Watchdog

Despite telling state they didn’t need the money, Pierce health care giants seek public funds for new psychiatric hospital

MultiCare and CHI Franciscan, the South Sound’s two regional health care giants, told state regulators in 2014 that they had the money and the intention to pay to build a badly needed psychiatric hospital in Tacoma.

Since then, the health systems have embarked on a campaign to raise as much as half of the facility’s $40.6 million projected construction costs from outside sources.

That’s included seeking money from local governments, some of which are struggling to address budget deficits and pay for other priorities.

Officials for MultiCare and Franciscan, which will own and operate the hospital, told The News Tribune recently that they decided to seek outside help — they’re also asking for state and federal grants and private donations — for multiple reasons.

They include the fact that inflation is driving up the costs of building the 120-bed facility and that the hospital will lose money during the first few years of its operation, MultiCare CEO Bill Robertson told The News Tribune last week.

The MultiCare-Franciscan partnership told the state in 2014 it would cost $40.6 million to build the hospital, which likely would start turning a profit by the second year. Profitability is now not expected until the third year.

MultiCare and Franciscan officials say there’s another, more compelling reason that they’re seeking local government aid: Solving the region’s mental health crisis, which has been allowed to fester for years, should be a responsibility shared across the region.

“We’re blessed that we have two nonprofit partners who are willing to work together to build this hospital,” said Tim Thompson, a local management consultant hired to help MultiCare and Franciscan pitch the need for outside funds. “We’re asking the local governments to play a small part in meeting that burden.”

That request for help has become grist for a competing for-profit health care company that is appealing the awarding of the hospital to MultiCare and Franciscan.

It also comes at a time when some local governments face shortfalls or are struggling to find ways to pay for other needed services, including increasing their law enforcement ranks.

Pierce County’s general fund “is stressed,” said Council Chairman Doug Richardson, R-Lakewood, whose government has been asked to contribute $1.75 million to the hospital.

In Tacoma, the city is facing a $6.7 million budget deficit over the next two years and has been asked to spend more for law enforcement.

In a joint statement sent to The News Tribune on June 16, MultiCare and Franciscan said they still are committed to building the hospital themselves, but welcome investments from local governments and private entities as they work to address “an overwhelming need in our community to add psychiatric services.”

The health systems and their supporters hope to raise as much as $5 million from local governments.

So far, the partnership and a group called the South Sound Behavioral Health Coalition have secured pledges from the cities of Auburn and Tacoma of $400,000 and $1.5 million, respectively, although neither government has turned over the money.

The coalition posted on its Facebook page that it hopes to raise $20 million to help the two health systems construct the hospital. The state already has agreed to give the hospital a $5 million grant.

Thompson, who in February registered with the state as a MultiCare lobbyist, told the Tacoma City Council last month the group intends to ask the state for another $2 million to $5 million in 2017 and to seek $5 million to $7 million from the federal government.

The co-chairmen of the South Sound Behavioral Health Coalition told The News Tribune last week they were asked by Robertson last year to join the group and help raise money for the hospital.

One of them, Bill Weyerhaeuser, said that “the decision to pursue funding had already been made before we were brought in.”

Weyerhaeuser added that he supports the request for government money.

“The benefits will be shared by a number of municipalities in Pierce County and South King County,” he said. “Asking them to help is not unreasonable.”

Representatives of the MultiCare-Franciscan partnership and the coalition have met with representatives from the city of Puyallup and the Pierce County Council and have further meetings scheduled with other cities in Pierce and King counties.

NEED FOR NEW HOSPITAL

People across Pierce County say the hospital is needed to address the county’s appalling lack of beds for people undergoing mental health breakdowns.

Richardson told The News Tribune he is predisposed to support the request for money to help pay for the hospital because the need for psychiatric beds is so great.

“There’s no place to take folks having a mental breakdown in the middle of the night other than to the ER or to jail,” he said.

Pierce County has the lowest psychiatric bed capacity in Washington, with about 2.8 beds per 100,000 population. The Evergreen State ranks near the bottom nationally, with an average 8.3 beds per 100,000. The national average is 26.1 beds per 100,000.

