As their mission changes, will privatization be the future for some publicly owned hospitals?

Editor’s note: First published in December, 2013, the following news analysis of the financial and political issues facing the Indian River Hospital District and Indian River Medical Center speaks to issues still being discussed and debated today. Focusing on governance issues, including the Medical Center’s aversion to transparency, Press Journal columnist Larry Reisman recently pointed out that these issues have persisted since the early 1980s. Lost is the debate about the extent to which the publicly owned hospital should be governed and operated in the sunshine is perhaps a larger issue, at least one more relevant to the average taxpayer. Ownership of the hospital is costing the taxpayers of Vero Beach more than $12 million a year. There are alternatives. The voters of Manatee County, for example, sold their hospital, using the proceeds to establish a trust fund, the earnings from which now fund care for indigent patients in that county. 

NEWS ANALYSIS

MARK SCHUMANN

indianrivermedicalcenterAs the health care market becomes more competitive and reimbursement rates decline, publicly owned hospitals, such as Indian River Medical Center, and hospital taxing districts, such as the Indian River Hospital District, are expanding beyond the focus on their original mission and mandate.  Proponents of diversification say these forays into what has traditionally been the domain of the private sector are necessary in order for public hospitals to remain profitable.  As the private sector pushes back, public hospitals are facing increasing pressure, including from the Florida Legislature, to consider privatization.

The IRHD  is just one of 16 independent districts in Florida that own and partially support a public hospital through ad valorem taxes.  Formed in 1959 at a time of limited access to hospitals, the Hospital District’s initial mission was to fund the development of Indian River Memorial Hospital, now known as Indian River Medical Center.

Today, the Hospital District no longer operates and maintains the hospital, having delegated that responsibility to a not-for-profit corporation. Rather than managing the county’s publicly owned hospital, the Hospital District focuses on providing for indigent care through reimbursements to IRMC and through its support of a select group of health care providers, including the Visiting Nurse Association, the Gifford Health Clinic, Partners in Women’s Health Services, the Indian River County Health Department and Dental Clinic, and the Treasure Coast Community Health Clinics.  Of the $12.5 million in tax revenue raised by the Hospital District, $8.4 million, or 67 percent, goes to reimburse IRMC for indigent care.

There are many ways Florida counties fund indigent care, and a taxing district is just one of them.  Manatee County sold its public hospital and created a trust fund, and now uses interest earnings from the fund to pay for indigent care costs.  Rather than supporting a publicly owned hospital and a select few health care providers, the Health Care District of Palm Beach County uses ad valorem revenues to reimburse any and all local hospitals for indigent care.  Palm Beach County’s model is similar to an insurance plan.

Critics of the state’s independent hospital taxing districts that primarily support publicly owned hospitals, such as IRMC, argue that indigent care tax dollars should “follow the patient” instead of going to a designated select few providers.  By executive order, Gov. Rick Scott in 2011 initiated a comprehensive a review of the state’s hospital districts.

Gov. Scott’s order was at least partly motivated by a belief that many of the state’s hospital taxing districts have strayed from their initial purpose of providing indigent care and ensuring access to hospital facilities. Many in the local medical community would agree that IRMC, a publicly owned hospital operating tax-free, is now offering far more than basic hospital care, and has become a major competitive force in the local health care market.

A report of the Florida House of Representatives stated, “Today many of the state’s publicly owned facilities co-exist with other private not-for-profit or for-profit hospital facilities.  The question now is whether a governmental entity complete with the advantages of ad valorem taxing power, corporate flexibility, and antitrust protection should continue to participate in a competitive marketplace as a health care provider.”

The commission appointed by Gov. Scott recommended establishing a transparent and competitive process for reviewing options for privatization of publicly owned hospitals.  In 2012, Gov. Scott signed into law Florida House Bill 711, requiring Florida’s public hospitals to evaluate the possible benefits of selling or leasing at fair market value.   (IRMC’s is leased for just $1 a year.)  To assist with indigent care, HB 711 mandates that half the proceeds from any sale of a hospital, such as IRMC, be placed in a trust fund, such as was done in Manatee County.

With IRMC operating at multi-million dollar losses, while at the same time expanding its services, including entering into a joint venture to operate a yet-to-be constructed 140,000-square-foot Health and Wellness Center and a $24 million cancer treatment center, the Hospital District will almost surely be forced to consider the potential benefits of privatization as the 2025 expiration date on its current lease with IRMC approaches.

The following story explores the history of the county’s publicly owned hospital and its ever-changing place in the larger local health care market.

