospital to private, not-for-profit, status.

At that meeting the commissioners decided to begin discussions with hospital officials on the privatization of PCMH. The decision to begin an “exploratory discussion” was passed by a 7-2 margin after the commissioners had been meeting for about an hour in closed session. It would be the first time that the commissioners talked formally with hospital officials about the issue.

McRae said he would probably present the request to the hospital board of trustees at its next regular meeting, in October. “If the commissioners want to go ahead and meet in the next week, then I’m sure that the board would gear up for that.”

The first official joint meeting between county commissioners, hospital trustees, and hospital administrators to discuss privatization of the hospital was held on October 16. At the meeting, behind closed doors, the county was represented by commissioners Mark Owens Jr. and Kenneth Dews, County Manager Tom Robinson, and Attorney JoAnne Burgdorff, and the hospital by trustees Lawrence Davenport and Ed Monroe, Dave McRae, and hospital attorney Nancy Aycock. Some tough questions were raised by county officials, Davenport said. “It was a good meeting, and the commissioners are very well educated and concerned about the issue. They’re just as tough as I expected them to be.”

On November 3, 1997, the commissioners were brought up to date in closed session on the talks that had gone on during the two previous closed sessions between representatives of the county and the hospital. Burgdorff had advised that the session should be held behind closed doors to prevent disclosure of information that could give advantages to the hospital’s competitors.

During a closed session of their regular board meeting a week later, after about 20 minutes of discussion, the commissioners rejected PCMH’s initial terms. The hospital had offered to give the county $10 million up front, and to make additional payments to bring the total to $18 million. The hospital offered to pay $1 million annually for 20 years in lieu of the taxes from which its nonprofit status would exempt it.

Eight of nine commissioners opposed the offer. McRae said he was disappointed by the decision, but looked forward to continuing discussions. “We thought (the terms) were fair and appropriate and continue to feel that way,” he said.

In addition to the financial settlement, the hospital had proposed the formation of a corporate parent to oversee the nonprofit entity. The parent board would be made up of 20 members, of whom eight would be appointed by Pitt County, four nominated by the board itself for approval by the county, and eight would be appointed by the UNC Board of Governors. PCMH would keep its 20-member board of trustees.

All Pitt County patients would be accepted without regard to ability to pay. It was agreed that the hospital would revert to the county if it failed to live up to the governance terms, any disagreements being remedied by specific performance. PCMH would continue to meet the Financial Strength Test of the N.C. Medical Care-Local Government Commission, including its status as a “AA” bond-related hospital. Should it fail to maintain a “AA” bond rating, a consultant would be hired to advise PCMH on how to regain its rating; and if it failed, the hospital would revert to the county. After the key terms of the agreement were settled, the hospital proposed that the county and hospital would set up small work groups to resolve details.

Officials of the hospital said that the issue was back in the commissioners’ hands. Savage had said that any further talks about making the hospital private would be a waste of time. “I don’t want it to be a counteroffer from commissioners,” he said, “and I don’t want another offer from the hospital unless it’s just one of those offers that you just can’t refuse, and we’re talking seven figures.”

Offers and Counteroffers Amid Public Controversy

At the meeting of the PCMH board on November 18, board Chairman Lawrence Davenport registered his dissatisfaction with the slowness of the county commissioners to make a decision regarding privatization. “A year is a long time for something like this to drag on,” he said. “They’ve hired consultants, they’ve had public hearings... . It’s a complex issue, and I understand that. But I think they should understand by now.”

Trustee Dr. Ed Monroe, who had been present at both of the earlier meetings between county and hospital delegations, said that communication had been poor since then. The county had not yet formally notified hospital officials that their proposal had been turned down, but Monroe and other officials had learned about it only through the media.

McRae said the hospital had yet to receive any formal notice or explanation about the reasons for the rejection of its offer.

On November 21, Sam Wright, the real estate developer from Winterville, wrote in a letter to the editor of the Daily Reflector, “My question is, how can the Daily Reflector presumptuously say we must give up our hospital if meetings dealing with the pros and cons of this are held in secret?” He took the Daily Reflector to task for making recommendations without having the full facts.

He concluded, “With all the independent lawyers, businessmen and companies in our community, are there none who will step forward to form a citizen committee to objectively evaluate this important community issue?”

On November 24, after public discussions of the issue, the commissioners voted 6-3 to continue negotiations with PCMH if the hospital should make another offer. Chairman Kenneth Dews, Vice Chairman Tom Johnson, Charles Gaskins, Mark Owens, Jr., and Edith Warren voted in favor of allowing the hospital to submit another proposal. The three commissioners who opposed were Ed Bright, Farney Moore, and Savage.

The hospital board held an emergency meeting on November 26 to discuss submitting a second proposal. Fourteen out of 20 trustees attended the special meeting, which was entirely an open session, and voted unanimously to continue talks with the county. The motion stated that the trustees would submit a “response” and not a “proposal” to the offer to continue discussions. No deadline was set for the response to the county, but it was expected to be made by early 1998. Trustee Carolyn Ferebee said during the meeting that she was not in favor of offering the county any more than had been offered.

The trustees asked the hospital administration to provide, within the next 10 days, the hospital’s plan of action for dealing with the change to private not-for-profit status. The plan would probably include what PCMH would do further to educate the public on 131E-8, the statute that permitted public hospitals to convert to a private entity. The board agreed that the hospital needed further public support on the issue. A series of eight publicity announcements was being designed to appear in area newspapers and answer questions frequently asked by the public.

McRae had written to the commissioners on November 25 reiterating the requirements of N.C. General Statute 131E-8. He said that no other North Carolina hospital that had converted to private, not-for-profit status had been required to pay its county. “Pitt is unique in its demands for dollars,” he said.

PCMH officials presented a second proposal to county commissioners on December 15, 1997. They offered $20 million up front, and $1.2 million annual payment in lieu of taxes for 25 years. There were also changes in the proposed governance structure for the private, not-for-profit hospital.

The PCMH trustees voted to continue discussions with the Pitt County Board of Commissioners. Of the 18 trustees present, only Ervin Hardee voted against continuing negotiations, because he thought the financial offer was excessive. David S. Brody and Myra Bowen were absent. Dr. Monroe, who had been one of the trustees who participated during bargaining sessions, suggested the board should communicate clearly to the commissioners the financial limit to which the hospital could go.