Hospital report challenges Stroudwater findings Consultant says a referendum vote must be 'strongly considered'

Just over a week after a highly-contested public hearing over the future of OCH Regional Medical Center, hospital officials released a report disputing Stroudwater's statutorily-required assessment — of which the consulting firm overstated the hospital's expenses, and underrepresented OCH's revenues.
Board-hired consultant Fredrick Woodrell recommended the Oktibbeha County Board of Supervisors seek a county-wide referendum vote over the issue. Former alderman Frank Davis has led a grassroots campaign to garner signatures needed from registered Oktibbeha County voters to push the decision to sell or lease OCH to a popular vote. Davis said he was nearing the required 1,500 signatures to present the formal position to supervisors as of Dec. 6.
Davis previously led efforts to petition in 2013 following a similar sale or lease scenario. The former alderman said he hopes to get 2,000 signatures. In 2013, Capella Healthcare approached a previous board with an offer to discuss a 50-year lease proposal for OCH—but no action was taken. Stroudwater principal Doug Johnson was vice president of acquisitions with Capella during the inquiry three years ago, and joined his current firm in 2014.
In an email sent Tuesday, Woodrell said the process would be incomplete without getting the county's special counsel, Butler Snow's, advice. In the email to supervisors, Woodrell offers point-by-point reasons clarifying some specifics brought up in the emotionally super-charged public hearing last week. Woodrell claimed those at the public hearing were "irrespective of the message" and discounted the testimonials given by attendees as "not unusual or particularly compelling."
The consultant also disputed claims made against the professional nature of the report. State law does not require the statutory directed analysis to be used as a financial statement or feasibility study — both of which require GAAP or FASB code compliances. OCH CEO Richard Hilton criticized Stroudwater's assessment for not following industry-required benchmarks.
"They should not have defied GAAP principles, Hilton said. "It's not accurate."
In Stroudwater's report, the group stated OCH's revenue in 2015 sat at $72.23 million, while OCH's latest audit by Watkins, Ward and Stafford showed a total operating revenue of $73.73 million. The discrepancies in overall revenues come in part from the consulting firm removing the hospital's electronic health revenues, which is money given to the county for complying or exceeding meaningful use requirements regarding the development of electronic health record systems.
Similar discrepancies arise in how Stroudwater listed the hospital's expenses in 2015 — $71.39 million — compared to OCH's audit showing expenses of $70.9 million for 2015. The increased expenses stem from Stroudwater rerouting non-operating expenses being added to overall expenses and moving interest expense into the operating expenses category.
Another key issue in the process has been understanding of the hospital's general obligation bond agreement with the county. The large, $27.5 million general obligation bond was approved in 2009 by a referendum vote of 61 percent, and required the county to make a special agreement with OCH to maneuver around the county's borrowing capacity.
At the time, bond counsel devised a plan to send money to OCH to pay on the existing 2002 bond, to free up revenue to send back to the county to make payments on the current, 2009 agreement. The most recent OCH audit show an incoming transaction of $1.1 million to OCH, and an outgoing transaction back to the county worth the same amount. The difference is then sent back to the hospital via ad valorem tax revenues as collected by the county. The difference amounts to around $98,000 per month, annually. Even if OCH was sold or leased, the hospital would maintain its bond requirements through 2025. The revenues given to OCH from the county were listed in an assessment findings report publicly published in November, but did not clarify the specifies regarding the revenues, as stated above.
Stroudwater's report, first presented in October, was a major requirement in the process of possibly selling, leasing or affiliating OCH into a large health care system. The report stopped short of recommending a sale, lease or affiliation decision, but said supervisors should field proposals from potential buyers or leasers. An estimate in the assessment places a potential sale of OCH at around $60 million for the county.
Stroudwater found a $4 to $6 million annual gap in actual revenues and needed future revenues, while also noting the hospital's inpatient market share sits at 42 percent. The gap in overall market share "represents a major opportunity or vulnerability depending on the resources available and devoted to addressing this issue," Woodrell told supervisors in the email.
OCH has disputed the "overstated" claim of market share loss due to the data relying on zip code analytics with some areas outside of the hospital's current service area being included in the overall OCH market. The hospital has also come out against the assessment's emphasis on "out-migration" of patients to other facilities in north Mississippi, due to varying services offered at OCH and other facilities in Columbus and Tupelo.
Hilton previously acknowledged the two facilities have a higher patient volumes and operational scale, but noted that the Oktibbeha County area could not currently support speciality services including a cardiac center or neurosurgery center. To support specialty services, there are required population requirements in place each hospital must meet in its city before speciality services can be investigated.
Starkville is currently seen an upward trend both in population and development growth. Since 2009, nearly $386 million of new, permitted construction was approved, while real property values within city limits increased over 30 percent. The city's sales tax collections have increased nearly 40 percent since 2010. In the last seven years, the city's general reserves increased over 600 percent, and Starkville shed a negative credit outlook rating in 2009.
The second round of OCH scrutiny was prompted by District 2 Supervisor Orlando Trainer, who has been outspoken in selling or leasing OCH. District 5 Supervisor Joe Williams, who drew fire for his comments during the public hearing, also looks to sell or lease the hospital.
District 4 Supervisor Bricklee Miller has been an advocate in gathering as much information as possible throughout the process, and has continually shared various aspects of the assessment on her official Facebook page, including the most recent correspondence with Woodrell.
She is viewed by many as a key vote in the sale or lease process. Following the public hearing, Miller has sought legal advice due to "slander and threats against" her character, she said. Rumors have circulated following the Dec. 6 hearing of possible kickbacks from a potential sale agreement and possible outside influence in the process by officials based in Jackson.
District 1 Supervisor John Montgomery and District 3 Supervisor Marvell Howard have both previously indicated support for keeping OCH under the county's control. At the hearing last week, Howard spoke out passionately against the assessment given by Stroudwater.
"I don't think we've been given the necessary information to make a decision," Howard said at the public hearing. "I didn't see anything in the report to hit the panic button."
The board will meet on Dec. 19, and could put a motion to a vote for fielding requests for proposals. To view Stroudwater's report, visit oktibbehacountyms.org/?q=node/694. To view OCH's counter report, visit http://bit.ly/2hmh0Rf.