Health care district and Dignity Health near agreement

The Mark Twain Health Care District will hold a special meeting on Friday to continue negotiations concerning a possible renewal of the Mark Twain Medical Center lease from the district and continuing administration by Dignity Health. Most of that meeting will be held in a closed session.

The next step in the negotiation remains contingent upon the completion of a fair market valuation of the hospital property and operation, which has been conducted by Value Management Group, a health care-specific valuation consulting firm with offices in Dallas, Denver and Nashville.

According to Dr. Randy Smart, executive director of the district, the valuation is not quite complete.

“I hope most of it will be done by Friday,” Smart said earlier this week. “In the closed session, we will talk about terms and resolutions, but there won’t be any reportable action until the general meeting next week.”

According to documents posted by the district, the district and Dignity Health are proposing to restructure the relationship by which the medical center leases its hospital facilities from the district and by which the center is governed. The restructuring would establish a new long-term lease between the center and the district.

The main goals of the lease are to “maintain the continuity of the health care delivery system in Calaveras County; to ensure community involvement and oversight of the quality of care, medical staff credentialing and privileging, and input on strategic planning and services offered to the community; and to enable the district to exchange most of its reversionary interest in the center for cash from Dignity Health.”

The district and Dignity Health have been been negotiating since late 2015. 

Key highlights of the proposed agreement include:

Dignity Health paying the district a one-time $12.5 million fee in exchange for a larger share of the reversionary interest in the center.

The district using approximately $9 million of that money to purchase the center’s unamortized improvements.

The district and the center would then execute a new lease, with a 10-year initial term and four consecutive automatic five-year renewals, for a total of 30 years. The center would then pay approximately $102,000 per month in rent to the district.

For the entire term of the new lease, the center would commit to operating a general acute care hospital providing emergency services 24 hours a day, seven days a week. The center would also be responsible for paying all costs of the leased premises, including, but not limited to: insurance; maintenance; repairs; painting; tenant improvements; county assessments; janitorial; building services equipment maintenance, repair and replacement; and hospital equipment maintenance, repair and replacement.

**Dignity Health would commit to maintaining a full-time chief executive officer at the center, and would commit to making a $2 million contribution to the center’s philanthropic foundation within 90 days.

**The center’s bylaws would be changed, such that: the center’s board of directors would establish a new “Community Board” of seven members, six of whom would be Calaveras County residents. The community board would be responsible for credentialing medical staff and for privileging, quality oversight and providing the board of directors with strategic guidance. The board of directors would also be restructured to include an elected member of the district board.

**In accordance with state law, the proposed lease would be placed on the June 5 ballot. A simple majority favorable vote would authorize the district to proceed with the new lease. Such a vote would terminate the prior lease, and the new lease and other provisions would begin during the second half of 2018.

Dignity Health and the district formed the medical center in 1989, with the district retaining ownership of the hospital until 2019 while Dignity managed it. The terms of that deal stipulated that upon termination, the district would purchase any unamortized improvements from the center, including real property improvements such as the replacement hospital that was built in 1997 and approximately $9 million worth of equipment acquired by the center. The center’s proceeds, such as reversionary interest worth approximately $25 million, would be split in half between the district and Dignity Health.

Roseville-based Adventist Health withdrew from consideration of a deal in December.

The special meeting will take place at 7:30 a.m. Friday at Mark Twain Medical Center in Classroom 2. The next regular district board meeting will be held at 7:30 a.m. Jan. 24, also at the hospital.

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