Council hears from hospital commission chairman about renovations

Wednesday, October 11, 2017

The Eureka Springs City Council had some questions for hospital commission chairman Michael Merry on Monday night.

Merry presented the commission’s mid-year review to the council, saying the commission stopped meeting monthly at the beginning of the year. The reason for that, Merry said, was that he felt the commission didn’t need to meet every month to discuss how to maintain its money. All that changed, he said, when Allegiance Health Management, which leases the hospital, asked the commission about renovating the building.

“Allegiance Healthcare in March approached us about doing some extensive remodeling to our current structure that will probably take us into the next 20 or 30 years,” Merry said.

The city wouldn’t be on the hook for the renovation costs, Merry said, because Allegiance would sign a surety bond agreeing to pay for the construction. Allegiance would continue to make its lease payments during that time, Merry said.

“They would pay their lease fees and be here presumably for the next 20 sum-odd years until the bonds are paid off,” Merry said.

The commission has been working with the city in the meantime, Merry continued, to publish a request for qualifications in the Carroll County News and the Arkansas Democrat-Gazette soliciting bids from architectural firms. This will help the commission figure out how much the project will cost, Merry said.

“As I understand it, there’s been quite a wonderful response,” Merry said. “On the 13th of this month, the mayor’s office will open those and determine which would be the best architectural firm for us to go into business with.”

At that point, Merry said, the commission would work with the firm to get drawings together for the renovation. Merry described how important that information is, saying it will give the commission an idea of how much the project will cost.

“That would … create a maximum expenditure not only for us but Allegiance Healthcare … what they’re willing to sign in the contract and pay,” Merry said. “The commission is on hold waiting for the requests to be evaluated.”

Alderman Terry McClung asked if Merry has an idea of how much the project would cost, and Merry said it would be anywhere between $2 million and $8 million. Allegiance likely wouldn’t want to spend $8 million on the project, Merry said.

“My guess is we’re looking in the area of $2-4 million, but that’s entirely up to Allegiance to determine what they can and would be willing to spend,” Merry said.

Hiring an architectural firm isn’t cheap, McClung said. Merry agreed, saying the commission will be spending around $20,000 to assess what the project looks like.

“This was a fee the commission will take on ourselves in order to create these drawings,” Merry said. “I feel personally that if Allegiance did not follow through with the suggestion they made, what we would end up with would be viable drawings to tell us what we as a city would be required to put out in the near future to maintain this building and keep it in use for the next 20-30 years.”

Alderman David Mitchell said he was confused by the way the commission is handling the renovations.

“I never saw anybody go out and hire an architectural firm and spend that kind of money before they even know if they could afford to spend that kind of money,” Mitchell said. “It’s kind of remarkable to me.”

If the project costs $8 million, Mitchell said, that would mean much more than a few renovations.

“What kind of services will be there? Are you going to have operating rooms? Are you going to re-do the ancillary?” Mitchell said. “You mentioned earlier about potentially remodeling. Now, it sounds like it could be anything from a remodel to a new hospital.”

Merry said the renovations will not include any major expansions to the hospital.

“Our licensure limits a great deal how we can expand. I don’t think expansion is even a question as much as maintaining our current status,” Merry said.

Alderwoman Kristi Kendrick said she was surprised the commission hasn’t explored other financing options.

“Normally, a project like this would be undertaken by Allegiance, not by the hospital commission,” Kendrick said. “The hospital commission would perhaps lease the property and license its license, but Allegiance itself would undertake the improvements to the hospital. It’s really unusual in a commercial situation like this for the landowner to be making all these improvements.”

“The licensure requires that Allegiance maintain the building to the standards required to run a hospital,” Merry said. “It doesn’t require them to make sure that the building will stay standing in the future. I think to a degree it’s our responsibility to maintain a structure the hospital can utilize.”

Kendrick asked Merry if he had talked to any other companies, and Merry said no.

“That’s because we’re in contract with Allegiance at the moment and they’re the only ones we can talk to,” Merry said.

Kendrick continued, asking if the commission has a confidentiality agreement with Allegiance. The commission doesn’t, Merry said, but is under contract with Allegiance for the next five years.

“That doesn’t mean you can’t talk to other people,” Kendrick said.

“We’re open to talking to anybody who wants to come in and visit with us on the subject,” Merry said. “We do have to be careful to protect the contract we have with Allegiance. I don’t really want Allegiance to be under the opinion that we’re out fishing…”

“Why not?” Kendrick asked. “You might get a better deal.”

Merry said the commission would be open to talking to other companies once the contract with Allegiance is up, and Kendrick said the commission would be working on renovating the hospital to Allegiance’s specifications at that point. If Allegiance is paying for the renovations, Merry said, the company would be expected to stick around until the bond is paid off.

“Allegiance will have to guarantee under contract that they will make those funds available through the loan or bond, or we can’t enter into an agreement with them,” Merry said.

“I think you’re going at this backwards,” Kendrick said.

Mayor Butch Berry remembered when the renovations were first proposed, saying both the city and Allegiance had no idea how much those renovations would cost.

“They can’t borrow money because they don’t own the project,” Berry said. “What we proposed to them was if the bond goes through, this goes through. If it looks right, they’d put up a surety bond to guarantee payment in case something happens. If they went belly-up in five years, the surety bond would pay for the project.”

McClung said he supports the renovations.

“I think it’s a positive thing they’re doing to see what the viability is for the old building,” McClung said. “I’m not sure how it’s all going to shake out, but I think it is a positive step and probably worth spending the money to see where we stand.”

Merry agreed.

“We’re not manipulating and pointing this in a direction on our own. We want the city council involved,” Merry said. “It’s a big decision and we ought to all be involved. The commission is really willing to work with the council to get this accomplished.”

The hospital commission will discuss the request for qualifications at 1 p.m. Monday, Oct. 16, at the ECHO Community Room.

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