Boards negotiate Hulett clinic lease

As a construction site on the outskirts of Hulett gradually takes on the recognizable form of a new clinic building, the full boards for Crook County’s medical services district and foundation came together for the first time on Friday to discuss the particulars of how it will be used.

After a brief tour of the facility, the two boards retired to the Greater Hulett Community Center to talk about the lease. This has been a point of contention for several months, with the Crook County Medical Services District (CCMSD) board split between those trustees whose desire is to see Hulett finally get a new clinic and those who are concerned that the district simply cannot afford to pay rent when it already owns a fully paid-off clinic building within the town.

Lease Specifics

The Crook County Medical Foundation (CCMF) said they intend to charge the district rent, but only temporarily. Once CCMF has paid back the loans used for construction, it will reduce the monthly charge to only include the district’s portion of building maintenance and insurance.

At this time, the foundation anticipates that CCMSD will occupy the majority of the building. The remaining square footage is to be occupied by a pharmacy and physical therapy.

The initial offer of $1.43 per square foot per month was based on an estimate of what it will cost to pay back the loan used to construct the building. Said Judy Hutchinson, foundation board president, it was also formulated using information about similar arrangements in the area.

“It was really hard, because there is not much for comparables here or in the surrounding area,” she said.

Hutchinson noted that the foundation has been able to cover all the costs incurred so far for construction, at an estimated total of $1.5 million. “Everything you see right now, it’s all paid,” she said.

Trustee Connie Lindmier, who along with Trustee Sandy Neiman has been strongly supportive of Hulett finally getting a new clinic, added that it has all been achieved through donations, “From people who believe in this clinic.”

However, the remaining construction is estimated at another $1.5 million, said Hutchinson. Once the building has been paid, she said, the foundation will also have a better idea of the costs involved with maintaining it. It’s not possible to make that estimate now, she said, “Because it’s a new construction [so] we’ve got nothing to compare it to.”

The foundation wants to be sure the lease, “Benefits both sides of the house,” said CCFF board member Bill Motley. “We would like to see you guys here.”

Financial Downsides

“It’s a beautiful building, I will give you that,” said Mark Erickson, chairman of the CCMSD board, who along with Trustee Trish Habeck has been concerned over the financial implications of the new clinic. However, he added, “I’m not sure that we can afford it.”

Erickson explained that the district would be more than doubling its loss rate for the clinics by agreeing to pay rent. At this time, CCMSD loses a combined $84,000 to $85,000 per year on its three clinics.

That’s fine, he said – it’s the whole idea of satellite clinics. CEO Micki Lyons agreed, commenting that it’s the “nature of the beast” to lose money through the clinics in a rural set-up like Crook County because their purpose is to drive traffic to the main medical center, where such services as the lab are located.

However, she said, CCMSD has paid off the current Hulett Clinic building, so any rent at all increases that loss. If the district accepted the lease offer, Erickson said, the annual loss would leap to $170,000.

“That’s not a good economic model based on that we might get more [business],” he said.

Based on the figures offered so far, Erickson continued, CCMSD would essentially be paying the whole note on the loan, but getting nothing concrete in return because it will never own the building.

“There’s nothing in it for us, we never have equity in this,” he said.

Hutchinson confirmed that the foundation has not made a decision as to whether it will eventually turn over the building to the district. The options, she said, are to give it to CCMSD, offer it to the Town of Hulett or run it through the foundation.

This project exists on the idea that, “If we build it, they will come,” commented Erickson. However, it’s impossible to know whether patient visitation will actually increase, so it’s not something you can build a business on.

“You’re never going to get anything if you don’t try,” Hutchinson responded.

Erickson, however, pointed out that there is only so much business in the area. This is a county of 7000 people, he said, and even though patients do come in from surrounding region, CCMSD also bleeds patients from this county out to those same areas.

“We’re not sitting in a city population area, even in this county,” he said of Hulett.

