The Authority’s trustees oversee the three counties’ ownership and 40-year lease of Hutcheson Medical Center to the nonprofit HMC Inc., which operates the hospital.
Trustees and other stakeholders in the hospital’s future have been expressing concern for some time about Hutcheson’s financial picture.
Concerns peaked after the disclosure that the hospital had suffered a $7.3 million loss in the 2009 budget year – a situation that has Hutcheson now seeking partnership with Erlanger Medical Center of Chattanooga.
“We want to be sure everyone is on the same page about where our hospital is financially, and that our questions get answered,” said Hospital Authority chairman Dr. T. Darrell Weldon after the meeting.
The closed executive session was called because Hutcheson president and CEO Charles Stewart and Glenn Thomson, an Atlanta attorney representing HMC Inc., wanted to address what they felt were sensitive issues pertaining to HMC’s investments.
After the closed session it was revealed that HMC Inc. has agreed to provide unaudited financial records to officials of the three counties by Dec. 1.
Among non-board members allowed to stay in the executive session were Catoosa County commission chairman Keith Greene, Walker County sole commissioner Bebe Heiskell, and Walker County attorney and former Hospital Authority trustee Don Oliver.
Greene said he learned quite a bit from the three-hour session but still doesn’t fully understand Hutcheson’s complicated financial situation.
“We need an extensive review to make sure we know the condition of the hospital,” Greene said in a phone call Tuesday. “I’d love to see a partnership with Erlanger but we need Hutcheson regardless, so the trustees need to have a contingency plan that all three counties can agree on. We’re in this together.”
Oliver resigned his trustee position at the Hospital Authority’s regular quarterly meeting Oct. 28, and he was appointed as its legal counsel in open session Monday.
David Ashburn was unanimously approved to replace Oliver as one of four trustees representing Walker County.
Ashburn, whose duties as Walker County coordinator include heading up the emergency medical service and 911 dispatch, has extensive medical experience.
“I’ve been in this field my whole life, from work in emergency rooms and as a paramedic to consulting and EMS education,” he said.
Ashburn said he is looking forward to reviewing Hutcheson’s financial records for a clearer picture of the situation as well as developing a backup plan should the Erlanger deal fall through.
“I hope the due diligence by Erlanger officials results in approval of a partnership, but as trustees we’re here to protect the investments that our citizens have made in this hospital,” he said. “We don’t want a big mess to cleanup.”
Also among the public business conducted Monday was a motion to submit a letter of intent to the Raymond James investment firm in Atlanta for financial advisory services, which the trustees approved.
Advisor Edmund Wall of that firm says he was previously retained by the trustees two weeks ago after being approached earlier for advice by some of them.
Wall said he contacted an official with Regions Bank, whose subsidiary Morgan Keegan provided a $35.5 million bond issue for HMC Inc. in 2008.
Records show that the bond issue involved derivative swaps, a type of alternative investment that can reap larger returns but that also presents more risk than traditional investments.
CEO Stewart says the bond was financed using standard practices.
The economic downturn of the past few years may have taken its toll on Hutcheson’s investments: Wall said according to Regions Bank, $10 million of the bond issue is frozen because HMC Inc. did not meet certain agreements known as bond covenants.
“Between the very low interest the hospital earns on those frozen assets and the interest it must pay out to investors who bought the bonds, a lot of money is being lost,” Wall said.
He said that as a broker-dealer he inquired about purchasing the bonds in order to restructure the debt and stop the downward spiral.
“I don’t like derivatives,” Wall said. “You’re dealing with someone else’s tricks.”
But Wall was in the process of changing employers, and said that even after he presented Regions Bank a letter of determination from the Hutcheson trustees the bank declined further communication.
On Nov. 9 Wall, stating that his then-employer Sterne Agee and Leach Inc. was acting as investment banker for the Hospital Authority, sent Stewart a detailed request for HMC Inc. records pertaining to finances, contracts and hospital personnel.
Stewart responded with a letter stating that “the estimated cost to search, retrieve and supervise access to these records is $1,000” and that estimated copying charges would be an additional $62.50.
Stewart said the fees were assessed as would normally be done for an open records request.
He said they treated it as such because at the time they could not confirm that Wall was officially designated by the trustees.
Wall said he has not spoken with any Erlanger officials, and that he’s not out to impede any proposal by them.
“We all should be able to get together and work this thing out for the good,” Wall said. “I don’t think I’m asking for anything that Erlanger isn’t going to also want to know.”
An independent audit that Stewart initially said he expected to be complete in early November has been postponed until after Erlanger’s 60-day due diligence period, which ends Dec. 30.
“We had talked to the bank about relaxing some of the bond covenants in order to get a clean audit,” Stewart said, “but now that we’re engaged in this process with Erlanger, which could have a result on how the bank views everything, we’re not pushing the issue of completing the audit.”
Attorney Thomson said that Erlanger accountants have all the Hutcheson financial information, just without a letter of audit. “I’m confident they have everything they need for their due diligence.”