KENAI PENINSULA BOROUGH
LEGAL DEPARTMENT
144 N. Binkley Street Tel. (907) 262-8609
Soldotna, Alaska 99669 Fax (907) 262-8686
TO: Tim Navarre, Assembly President
Members, Kenai Peninsula Borough Assembly
Cliff Baker, Chair
Members, Central Kenai Peninsula Hospital Service Area Board
THRU: Dale Bagley, Borough Mayor
FROM: Jeff Sinz, Finance Director
Colette Thompson, Borough Attorney
DATE: February 4, 2002
SUBJECT: Amendments to lease and operating agreement for Central Peninsula General Hospital proposed in Ordinance 2002-05.
Ordinance 2002-05 is scheduled for two hearings, one on February 5, 2002, and the final hearing February 19, 2002. If enacted by the assembly, it would authorize the mayor to execute a revised lease and operating agreement with Central Peninsula General Hospital, Inc. for Central Peninsula General Hospital and other health care facilities. This memorandum is to summarize the pertinent changes for your consideration. Briefly, the changes to this contract are summarized below. A more detailed explanation is on the following pages.
1. It extends the contract for an additional five years and provides another five-year option to renew.
2. It clarifies the role of CPGH, Inc. as an entity that is leasing the hospital with many restrictions that compel it to properly operate the hospital in good faith on behalf of the Kenai Peninsula Borough and service area.
3. It clarifies that the plant equipment and replacement funds shall be invested through the borough's central investment pool unless otherwise agreed upon in writing.
4. It clarifies that CPGH, Inc. must give the mayor prior notice before starting any new or expanded service, that it must disclose the nature and extent of any other business activities not related to this borough contract and that it cannot use assets generated or provided through the borough contract to fund any such activities.
5. It clarifies that the borough retains ultimate control over any capital improvement projects.
6. It specifically requires that board meetings be open to the public and specifies exceptions to that requirement.
7. It clarifies that records generated by CPGH, Inc. pursuant to its lease and operation of facilities from the borough are subject to the Public Records Act.
8. It requires that CPGH, Inc. and its successor not compete with the borough for five years after termination of this agreement anywhere in the Kenai Peninsula Borough boundaries.
Paragraph 2--Description of leased facilities. This has been amended to recognize that CPGH, Inc. leases facilities from the Kenai Peninsula Borough other than the hospital. At this time the only facility other than the hospital leased from the borough is the Kenai Health Center in Kenai. If additional facilities are leased from the borough in the future, paragraph 2(c) provides that those would also be subject to the provisions of this agreement.
Paragraph 4--Term. The lease agreement would be effective January 1, 2003, and continue for five years with an option to renew for an additional five years on the same terms and conditions. As with the existing agreement, in order to not automatically renew this agreement for five years, the borough must give notice one year before the expiration date.
Additionally, paragraph 4 clarifies that when this agreement or any extensions of this agreement end that CPGH, Inc. will reconvey to the borough all real and personal property operated or controlled by CPGH, Inc. on behalf of the borough. This includes all accounts receivable and all other assets and property necessary for or associated with the operation of the hospital and other leased facilities. It further clarifies that should CPGH, Inc. have assets or income derived from sources independent of its relationship with the borough, that it shall not be required to turn such assets over to the borough.
Paragraph 10--Supplies, materials and inventory. This paragraph was modified to clarify that the supplies, materials, and inventory of the hospital or other leased facilities are subject to the control of CPGH, Inc. for its use in operating these facilities. It should be noted that this does not in any way transfer ownership of these items to the operator. It merely clarifies that these are subject to CPGH, Inc.'s control in order that it may properly operate the facilities. This provision was desired to clarify that the lessee/operator is given the right to use these assets without owning them, and to help establish that CPGH, Inc. is an independent legal entity operating the hospital.
