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Plans for new nursing home falter

December 20, 2001

By Jim Mimiaga
Journal Staff Writer

Plans for construction of a new nursing home on the Southwest Memorial Hospital campus appear to have fallen through.

Stalled contract negotiations between the Vista Grande nursing home’s management company and Southwest may end up in court, and could put the 76-bed home back under taxpayer control.

The brakes were hit after the Montezuma County Hospital District board and Vista Grande management, Continuum LLC., reached an apparent impasse on negotiations for a new ground lease.

"Several major issues are polarized and I feel (Continuum) has modified critical things that had already been negotiated," said Kelly McCabe, the district board’s attorney.

For three years Continuum and the district have been negotiating a new lease agreement, required because Continuum is obligated to build a new home on the publicly-held hospital campus.

Continuum has managed Vista Grande for profit since 1994 under a lease with the district that stipulated two options at the end of the term — negotiating a new, long-term lease at the current building or building a new home on district-owned land with an accompanying long-term ground lease.

The company and the district chose a new long-term care facility, which Continuum was to construct and then operate.

Southwest had then planned to move non-medical departments into the current Vista Grande facility, which is adjacent to the hospital, to make room for hospital improvement projects.

That plan has been scuttled, however, and now Southwest is contending with the possibility it may have to take over Vista Grande.

"Usually you have months to prepare for something like this, so it will be a financial challenge to absorb it all of a sudden," said George Brisson, Southwest’s financial officer.

Securing contracts, buying software and computers, hiring employees and an administrator and taking over residents are just a few of the tasks ahead, Brisson said.

On the upside, Southwest Health System, the hospital’s operating entity, which is in line to run the new facility, could make a profit on the venture. In 1999, independent research by then-MCHD board member Don Jolovich showed homes of similar size making profits upwards of $400,000 per year.

Under the previous arrangement, Continuum paid Southwest $160,000 per year and pocketed the rest, an amount never made public.

A last-ditch effort to resolve differences on the ground lease for a new building will take place in January. An independent arbitrator will be present.

The sticking points relate to lease payments, Continuum’s lender requirements, bed capacity, real-estate and building-improvement compensation issues, foreclosure language and patient-care oversight:

• MCHD has stipulated a $1,000-per-month lease payment from Continuum in exchange for allowing the company to build on taxpayer-owned land. Continuum has countered with $250 per month, arguing that is a concession because the lease states the land will be offered at no cost.

• Continuum wants a 76-bed facility and the district prefers a 100-bed home, but is willing to go down.

• Continuum wants its new facility to be on the southeast corner of the campus. The district and SHS want it behind the hospital on the southwest corner.

• To insure resident care is of highest quality, the MCHD wants Continuum to comply with standards set by the Joint Commission on Accreditation of Healthcare Organizations. Continuum wants to hold its operating license with JCAHO and comply with standards set under the Colorado Department of Health and Centers for Medicare and Medicaid.

• Against MCHD wishes, Continuum wants the value of its investment reimbursed by SHS and MCHD in the event of Continuum default, a stipulation they say is customary with lenders. MCHD asserts that would illegally put taxpayer property at risk.

• Continuum says it also needs management control over MCHD in order to satisfy commercial lenders. But, as landlord, MCHD wants more direct oversight of patient-care practices so if they fall below set standards then default language kicks in.

Many of the issues are directly related to the difficulties that arise when government entities lease operations of taxpayer assets to a for-profit company. Continuum’s lender needs to protect its investment on a new building, but the MCHD board cannot encumber taxpayer assets to a bank in case of Continuum default.

For example, McCabe explained that a lender would prefer lease language that did not restrict the use of the building to long-term care in the case of Continuum default. But MCHD is legally obligated to retain the new building, if built, as a nursing home.

A lease extension negotiated to reach a settlement expires in February. Both parties are claiming lack of good-faith efforts on the other’s part, and both are claiming the other has defaulted on the lease.

"There are things that are non-negotiable that (Continuum attorneys) want, so I do not know if at this point there is much to mediate," said MCHD chair Randy Smith. "After three years, we are getting farther apart."

In a Dec. 12 letter to the board, Continuum attorney Robert Duthie said Continuum still wants to meet its obligation to construct a new building, "but my client’s good-faith attempts have consistently met with a pattern of resistance."