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Paynesville Press - October 24, 2001

Hospital board approves merger

By Michael Jacobson

At a special meeting on Tuesday, Oct. 16, the Paynesville Area Hospital District Board of Directors approved the possible merger of two Good Samaritan Society nursing homes with the Paynesville Area Health Care System (PAHCS). The board's approval paves the way for a formal purchase agreement to be offered to the Good Samaritan Society.

The Good Samaritan Society has already approved a letter of intent to sell the Good Samaritan Care Center in Paynesville and the Hilltop Good Samaritan Center in Watkins to PAHCS, but the agreement has not been finalized.

The price for the purchase of the two nursing homes would be $1.8 million, which is the highest price that cash flows for PAHCS. Another half million dollars needs to be budgeted by PAHCS for possible closure and conversion costs, according to a financial analysis of the merger by a long-term care consultant.

The question that needs answering - said board member Doug Ruhland, who represents the city of Eden Valley on the hospital board - is why PAHCS should purchase these nursing homes when they are losing money. Despite the financial risk, he thought the move made sense.

Having empty beds at all the nursing home facilities makes the industry unprofitable for everyone, he explained. Empty beds are "a chronic statewide problem, at least for the time being," he said. "It seems that if we consolidate we could benefit from an economy of scale."

"I think it has to be done for the system," agreed board member Vicki Ruegemer, who represents Richmond - which has its own nursing home. "Something has to be done, or someone is going to die."

While long-term care has not been very profitable for PAHCS lately, either, residents are potential clients for profitable aspects of the system: its clinics, the acute-care hospital, outreach specialists, and the therapy, radiology, and laboratory departments. "Whenever we can add population base to our system - whether it's clinics, nursing homes, dementia units, assisted living - you're just perpetuating a good system and insuring its viability for the next 10 to 20 years," explained Willie LaCroix, the CEO of the Paynesville Area Health Care System.

Long-term care is also an essential part of PAHCS's mission.

"If you're expecting to buy these and get rich, you shouldn't do it," Tom Kooiman, the current administrator of the Good Samaritan Care Center in Paynesville and Hilltop Good Samaritan Center in Watkins told the hospital board before they voted to proceed. "Unless some things are transformed, this deal does not make sense," he added.

Hilltop Good Samaritan Center lost around $100,000 last year, and the Good Samaritan Care Center lost about $80,000 last year, Kooiman told the board. "You've got to buy the homes with the intent to transform them," he continued. "Don't make the mistake of buying them and letting them sit. They're stagnant already."

To decide what needs to be done, PAHCS will undertake a comprehensive study of its long-term care options. If the merger is completed, PAHCS would operate the Koronis Manor (a 64-bed nursing home), 700 Stearns Place (a 30-unit congregate housing complex), the Good Samaritan Care Center (a 46-bed boarding care facility), and the Hilltop Good Samaritan Center (a 65-bed skilled nursing home).

In the meantime, future operating losses for the two Good Samaritan facilities figure to be less than the recent losses. Both got rate increases during the last legislative session because their rates had been so low. PAHCS has also negotiated a reduction of the user fee that Hilltop pays to the city of Watkins in lieu of property tax (from $68,000 per year to $20,000 per year, the rough equivalent of the city taxes).

Both homes will also not have to pay a four percent management fee to the Good Samaritan Society anymore ($135,000 for both facilities). But these facilities will also have higher wages because PAHCS's pay scale is better than the Good Samaritan Society's pay scale, said Kooiman. They also will have to hire some consulting services that the Good Samaritan Society used to provide.

PAHCS has applied for a $30,000 state grant to study the merger and look at the options and needs for long-term care in the region. The state provided the money in the last legislative session, recognizing the need for changes in the long-term care industry.

PAHCS should learn if it gets the grant money by the end of November. In the meantime, they will be looking at specialized consulting firms to conduct the study.

Even if PAHCS doesn't receive the grant (and administrators were optimistic that it would), the study is still essential. "I think you'll still have to do it," LaCroix told the board. "I think you have to spend the $25,000-$30,000 to do it."

The board was warned about even speculating about what the study would recommend, but the administrators believe it will indicate a market for assisted living and a special care unit, possibly for people suffering from dementia.

The study could take several months to complete, and implementing any changes would happen after that, meaning the facilities would run as is for some time, maybe a year. If the merger happens, the projected takeover date would be Feb. 1, 2002.

LaCroix stressed that the study would also look at changes to PAHCS's existing long-term care facilities: the Koronis Manor and 700 Stearns Place. For instance, if assisted living is truly needed, it may be easiest to transform 700 Stearns Place. "That might be even more reasonable to do that," said LaCroix, "but we need to find that out." Hence, the study.

"Some people's jobs may change over the next few years, but there's a place for everyone if they're patient with us," he added.

PAHCS has already identified the need to upgrade the facilities at the Koronis Manor. A significant part of the current $7.4 million building project at PAHCS's main campus is dedicated toward improvements at the Manor. The current project will add a dining room, update the bathrooms, and add another tub room, but more is needed, LaCroix feels. The project will also put the infrastructure in place to accommodate more improvements in the future.

More and more, people are going to choose long-term care providers like they shop for hotels now, judging facilities on price, quality, and the amenities they offer, said LaCroix. As Baby Boomers age, they will expect private rooms and private bathrooms in nursing homes.

Alternatives in long-term care - independent living facilities, assisted living, and in-home services - have especially hurt the Good Samaritan Care Center, said Kooiman. As a boarding care facility, it could only take the healthiest nursing home patients, exactly the ones that these alternatives are keeping out of nursing homes.

The Good Sam, said Kooiman, has lost its niche. "I really think boarding care facilities are a thing of the past. I think assisted living is going to replace it," he said. "That doesn't mean we're going to close that facility, but it does need to transform."

Assisted living requires 24-hour nurse coverage, three meals per day, and options for other services such as bathing and medicine, said Kooiman. These requirements are less restrictive, and less costly, than those for nursing homes.

According to a rough study, the Good Samaritan Care Center would have made $40,000 as an assisted living facility last year instead of losing $80,000 as a nursing home, said Kooiman.

Ultimately, what PAHCS can do with long-term care is offer a wider variety of services to the area. Having all the services in one organization should allow for better coordination of services, agreed LaCroix and Kooiman.

The opposite happens now, a phenomena they called aging in place. Because empty beds are costly, competing facilities try to keep residents as long as possible, even when a more appropriate level of care is offered elsewhere.

So the Good Samaritan Care Center holds on to some patients after their needs increase and they would be better served at a more skilled facility, like the Koronis Manor, said Kooiman.

PAHCS is pretty reluctant to move patients that are healthy enough to other facilities because they need residents, countered LaCroix, who counted eight such residents in the Manor last week.

If the merger takes place, the area will lose a competitor in the long-term care market, but could see an increase in long-term care options. A joint operation would be better geared toward getting the right type of care for every patient, they said.

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