How much more will CCMSD lose if another medical services provider rents the building space instead? Hutchinson did not specify which companies may have expressed interest when posing this question; however, she did comment that, “We have other options.”

Even if that’s the case, said Habeck, it doesn’t change the financial implications. Competition from another provider is a risk the district would just have to take.

Potential Upsides

“This is what Hulett wanted, many years ago,” said Hutchinson of the new clinic, a project that the foundation has taken on entirely, both financially and through overseeing construction. Sundance and Moorcroft got their new buildings years ago, she said, but Hulett did not.

Lindmier said she feels that CCMSD has done nothing to support the project. If the district won’t agree to pay rent to assist with paying off the loan, she said, then perhaps the board needs to figure out how to contribute or fundraise another way.

The CCMF board suggested the lease can be justified because the district could see an increase to its income after moving into the new building, such as by attracting additional patients. Also, said Hutchinson, it will be able to operate five days per week, whereas the current building time-shares with physical therapy.

Habeck objected, stating there is no reason that physical therapy should be blocking out any days the clinic could be open. Erickson added that, even if this is the case, a bump of 20% in revenues from an extra day of seeing patients only reduces the new overhead to $65,000.

It was suggested that the clinic’s income could be boosted by the presence of visiting specialists, but Lyons explained that the district would not able to oversee such an arrangement. Due to federal rules for rural health clinics, she said, a provider must be employed by CCMSD and the patient’s bill must come from CCMSD.

Neiman stated that CCMSD could also charge patients more thanks to the new facility, but Lyons explained that this is also not a possibility. The only potential change of that nature, she said, could be in the amount of reimbursement from Medicare and Medicaid.

Neiman suggested that the clinic could still attract new business if CCMSD hires a medical provider to work in the clinic who is also a specialist in one area, in the same way that the medical provider in Moorcroft’s clinic is a specialist in rheumatology. That provider could then split their time between seeing regular patients and practicing their specialty, she said.

Lyons agreed that this would be possible, “If you can find one.”

Neiman also suggested that CCMSD could purchase the x-ray machine for the building, an estimated cost of $160,000. This could reduce the total loan that the foundation needs to pay back; Erickson, however, pointed out that it only reduces the loan by a comparatively small amount.

Neiman also suggested donating the land on which the old clinic sits, but board attorney Kara Ellsbury interjected to point out that this would legally not be permissible.

Negotiations

Motley expressed frustration that the district had not made a counter offer, asking the board to clarify what exactly it could afford to pay on a lease. Until Friday, he said, there had been much talk of it being too expensive, but CCMSD had not offered any estimate of what might be affordable.

Erickson suggested that the maximum amount the district can afford to lose each year through its clinics is $100,000. Based on that figure, he said, CCMSD would only be able to offer $16,000 per year in rent.

Neiman objected, calling it a “personal suggestion” and not reflective of the opinion of the whole board. No, countered Erickson, it’s just what the district can afford.

The foundation board retired into executive session to consider the district’s offer of $1333 per month. Meanwhile, the CCMSD board discussed options such as a one-year trial while leasing out the current clinic, which Lyons said would allow the district to see if the volume of patients really does increase.

When the CCMF board returned, Hutchinson said that advice had been sought from legal counsel on the district’s offer, which amounts to 28 cents per square foot. In order to meet its financial needs to repay the loan, she said, the foundation can only reduce its offer to $1.25 per square foot per month to be renegotiated in one year, plus the district’s share of utilities and maintenance.

This would total $73,000 per year in rent for the district. Hutchinson asked the CCMSD board to provide its answer in writing after its next regular meeting, scheduled for April 22.

Having heard clarification that the foundation intends to pay back its loans within a year, Erickson said he was less averse to a short-term rental cost. “That’s palatable to myself,” he said.

On this basis, discussion was held as to the wording of the actual contract, which will include the possibility of a renegotiation once the loan is paid. The CCMSD board agreed to consider the lease offer at its April 22 meeting and provide an answer immediately afterwards.