SEARHC-WMC deal looks promising, parties say

After a series of meetings and public presentations last week, a proposed acquisition of Wrangell Medical Center by a regional health group looks more probable.

Southeast Alaska Rural Health Consortium has expressed interest in administering the municipal hospital, which has been in a prolonged state of financial difficulty. At the Wrangell Assembly's most recent meeting last Tuesday, WMC chief executive officer Robert Rang reported having only 13 days' cash on hand with which to cover operational costs, driven in part by fluctuations in revenue. Though in a spot of positive news, he said concerns the state would not be able to meet its Medicaid reimbursements were alleviated some by confirmation from the Department of Health and Social Services that smaller facilities like Wrangell's would be prioritized before the new fiscal year starts in July.

While an infusion of $250,000 by the city has been needed to stabilize its condition, the age of hospital's facilities and the cost to maintain them is a more intractable concern. WMC will be turning 50 years old this year, with the date saved for July 28. The building is unlikely to see many more birthdays, however, troubled by infrastructural deficiencies as well as various accessibility and facility concerns.

"A pretty heavy investment would be required," said Josh Ripplinger, architect with Wold Architects and Engineers in Minnesota.

The public facilities-oriented firm was contracted by SEARHC to look over Wrangell's hospital last month and assess its needs. The diagnosis was not good, estimating some $24 million would be needed just to bring the building up to modern health and safety codes, not even addressing its plumbing and electrical needs. For comparison, Jensen Yorba Lott of Juneau had estimated last November that costs for a brand new hospital would be Wrangell at least $41 million.

Wold's duties were not only to look at the old but to also examine the new, drawing up a concept for a combined campus hospital joined with the Wood Street clinic belonging to Alaska Island Community Services, which SEARHC had acquired earlier last year. A feasibility study also examined WMC's financial standing, questioning whether taking on the organization and construction of a new hospital would be doable for SEARHC. Whether a possible arrangement between the regional health concern and local hospital might be reached would depend on how the numbers played out.

"Congratulations, Wrangell, the numbers came back very favorable," announced Lisa Von Bargen, Wrangell's borough manager, during a public meeting at the Nolan Center on May 21.

The public meeting followed another series held in April, with input based on those informing the concept design process. Ripplinger envisioned a new facility would join two new sections to the AICS clinic to its west. On the far side, a main wing would house emergency services, imaging and laboratory offices, acute care and a pharmacy. Just north of that would be a wing for long term care services, improving patients' privacy and access to facilities over the current layout.

This western wing and the existing clinic would be connected by corridors passing through a central support wing, featuring therapy and rehabilitation services as well as maintenance and staff areas. The clinic itself would remain about the same, with its upstairs area renovated to accommodate administrative offices for the whole center. In all, the new or renovated spaces would come to 36,500 square feet of space, totaling 44,500 square feet.

Ripplinger added the facility would have room to grow as well, reserving "zones of opportunity" for expansion for each of the hospital's departments.

"There's a lot of flexibility in how this campus could be organized," he said.

Aesthetically, he noted how the new additions would mirror the look of the AICS clinic's current façade, with sloping roof and large windows for maximum lighting.

Costs for the new concept were not disclosed, though SEARHC chief operating officer Dan Neumeister explained the facility would be fully funded by his organization. A final price tag would fall somewhere within the range of renovating WMC and JYL's estimates for a new building. Ripplinger expected the doors on the expanded building could open in as soon as 32 months.

The Wold team had met with a steering committee involving members of the WMC board and various stakeholder groups the day before last Monday's meeting, and Von Bargen relayed it had voted in favor of "going the next step." A presentation was also given to assembly members before their meeting on May 22.

They will be left to digest the item before taking any action, expected at their June 12 meeting. Prior to that, Von Bargen will be meeting with Neumeister and both parties' attorneys in Seattle on June 7 to review documents for a deal.

If the assembly is keen on pursuing a deal, the SEARHC governing board could be expected to meet on the matter within 48 hours. If both sides agree, a transition process to follow could range between 90 and 120 days, during which time both SEARHC and the city would do their due diligence and consult with their legal counsel before finalizing the transition.

A likely scenario would have SEARHC assume WMC's assets and liabilities, though the current hospital building and property would remain the city's. Ripplinger explained the ability to use it for anything further in future is unlikely due to the cost of needed improvements. The borough would have the responsibility of decommissioning it.

If an acquisition is brought to completion, it will be the latest in a series of gains made by SEARHC in recent years. It took on the privately-held Sitka Medical Center at the end of 2012, as well as the Wrangell-based AICS organization in 2017. The Juneau-based healthcare provider now operates in 20 communities and is already the region's largest private employer.

In part because of its deal with AICS, net assets at the end of its 2017 fiscal year topped $152 million, a jump upward of 38 percent from the previous year, and nearly 56 percent upward from FY15. Its patient services revenues have correspondingly improved, up from $38.5 million net for 2015 to $78 million last year.

The developments are a turnaround for the organization, which in 2011 had announced net losses of $4 million for the year.

Neumeister explained a change in leadership brought onboard afterward had sought to change how SEARHC conducted business, redirecting its priorities and making the organization more efficient.

"We had a real focus on transforming the organization to really focus on quality healthcare," he said. "Our long-term goal is to continue to provide quality healthcare services to the various communities we serve."

Some of those gains were organizational, finding synergy with partnering organizations. In the cases of SMC and AICS, for example, SEARHC had been approached as a potential partner because of the gains to be made in sharing services and by reducing expenses.

Other revenue improvements were adaptive, such as seeking out critical access designation for Mt. Edgecumbe Hospital in late 2015. Previously run under the Rural Community Hospital Demonstration Program, by reducing two beds to meet the 25-bed threshold of a CAH the facility was able to receive more favorable reimbursement for inpatient and outpatient services. It is efficiencies such as these that have improved revenue for AICS since its acquisition, and the association with SEARHC would likewise make the care model currently offered by WMC more cost-efficient and thereby sustainable.

"It needs to be a good partnership," said Neumeister. The potential partnership with WMC is a unique opportunity, he explained, because of the volume AICS already provides the hospital, and the services it receives in turn. Its relatively new facility – a combined campus which had already been envisioned when it was built six years ago – is a similarly fortuitous opportunity.

"It's pretty exciting when it becomes a win-win for both organizations," he commented.