Many local leaders have described the lack of mental health services in Pierce County, specifically beds in psychiatric hospitals, as a crisis.

Members of the South Sound Behavioral Health Coalition frequently cite that crisis when seeking public money.

“In response to this crisis, this coalition gathered to seek a public-private partnership to raise the necessary funding for the hospital,” Weyerhaeuser told Tacoma City Council members at a study session last month. “We’re working hard to find the funding.”

HEALTH SYSTEMS GUARANTEED THEY HAD NEEDED MONEY

Eighteen months ago, MultiCare and Franciscan guaranteed the state they had the money to build the hospital themselves.

Their 2013 financial statements, which they shared with the state as part of the application process, showed nearly $22 billion in assets and fund balances between them.

The two health systems provided letters to the state on Dec. 10, 2014, expressing their financial commitment and ability to build the psychiatric hospital.

“MultiCare is pleased to commit from its corporate reserves its 50 percent share of the funding for the estimated capital expenditures required for this health care facility,” Anna Loomis, MultiCare’s chief financial officer, wrote to the Department of Health. “MultiCare has sufficient cash reserves to fund its share of the intended project.”

Mike Fitzgerald, CFO for Franciscan, sent a similar letter to the Department of Health.

“Franciscan Health System is pleased to commit from its corporate reserves its 50 percent share of the funding for the estimated capital expenditures required for this health care facility,” Fitzgerald wrote. “FHS has sufficient cash reserves to fund its share of the intended project.”

The partnership estimated in its application to the state that the hospital would begin turning a profit in its second year of operation and could bring in more than $3 million in revenue over expenses by the third year.

The Health Department declined to answer questions from The News Tribune about whether the change in the MultiCare-Franciscan partnership’s financing plan would affect the department’s approval of the partnership’s certificate of need for the hospital.

The certificate allows a health system or business to build a hospital in Washington. The state approved the certificate Jan. 15.

Health Department spokesman David Johnson said a for-profit company competing to build the hospital, Michigan-based Signature Healthcare Services, has filed an appeal of the state’s action.

“It is in the initial stages, so we want to see the process through before speaking on any particulars,” Johnson said last month.

An appeal hearing before a Health Department law judge was held this week in Olympia. A ruling is expected in September.

Among other arguments, attorneys for Signature contended in appeal pleadings that the change in the MultiCare-Franciscan financing plan, specifically seeking public funding for the hospital, should disqualify the partnership’s certificate of need.

Attorney Hana Attar said MultiCare-Franciscan officials were “disingenuous” when they told the state they intended to pay for the hospital with their own money.

“They represented they weren’t getting the capital from anywhere else,” Attar said. “We have a private sector solution to a public problem, and we can do it without public funding.”

COMPETITOR CRITICIZED

MultiCare and Franciscan, two nonprofits that usually compete for patients, joined forces in 2014 to apply to the state Health Department for permission to build the hospital.

Signature also was seeking permission to build a psychiatric hospital in Pierce County. It proposed a 174-bed, $42 million facility.

Signature told the state it had about $14.8 million available to put toward construction costs and would fund the rest from bank loans at 5 percent interest for 25 years, according to Health Department records.

In a Feb. 23, 2015, letter to the Health Department further elaborating on the MultiCare-Franciscan partnership’s plans, MultiCare CEO Robertson took a shot at Signature’s financing scheme.

“The Alliance application states the construction of the new psychiatric hospital will be funded by equal cash reserves from both CHI-FH and MHS,” Robertson wrote. “Both CHI-FH and MHS have provided letters of financial commitment indicating their intent to fund the project.

“The Signature application states its project will be funded through a wholly-owned real estate LLC (35 percent) and bank financing (65 percent). There is no further detail provided.

“Further, while Signature states it has a letter of financial commitment, in fact, Attachment 10 of the Signature applications just restates how Signature plans to fund the project; there is no letter of financial commitment from a lending institution, as required.”

State regulators ultimately signed off on both applicants’ financial plans.

The Health Department awarded the hospital to the MultiCare-Franciscan alliance in January. The deciding factor, according to the state, was the partnership’s better connections within the health care community in Pierce County.

