SEARHC commits to investments, taxes in AICS merger

The heads of two consolidating health providers appeared before the Wrangell City and Borough Assembly Tuesday evening to talk about upcoming plans and to answer any questions the assembly’s members might have about the transition.

Last month Wrangell-based Alaska Island Community Services (AICS) announced it would be merging with larger organization SouthEast Alaska Regional Health Consortium (SEARHC), a process expected to finalize in February 2017.

AICS executive Mark Walker explained the move was necessitated by the provider’s growth. Since its founding in 1989, the organization has expanded its service range to include clinical, pharmaceutical and behavioral health care in six communities. Its most recent expansion came earlier in autumn, when AICS announced it would be taking over administration of the Juneau Front Street Community Health Center.

“I think we have the broadest array of health and social services delivered by a small company that I know of,” Walker commented. AICS is currently Wrangell’s largest single employer, and provides various staff and services for the local medical center.

With the growth came an increase in revenues, which on average increased by 25 percent over the 15-year period to 2010. Since then returns flattened, and in 2014 and 2015 the organization suffered losses.

“This period was a wake-up call for us,” Walker explained. AICS facilities have since begun turning a profit again, but its administration decided it needed new plan to sustain its growth.

Enter SEARHC, a non-profit tribal health consortium representing 18 Native communities in the region. Among its facilities are Mt. Edgecumbe Hospital and the Ethel Lund Medical Center in Juneau, and with 1,000 people on staff it is one of the largest employers in Southeast Alaska.

“We take a great deal of pride in that. We try to be a positive presence in each of the communities in which we serve,” explained SEARHC president and CEO Charles Clement.

The merger with AICS would extend the reach of SEARHC to 24 communities, and Walker pointed to a number of benefits the transition would bring to the Wrangell-based provider. For one, he estimated a $2,000,000 net operating margin increase for AICS after the hand-over, due in part because of SEARHC’s status as a tribal entity. As such it enjoys enhanced reimbursement rates in both Medicare and Medicaid. The organization is also better able to negotiate with Blue Cross due to its larger size.

“That’s something we could never achieve without this particular affiliation,” Walker said, arguing this in turn would help to preserve jobs.

Clement affirmed that no clinical jobs in Wrangell would be lost as a result of the new affiliation, and that its goal was to enhance service within the community.

“Our intention to maintain employment opportunities here in Wrangell is paramount,” he said, pointing to similar acquisitions in Haines and Hoonah. The change would also better position AICS to withstand expected losses in state and federal funding in the foreseeable future.

“We agreed to do that because we thought it would be good for services, we thought it would be good for the community,” said Walker. “We’re affiliating with SEARHC in order to preserve what we have built.”

Wrangell Medical Center CEO Robert Rang explained that from his discussions with both SEARHC and AICS, his understanding was that all current agreements between them and the hospital would be maintained. He said the merger could be of benefit for the city’s hospital as well, as the greater resources available to SEARHC meant it would be better able to bring in specialty providers, such as orthodontists and cardiologists. These would also make greater use of WMC’s laboratory services, for instance, meaning an increase in revenue for the hospital.

One of the areas of concern for the borough would be potential loss of property tax revenues, which it considered SEARHC would be exempt from as a tribal entity. Currently AICS contributes between $60,000 and $70,000 in property taxes and similar payments.

“It seems like every day those things are going backward for us,” lamented Jeff Jabusch, borough manager.

Clement pointed out SEARHC is licensed with the state as a 501(c)3 nonprofit, and that he did not anticipate the tribal exemption would apply.

“Our path forward right now is we want to be perceived as a non-profit,” he explained. “It really is our expectation. We’re not doing this to maintain the status quo in Wrangell.”

Clement and Walker

intend to oversee establishment of a community foundation with a portion of AICS’

financial reserves, to help support programs and services dedicated to improving the health of Wrangell’s residents. Clement estimated an initial endowment would range between $1,000,000 to $2,500,000 initially, with 10 percent of the Wrangell clinic’s net profits cycled into the foundation.

“It’s a little bit like a permanent fund,” Walker explained. The earnings from that core could then be used to fund other initiatives, as needed by the community.

 

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