History of Indian River Medical Center

MILT THOMAS

Just as hospital technology has evolved light years since the early 1930s, so has hospital care since Garnett Radin came to Vero Beach in 1931. Radin was a registered nurse from Nebraska who came here in the depths of the Great Depression, only to find the nearest hospital was 70 miles away.

What was a professional caregiver to do other than open her own hospital? A building on Old Dixie Highway sat vacant, originally built as a hotel but never opened, seemed well suited, so she paid $22,000 of her own money and opened the Indian River Hospital on May 12, 1932. It had 21 beds and she charged $4.50 for a semi-private room and $5.00 for a private room.

It is difficult to believe that Radin owned and/or operated a succession of larger and more complex hospitals all the way up until 1978, when Indian River Memorial Hospital became publicaly owned. Many wonder today if that should have happened.

The first years were tough for Radin and in 1940, a non-profit corporation – Indian River Hospital Association, Inc. – was formed to solicit contributions. World War II came soon after and Radin joined the Navy Nurse Corps, leaving the association to operate the hospital in her absence. When she returned in 1946, the association had purchased the hospital from her but asked her to run it.

The first expansion occurred in 1948, when it relocated to the abandoned Naval Air Station dispensary. That was the same year the Brooklyn Dodgers established their spring training home at the abandoned naval barracks. She began planning a new hospital and chose land near the airport using funding from private contributions, county funds, a federal grant and a $51,000 mortgage. The 35-bed Indian River Memorial Hospital opened in March 1952 with Radin as administrator. It earned recognition as the nation’s smallest accredited hospital. It would become the county administration building and today is an empty lot.

After a year administering the new hospital, Radin decided to go back to college and returned to Nebraska. But she would be back many years later to again have an impact.

Meanwhile, in 1959, Florida Governor Leroy Collins approved creation of a public hospital district. He appointed the first trustees, including Dan K. Richardson and Earl Thatcher, who was executive director of the Vero Beach Chamber of Commerce at the time. In 1960 the Indian River County Hospital District took over control of hospital management directed by the first elected Board of Trustees: W.D. Allison, Marian L. Block, Col. William N. Carey, J.R. Jamison, Mrs. Andrew Kidd, M.L. Medlin, and Roswell C. Mower.

In 1966, Dr. Hugh McCrystal and wife Ann Marie, came to Vero Beach and they would play a major role in the hospital and creation of the VNA/Hospice House.

Then, in 1971, the Board of Trustees announced their decision to build a new hospital. Dr. McCrystal, as chief of staff, became very involved with the process of designing the hospital and choosing a site along with Dale Sorensen, Bob Jackson and Reese Brackens. McCrystal was also involved in raising funds for the new hospital through a bond issue, that passed but costs had exceeded expectations, so a second bond issue was passed.

Garnett Radin returned after a 24-year absence, now retired from the Shriner’s Hospitals, and went to work as planning coordinator, preparing for transition to the new facility.

The new Indian River Memorial Hospital opened on March 29, 1978. Garnett Radin was the first woman appointed to the hospital board.

As operating hospitals became more complex, the Indian River Hospital District Board of Trustees voted in 1984 to establish a community not-for-profit corporation, Indian River Memorial Hospital, Inc., and lease the hospital to that corporation to control day-to-day operations. The transfer of control occurred on May 1, 1985, with the first hospital board chairman being local citrus grower, Dan Richardson, who remembered the birth of his first child in the original Garnett Radin hospital.

During the first year of his term, Richardson established the IRMH Foundation with the goal of raising money to build a $3.1 million cancer center.

Garnett Radin continued to serve on the hospital board until the end of 1986, and passed away a few months later at the age of 84. That same year, the Indian River Regional Cancer Center opened. In 2006, the hospital changed its name to Indian River Medical Center. That same year, the Heart Center opened, affiliate with Duke University Health System. Jeffrey L. Susi has been CEO of the hospital for more than a decade.

IRMC is struggling to remain profitable. Layoffs, restructuring, the addition of a heart center are all actions meant to reduce or eliminate the red ink. In November a controversy erupted over the sudden forced resignations of two top IRMC administrators, adding to the hospital’s woes. CFO Dan Janicak and Indian River Medical Associates executive director Yoshi Barreirinhas, were both well respected and considered by many to possess the ability to turn IRMC profitable.

This long term series of losses and events, coupled with the apparent success of privately-run Sebastian River Medical Center, leads some to wonder if it is time to transfer responsibility for IRMC to private hands.

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