COALITION FORMED

The health systems said in their statement to The News Tribune that the South Sound Behavioral Health Coalition formed not long after the certificate of need was issued.

“Earlier this year, a group of community citizens chaired by prominent local business leaders created the South Sound Behavioral Health Coalition to raise support for the new hospital,” according to the statement.

“That group, along with representatives from both health systems, has been meeting with public and private organizations to discuss ways to support the expansion of psychiatric services in Pierce County.”

The coalition, which has about 60 members, actually formed at least three months before the state approved the certificate of need, according to a Facebook post by Pierce County Councilman Rick Talbert, who wrote he attended the group’s inaugural meeting Oct. 13.

CHI Franciscan spokesman Scott Thompson issued a news release Nov. 18 announcing the group’s formation.

The release reported that Brad Cheney and Weyerhaeuser were co-chairmen of the coalition, and that U.S. Rep. Derek Kilmer, D-Gig Harbor, was lending his support.

“This diverse group of business, labor, health care and community leaders are urging federal, state, local governments and private entities to help with the funding of the MultiCare Health System and CHI Franciscan Health partnership to build a 120-bed psychiatric hospital in Tacoma, Washington, to address the enormous behavioral health services gap in Pierce and South King counties,” the release states.

In an interview last week, Weyerhaeuser and Cheney said they were approached by MultiCare CEO Robertson last year to help raise funds for the hospital.

Weyerhaeuser, a retired psychologist, said he was so struck by the need for the facility that he agreed to help, though he’s been trying to cut back on his volunteer activities.

“The need is evident,” he said. “Getting involved was a no-brainer.”

Cheney agreed.

“It was something I couldn’t say no to,” he said.

Weyerhaeuser said the coalition was charged with building a public-private partnership to raise money for the hospital. MultiCare and Franciscan would act as a financial “backstop,” he said.

Members of the coalition include four Tacoma City Council members, three Pierce County Council members, other elected officials, eight MultiCare employees (including Robertson) and four Franciscan employees (including CEO Ketul Patel), according to a membership list recently provided to the Lakewood City Council.

In December, the coalition told The News Tribune editorial board it would be seeking state aid and private donations to help the MultiCare-Franciscan partnership pay construction costs.

More recently, members of the group have been making the rounds of local governments asking for cash.

“We understand the municipalities are tapped,” Cheney said. But the need is great, and local governments would benefit directly from construction of the hospital by diverting mentally ill people from jails and emergency rooms, he said.

Robertson told The News Tribune last week that the partnership between his health system and Franciscan still is committed to spending $40.6 million on the project but that “the economics have changed” since the partnership applied for its certificate of need in December 2014.

Construction prices have increased, Robertson said, and operating deficits forecast for the hospital’s first few years have become clearer. Robertson said the partnership now expects to lose $8 million to $10 million over the first three years before revenues exceed expenditures.

Money from local governments and other sources would help ease the burden on the MultiCare-Franciscan partnership, he said.

“It’s a great investment as far as community health,” Robertson said.

Franciscan CEO Ketul Patel has been out of the country and unavailable for comment.

Ian Worden is Franciscan’s chief operating officer. Worden told The News Tribune last week that Franciscan is open to government help.

“We will take their assistance because to us it’s a sign to us that they think this is a big deal to them, too,” Worden said. “The organic growth of support for this is really pretty special.”

Among those the coalition has met with are the Tacoma City Council, Pierce County Council, representatives of the city of Puyallup, the Lakewood City Council and representatives of the city of Auburn.

Puyallup Mayor John Hopkins said coalition representatives recently met with him, the city manager and the deputy city manager and asked for $250,000.

Coalition members made a persuasive argument about the need for the hospital, Hopkins said.

“It’s obvious there is an urgent need for this,” he said.

PARTNERSHIP’S INITIAL ASSURANCES NOT ALWAYS KNOWN

The News Tribune asked Hopkins if coalition members had made him aware that the MultiCare-Franciscan partnership had assured the state it intended to pay for the hospital from its own cash reserves.

“They didn’t tell us that bit,” the mayor said.