Paragraph 12--Property and equipment purchases. Paragraph 12(c) clarifies that the borough assembly appropriates funds for capital improvements at the hospital. This has been the practice over the last five years but was not set out in the contract. Paragraph 12(c) also imposes a new requirement that CPGH, Inc. must notify and confer with the borough contract administrator before spending more than $100,000 to analyze or plan for any capital improvement projects expected to cost over $1,500,000. It specifically clarifies that all capital improvement projects costing in excess of $100,000 must normally be presented to and reviewed by the service area board and then approved by the assembly. Finally, this paragraph is changed to recognize that all capital improvement projects shall be completed under the management of either the borough capital projects director or CPGH, Inc. as determined by mutual agreement of the two parties. However, if the parties cannot agree, then the borough capital projects director shall decide who shall complete all capital improvement projects. This provision is to ensure that the borough retains knowledge and control over any capital improvement projects at the hospital whether or not they cost $100,000.
Paragraph 13--Finances. The primary modification to this provision is in paragraph 13(b) which clarifies that the borough assembly by ordinance must approve any transfer of funds in excess of $100,000 from the plant replacement and expansion fund other than transfers to replenish the operating reserve. Again, this has been the practice for the last four years but was not specifically established in the agreement. Paragraph 13(f) is a new provision which incorporates by reference the memorandum of agreement dated September 18, 2001 in which CPGH, Inc. agrees that plant replacement and expansion funds be deposited into the borough's central investment pool. Although the memorandum of agreement provides that these funds may be transferred into this pool, paragraph 13(f) requires that they be deposited into that pool and managed in accordance with that memorandum of agreement.
Paragraph 16--Accounting/auditing/reporting. Paragraph 16(e) is modified to comply with the current situation in which CPGH, Inc. has an existing management or consulting contract. The changes require that any new management or consulting contract be in accordance with the selection criteria and process previously approved by the borough assembly and requires that copies of any management or employment contract entered during this agreement concerning borough facilities must be provided to the borough immediately upon its execution.
Paragraph 21--Level of services and other business activities. Paragraph 21(b) was amended to require that the lessee/operator give the borough contract administrator, e.g., the mayor, prior notice of any new or expanded services. It confers upon the contract administrator the right to require that any new service be approved by the borough assembly prior to implementation. It further provides that any capital expenditure in excess of $100,000 per year for a new service must be approved in advance by the borough. These changes were made to clarify that the borough must be apprised in advance of new or expanded services. As it is difficult to specifically define "new or expanded services," safeguards are in place so that the hospital may feel free to orally discuss these with the contract administrator to encourage improved communication and give the borough administrator the ability to determine when such a new service should be publicly disclosed. Paragraph 21(d) was added to require that if CPGH, Inc. engages in any other business activities not related to this agreement it must notify the contract administrator of these activities and shall provide financial reports reflecting revenues and expenses of such activities. Records of such other activities are not considered public records. They are required to be disclosed in order that the contract administrator can ensure that these other activities are not adversely affecting CPGH, Inc.'s performance on behalf of the borough under this contract.
Paragraph 26--Public access. The next primary change to this contract is that it spells out that the board shall make all meetings open to the public with specifically listed exceptions. It further requires that copies of non-confidential board materials shall be made available to the public during or before the meeting, and that the public shall be provided an opportunity to comment on matters before final action is taken. It further requires that any action taken by committee outside of the public purview must be fully disclosed to the board during a board meeting either in writing on a resolution or verbally. Additionally, it requires that the agenda of all regular and special meetings be posted 48 hours in advance at the hospital and a copy provided to the borough clerk for posting. It also provides that records of the hospital and other leased facilities managed and operated by CPGH, Inc. for the borough are subject to the public records act.
Paragraph 42--Non-competition. This paragraph was inserted to clarify that during the agreement and upon its termination, CPGH, Inc. and any successor organization shall not engage in any activities that compete with ongoing hospital service area activities within the Kenai Peninsula Borough for a period of five years from the date of termination. Because many members of the board are involved in the medical industry, a provision was included in this clause clarifying that individuals who serve as an officer or director of CPGH, Inc. are not individually precluded from engaging in the practice of medicine or other health care related endeavors.