Hospital weighs management deal
By Steve Herring
Published in News on September 21, 2015 1:46 PM
Wayne Memorial Hospital, one of only 11 independent hospitals in the state, is not for sale, board Chairman Jim Parker said.
But the not-for-profit parent company, Wayne Health Corp., is exploring the possibility of signing an agreement in which a larger health care system would hire the hospital's next CEO and provide other services as well.
During a Tuesday morning closed session, the corporation board voted to send out a request for proposals for a management services agreement (MSA) for consideration by the board.
"In other words, we have not decided to do a management services agreement," Parker said. "We are going to send the proposal out. It is going to be back by the first of November. But at the same time the board is still considering a CEO and has met with recruiters.
"The hospital is not for sale. We don't see the profit in selling part. We don't see the profit in selling all of it. It is not for sale. We don't think the people of Wayne County want their hospital sold."
A management services agreement can be anything, he said. Normally the agreements are for five or 10 years.
"It can just be hiring the CEO," Parker said. "They cannot hire somebody without us approving them. Typically, to pass these anti-trust rules, an MSA is an agreement where we don't sell anything. The board stays in place. We will still have our board meetings. We still have our committees. We still have our medical staff. We still have our own lawyer."
The company typically hires the CEO and possibly the chief financial officer or chief operating officer.
In turn, the company provides one or more of those positions, he said. It provides recruitment and purchasing.
"What is a MSA not about?" Parker said. "It is not about selling out. It is not about them doing all of our work from out of town and leaving at 5 o'clock and going home with the money. It is not about turning over our authority. We decide when we build a building. We do not turn over our bank account and our finances and our assets to them. It is not about that. The board stays in place. The board controls the assets. It is like hiring a manager."
The CEO would be jointly hired by the hospital and service company, is paid by the service company and reports to the company and the hospital board, Parker said.
"The CEO reports to the board just like he does now," Parker said. "Think of it like this, he works for Duke or Chapel Hill, but he reports to the board. He gives his budget to the board, but he has the resources of Carolina or Duke to draw on.
"Some jobs might be relocated, but it is not wholesale relocation of jobs. We will have something in the MSA that says they cannot fire anybody. We will protect the employees."
Depending on the agreement, the hospital would pay a flat dollar amount, and possibly a percentage of revenue similar to a profit share, Parker said.
Bill Paugh, who for the past 15 years has served as CEO at Wayne Memorial Hospital, announced in April his plans to retire at the end of the calendar year.
An exploratory committee was appointed to find a new CEO.
Parker said he does not know what the board will do.
The exploratory committee was eventually split into two committees to weigh all of the options -- selling out, entering a management services agreement or a light management services agreement where the company just hires the CEO and does nothing else, or a partial sellout similar to Johnston County, Parker said.
"Then there are all kinds of other things," he said. "I think some of these places are talking about working together on doctors, but not the hospital. Like we have Wayne Health Physicians, which is those 30 physicians, doctor's offices. That is in Wayne Health Physicians. Maybe we just need help there. There are all kinds of arrangements."
Board attorney Bob Wilson met with the committee several times.
"This was in late May to late June and in early July the committee said, 'Hey, let's do two primary things. Let's look at a CEO. Can we get a CEO?'" Parker said. "The other things that we did was let's have preliminary talks, like a pre-construction conference, let's talk to some of these places to see if they are interested. That has happened.
"The CEO committee met with two recruiters. I went to those meetings. I think the board, the people on that committee are absolutely convinced that we can get a CEO. The pool is better than it has ever been because of all the consolidations."
The second part is finding out if the hospital can get a management services agreement, he said.
"We have had enough informal meet-and-greet conversations that we are convinced that a management services agreement -- like Rocky Mount has -- would be good for us," Parker said.
"We are not selling out, but there are benefits aligning ourselves with a bigger organization. There also may be negatives. The goal of the board and Bob Wilson would be to enter into a MSA where we get the benefits and protects, as much as possible, anything that people see as negative."
Parker said the board is convinced it can find a CEO, even if it has to be on interim basis as it works toward a final decision.
"Probably in November we would make that decision between negotiating the management services agreement and starting the recruitment process," he said.
However, Paugh is leaving at the end of December.
The board members feel an interim CEO could serve while needed, he said. But they need to be fully informed and not in a rush.
"We don't want to skimp on the process," Parker said. "As board members, we serve for free. We don't get paid. We rely on professional management. And we feel like this process is under control. What are our challenges. Why do anything? What is the problem? Other than Obamacare and the crisis of health care. What are the real challenges?
"Here are the challenges as I see them. Technology is a challenge. Health care technology packages are $5 million, $10 million. It is a crazy number. Then you have to have the people with the skill set to implement this thing."
The larger hospitals have the people with those skill sets in place, Wayne Memorial does not, Parker said.
Another challenge for small hospitals like Wayne Memorial is physician and medical staff recruitment, he said.
"So one thing an MSA could bring us is technology," Parker said. "One thing it could bring us, we think, it could bring us doctors. They could rotate their interns through here, their residents. Rather than us call some recruiter we could call Carolina, or Duke or Vidant. One group told me they have 13 people working on recruiting."