Hopkins said he supports building the hospital. Puyallup is struggling with a homelessness crisis that is almost certainly tied to a lack of psychiatric bed space, he said.

“We’ve got to support it,” Hopkins said. “Whether the council decides to cough up money for it is another decision.”

County Council Chairman Richardson, who is a member of the coalition, said he’s heard from elected officials in other jurisdictions about whether public funding is necessary.

“That is a question that has come up,” he said.

Richardson also learned from The News Tribune that the MultiCare-Franciscan partnership had assured the state that it intended to pay for the hospital out of the health systems’ reserve funds.

“I wasn’t aware that they had said they could do it all on their own,” he said recently.

Auburn Mayor Nancy Backus is a strong supporter of the hospital and has accompanied coalition members to meetings to lobby for public funding.

She addressed the Tacoma City Council on May 24.

“It is incumbent upon each one of us to take the responsibility as elected officials and leaders in our cities to make sure that we can find a way to move forward with this hospital,” Backus told council members.

“We have had some ask: ‘I don’t know how we can afford to do this.’ Let me leave you with the question: How can we afford not to do this for the people we represent?”

Neither Backus nor any other member of the coalition brought up the fact that the MultiCare-Franciscan partnership had assured the state it could pay for the hospital itself.

The mayor told The News Tribune in a subsequent interview that the hospital is desperately needed and cited a personal example: Her teenage daughter’s best friend has tried to take her own life numerous times.

“We have to commit,” Backus said. “It’s the right thing to do.”

The city of Auburn has identified $400,000 it received in federal grant money that it believes would be best spent on the hospital, Backus said. The formal appropriation has yet to be made.

Backus said she got involved in the hospital effort in 2015 and that it always was her understanding that public and private money would need to be raised to help pay for the facility.

“We always knew we’d have to raise funds,” she said.

BAD TIMING

MultiCare, Franciscan and the coalition are asking for public money at a time when many local governments are struggling to make ends meet.

The city of University Place, which is to meet with coalition members in August, faces a $1 million budget deficit. Tacoma and Pierce County have been asked to beef up law enforcement, a big-ticket item that neither has identified a way to pay for.

While the Tacoma City Council agreed in principle earlier this month to donate $1.5 million to the hospital, city leaders still must find the money.

Using money from the city’s mental health reserve account has been discussed. The account is funded by a 0.01 percent mental health tax, and money from it normally goes to nonprofits that provide mental health programs. City officials budgeted $11.64 million in operating expenses from the fund for the 2015-16 biennium, city spokeswoman Maria Lee said. They still are working on the 2016-17 budget.

While most council members enthusiastically supported the proposed expenditure, Councilman Joe Lonergan was more circumspect.

He agreed the psychiatric hospital is a worthy project but said there is only so much public money to go around.

“We owe it to the citizens of Tacoma to do something, and we also owe it to the citizens of Tacoma to have a very thoughtful and engaged discussion as we go through our budget process about how we get to this point,” he said at the June 14 council meeting, where, again, the fact that the MultiCare-Franciscan partnership could pay for the hospital itself did not come up.

HEALTH SYSTEMS: PRACTICE COMMON

In its statement to The News Tribune, the MultiCare-Franciscan partnership said, “Funding the construction of a hospital project that receives certificate of need approval with a combination of hospital funds and community funds is common.”

“The major construction projects in recent memory, including the Tacoma General and Mary Bridge Emergency Departments and St. Anthony Hospital, were handled in a similar way,” the health systems said.

The MultiCare-Franciscan partnership later clarified that the Tacoma General and Mary Bridge projects received federal funding but not money from local governments, and St. Anthony received a state grant and community donations.

The statement continued:

“The Department of Health is aware of other sources of funding that will help build this project. The Washington Department of Commerce, a fellow state agency, designated $5 million in a capital grant to help build this hospital. Other local governments have also committed to assisting with this project.

“Such contributions will undoubtedly enhance these badly needed services and programs, but many of these potential contributions are still only under consideration at this time.

“We plan to ensure this hospital is built because of the significant need in our community.”

Adam Lynn: 253-597-8644, @TNTAdam

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