If you build it, will they come?
CCMSD discusses lease for new Hulett Clinic
December 24, 2020
Renting out space in the new Hulett Clinic is not as simple for the Crook County Medical Services District as picking the best rooms and packing up the stethoscopes. The Board of Trustees met on Friday to begin discussions over the lease, but were quickly stymied by a lack of concrete data.
Representing the Crook County Hospital Foundation, which has spearheaded the project and will own the building, Sandi Kellogg asked whether the board is interesting in leasing space in the clinic, which is also expected to house a pharmacy and physical therapy. Hearing confirmation that the board is still interested, she asked how much the district wants to spend on such a lease.
Chairman Mark Erickson, however, explained that the board will need data on the total cost of the project; the amount of that total which has been taken in loans; and upkeep costs.
“I don’t have a definite dollar figure. We haven’t got one yet,” Kellogg responded.
Erickson explained that the board is unable to commit to leasing space when the cost of doing so has not been determined. Once that number is in hand, the district will perform a cost analysis to see whether it makes sense from a business standpoint.
It’s up to the owner of the building to tell the board what the terms will be to lease a certain square footage, Erickson said. “You’ve got to put a mark down,” he said. “It’s just all conjecture right now.”
Trustee Connie Lindmier said she would like to bring a “different perspective” to the conversation: this is more about fairness between the communities than it is money. The district has clinics in Moorcroft and Sundance, she said, and, “This district is obligated to have a clinic in all three locations.”
Erickson pointed out that the district does have a clinic in Hulett. Yes, responded Lindmier, but donors in Hulett are adamant they would like to see a better one.
Noting that the current clinic is smaller and, of course, older than the one under construction, she asked, “Why go to that when you have a new one? I don’t think you guys understand the potential for growth here.”
Lindmier said that the foundation is looking for donors but, right now, is going to need to pay for the project via a loan. The fact that this will need to be paid back must be factored into the lease, she said, and there will also need to be a contribution to the upkeep.
That information, Erickson said, is exactly what the board needs to be asking for at this time.
“You’ve said that money doesn’t matter, but it does,” he said, explaining that the district needs actual dollar figures, or the board cannot make an informed decision.
CEO Micki Lyons stressed there is no reason for the foundation to think the district is not interested in the new clinic. “This thing is happening, we are well aware of that,” she said.
However, she explained that the district still needs to understand the impacts this will have on the whole community because taxpayers subsidize the clinics. “We have to look at the big picture,” she said.
CPA Mark Lyons of Casey Peterson talked the board through the potential impact on finances across the rest of the district. The trouble, he explained, is that the new clinic is a potential loss leader that could impact the whole system negatively.
“What we do in Hulett doesn’t just affect Hulett, it impacts the whole system,” he said.
Lyons explained that the problem has to do with reimbursement from Medicare. He told the board he had run some numbers; for the purpose of the exercise, he figured the lease at $10,000 per month.
“If you spend $10,000, Medicare only reimburses $800 to $900 of that cost,” he said. The only way to change this amount would be for more Medicare patients to come to the clinic.
Looking at 2020 patient volumes and assuming the Medicare percentage of those patients stays the same, “The rest is going to have to come from somewhere else,” he said. The clinic will need to run a lot of volume at that cost.
He also explained that putting costs into other parts of the district will draw overhead costs out of the hospital. This, in turn, will reduce Medicare reimbursements at the hospital because there are fewer costs for the hospital to be reimbursed for.
For every $10,000 spent in Hulett (or donated and depreciated), he said, the hospital and Moorcroft clinic will see an estimated reduction of $640 in reimbursements. That might seem small, he added, but it jumps quickly when you consider that the cost of the new building will run into the millions.
In summary, Mark Lyons told the board that leasing the clinic space will mean more costs for reimbursement going to Hulett and less of those costs coming back from Medicare. Assuming there isn’t a drastic change in the number of patients making use of the clinic, the district could lose significant money.
“There is some truth to ‘if you build it they will come,’ people like a nice new facility,” Mark Lyons said. However, he added that there’s a limit to the amount of business that will be available there.
“Hulett has never been able to stand on its own…most rural clinics can’t,” he said. He wanted the board to be aware that the lease will involve putting more money into something that’s already losing money, which in turn impacts the things that are making money; in many ways, he said, that’s the nature of a government-run hospital.
Discussion was held on ideas to potentially make the most of the clinic and reduce the financial impact, such as bringing in specialists, working to increase the volume of patients using the clinic, purchasing equipment for it such as an x-ray machine, selling the old building and using the proceeds for the lease and even asking the foundation to donate the building to the district.
The board also discussed the particulars of the lease, such as what type of lease would likely be needed and whether the district will bear the full burden of the maintenance costs or share it with other renters.
Finally, the board discussed what will happen once the full cost of construction has been paid. At this time, the potential loan total is large; however, said Lindmier, the foundation is still working on grants and donations.
“The goal is to have it totally paid off when it’s done, so there is no loan,” she said.
Mark Lyons suggested that there may be no need to continue paying the full lease once that cost is paid. Board attorney Kara Ellsbury agreed, but said the lease would still need to cover property tax, maintenance and other foundation expenses.
To make a decision regarding the lease, the board will require complete construction costs, donation and grant totals and information about other tenants, said Micki Lyons. Kellogg agreed she has enough information to begin gathering the necessary data.
The clinic is slated for a June 1 completion with a grand opening potentially on rodeo weekend. Ellsbury asked for firmer numbers by the time the board meets in February to allow time for negotiations; in the meantime, she will research legal aspects of the decision.
“We’ve got a lot of work to do,” said Erickson as the gathering came to an end.