Tulare Regional Medical Center could have up to $22m more in its bank account, after the hospital’s Board of Directors voted to allow its management company to pursue a loan that the company says will be used on a combination of refinancing existing debt and funding for operations.
The resolution was approved on 3-2 lines, with Linda Wilbourn, Parmod Kumar and Richard Torrez voting to approve the resolution, Kevin Northcraft and Michael Jamaica dissenting.
Officials with Healthcare Conglomerate Associates (HCCA) — the company that the board has retained to manage day-to-day operations at the hospital — stated that there were no specifics on the loan’s length or interest rate, as the company would be approaching banks.
“The resolution does not speculate a specific loan,” HCCA CFO Alan Germany said. “So, we’re looking at a variety of different funding sources.”
The one-page resolution, made available to the Voice and edited only to remove notes, states that the loan would be used to “[pay for] operating expenses of the Hospital, repayment of debt, payment of ongoing costs of construction of the Tower project, and for other Hospital purposes.”
The resolution also states that HCCA could seek loans of up to $22m, and Alan Germany, CFO for the company, stated that the hospital could spread that out across multiple loans or multiple banks, depending on which approach would be most advantageous.
“We want [the banks] to compete with one another to get even better rates,” Dr. Benny Benzeevi, CEO/Chairman of HCCA, said.
Germany also stated that the loan could be used to refinance bond debt at more advantageous interest rates, and that the meeting was scheduled as a special board meeting because the Federal Reserve was acting to raise interest rates.
“If we don’t hurry on this, rates will go back up,” Germany said.
The loan was presented as an opportunity to provide the hospital with a “good cash position,” and a cushion that would allow the hospital to participate more often in “intergovernmental transfers,” transfers in which the hospital sends money to the state and can make significant returns.
Final Approval Shot Down
Because of the lack of detail, board member Kevin Northcraft proposed that the hospital allow HCCA to seek out lenders, but come back to the board for approval of any loan.
Benzeevi stated that to pursue such a strategy would violate the board’s contract with the company, stating that the board would move from governance into operations — the area delegated to the company by the contract.
He also stated that requiring the company to come back for approval would defeat the purpose of the resolution, creating a delay and potentially preventing the company from getting the best possible deal.
“We don’t know enough about the loan to say whether it’s good for us or not,” Northcraft said. “Our operating partner could be gone in two months. This loan could be for ten, twenty, or thirty years.”
“A comment like that could be a potential breach [of the hospital’s contract,]” Benzeevi retorted .
After some discussion, Bruce Greene, an attorney that represents both the district and HCCA, was asked via telephone whether the idea would be a violation of the contract.
“I’m not going to violate somebody’s contract,” Wilbourn said.
Greene seemed undisturbed by the question.
“All right, well, he made an amendment — so vote on the amendment,” Greene said.
Benzeevi also revealed at the meeting that the company has extended interest-free loans to the hospital. The agreement between the hospital and the company allows HCCA to do so unilaterally, but also states that it may extend interest-bearing loans as well.
“If the district is unable to fund things, we have the right but not the obligation to provide the funding, and HCCA has done that,” Benzeevi said.
Northcraft asked Benzeevi whether the loan would potentially change anything about the hospital’s contract with HCCA, possibly referring to provisions that would allow the company to enter into an Interim Joint Operating Agreement or Joint Operating Agreement with the hospital district.
“We’re moving along with the contract as planned, as agreed-to by the board, and we’re staying laser focused on that,” Benzeevi said.
Both agreements were already signed and agreed to by prior boards.
The hospital’s contract would allow the district and company to enter into the Joint Operating Agreement after the bonds were “repaid or otherwise defeased.”
The company would also be able to purchase or lease the hospital, subject to voter approval, under the Option Agreement that the prior board signed with the company.
The Joint Operating Agreement strengthens the partnership between the district and HCCA, and switches from a monthly management fee model to a profit-sharing model in which the “annual net operating income from the Hospital and other Clinics” would be split between the district and HCCA; the district would receive 5% of that income, while the company would receive 95%.
Among other items, the company would also set the “strategic direction and provide strategic and operating planning for the [hospital’s] Operations, creating a separate community board that would provide advice and input on the hospital’s operations.
Officials did not make clear, and board members did not ask, whether the refinancing of the bonds mentioned would shift the hospital into the Joint Operating Agreement.
During the meeting’s public comment section, community members showed up in force to provide their view on the loan. Because the meeting was set up as a one-item, special board meeting, comments were limited to discussing the
Teresa Berbereia, a nurse who works at the hospital, spoke in favor of the loan.
“If we’re talking about this agenda item, to me, and to the other employees — this is action coming forward to do something positive for our hospital,” she said. “This could be a positive step in the direction to get our hospital going.”
Kimberly Hughes, another nurse at the hospital, also spoke in favor of the loan.
“This has been in the works for months and months and months and years,” Hughes said. “The loan is needed to finish this hospital, to give this community the hospital they deserve. And we have to come together — we have to do this.”
Deanne Martin-Soares, a prominent critic of the hospital’s management strategy and former board member, asked if the board even knew what the final uses of the money would be.
“This is an unfortunate thing, this is something that you should not be putting forward, and you don’t even have — I saw them hand the resolution to you just ten minutes before this meeting started,” Martin-Soares said. “How do you know what’s going to be done with this money?”
Jose Sigala, a Tulare City Council member, spoke against the loan and the short notice of the meeting. Martin-Soares had requested that Tulare Mayor Carlton Jones appear to speak, but Jones was not in attendance at the meeting.
“You guys are asking for a big loan, which is a lot of money, without reading the details,” Sigala said. “Good government requires us not to have 24 hour [notice] for a $22m loan.”
Sigala also announced the same day that he had endorsed the recall of Dr. Parmod Kumar, and replacement candidate Senovia Gutierrez.
Alberto Aguilar, another critic of the hospital’s management strategy and a former Bond Oversight Committee member, spoke to the board to outline his displeasure as well.
“Let’s talk about the $800,000 loan, that was supposedly a line of credit,” Alberto Aguilar, of Tulare, said.
The board previously voted to approve an $800,000 line of credit in September of 2016, in what hospital officials and board members represented at the time as a way to achieve a bulk discount from a vendor.
It was later revealed that the line of credit went to repay past due invoices from November of 2015 to May of 2016.
“You’re supposed to be honest when you’re dealing with the taxpayers — these are the people that support the hospital with our tax dollars,” Aguilar said. “We should be entitled to know what it is that you all are voting on, so that we can go ahead and give you our input.”
“When you ignore the wishes of the people and you go ahead and you do whatever the puppet master tells you to do, that’s ridiculous,” Aguilar said.