The ongoing saga of Cookeville (Tenn.) General Hospital is nearing a climax this fall, with the fate of the city-owned hospital likely to be decided in court.
On Nov. 5, residents will vote in a special referendum to affirm or reject a new Cookeville city ordinance that allows the city to lease the hospital.
The referendum will be the third public vote on the hospital's future, but each time Cookeville's 25,000 residents reject the city's plans, the city counterpunches with a new strategy to get rid of the hospital. Consequently, November's loser will be ready to take legal action against the side that wins.
The tug of war over the 157-bed hospital has attracted national attention as an example of how the wave of hospital mergers and acquisitions rolling through the country raises issues of local control in small communities.
And in Cookeville, the issues have gotten personal. When the city issued a revised request for proposals to buy or lease the hospital, the RFP included the requirement that the new owner or operator retain all the hospital's employees, with three exceptions: chief executive officer, chief financial officer and chief operating officer. The existing senior executives at the hospital are outspoken critics of the city's plan to give up Cookeville General.
Having no job protection for the hospital's senior management was the city's idea, said Marvin Eichorn, executive vice president for business and network development at Fort Sanders Health System. "And we agreed to that," he said.
In May, not-for-profit Fort Sanders, based in Knoxville, Tenn., won a controversial second bidding process to lease the hospital from the city for a financial package worth more than $150 million.
Community Health System of Brentwood, Tenn., won the first bidding war with an offer to buy the hospital for
$100 million. That was overturned when Josh Nemzoff, a Nashville, Tenn.-based hospital consultant hired by Cookeville, persuaded the city council to reopen the bidding process with a revised and more detailed RFP seeking only buy and lease offers (May 13, p. 48).
The city pursued a lease rather than a sales agreement largely because of community opposition to a sale, particularly to a for-profit chain.
"We're doing wonderful on our own," said Harold Jackson, a former Cookeville mayor and co-chair of Friends of the Hospital, a community group opposed to a sale or lease. "Someone else will start cutting services and employees and taking money back to their headquarters."
With the help of a sympathetic state senator, the group had special state legislation passed that required a local referendum on whether to amend the city charter to require a public vote on the sale of the hospital. That referendum passed overwhelmingly March 12.
According to the city, the referendum didn't cover lease agreements, which the city decided to pursue after the sales referendum didn't go its way.
That forced opponents to get another piece of legislation passed to require a second referendum on a lease of the hospital. That referendum passed on Aug. 1 by an equally large margin and required the city to again amend its charter to require a public vote on a lease of the hospital.
Both referendums became moot on July 9, when the city made a pre-emptive strike and passed a special ordinance that allows the city to lease the hospital. That forced opponents back into the streets for a petition drive to collect a required 2,500 signatures for a referendum on the ordinance itself. On Nov. 5, citizens can approve or repeal the ordinance permitting the lease of the hospital.
While the opponents were collecting their signatures, the city and Fort Sanders went ahead and signed their 40-year lease agreement on July 26. The deal includes $105 million in lease payments, $33 million in capital improvements and $350,000 annually for 40 years, or $14 million, in donations to a special foundation to fund community health improvement projects.
"The lease becomes effective when the ordinance becomes effective, and the ordinance becomes effective after the referendum," Nemzoff said.
That means if the city wins the referendum and the ordinance stands, Fort Sanders takes immediate control of the hospital. And if the opponents win and the ordinance is repealed? The city moves to Plan B.
According to Nemzoff, the city council is prepared to pass a resolution to create an independent hospital authority to oversee Cookeville General and lease the hospital to anyone. The adoption of such a resolution isn't subject to a public vote, he said, basing his view on a legal opinion sought by him and the city council, which clearly feels that the deal is just too good to pass up.
In 1994, the hospital earned $2.1 million on about $37 million in total revenues. Under the agreement with Fort Sanders, the system would pay the city half the lease payments, or $52.5 million, upfront, and the balance in annual payments over five years.
But sidestepping three public votes with a resolution would be a disaster despite the windfall, Jackson said.
"(City council members) are so obstinate," Jackson said. "I hope they don't do something like that. It would be so divisive for the community."
Jackson said the opponents of the hospital lease may take legal action against the city if it ignores the November referendum.
This all leaves Fort Sanders in the middle. It wants Cookeville but can't alienate local residents by coming off as too aggressive.
The controversy was not unexpected, Eichorn said.
"We thought all along that things would turn out the way they did," he said. "It's a very emotional time for hospitals like Cookeville General in communities across the country."
As for the legal maneuvering, Fort Sanders will take its cue from the city, Eichorn said. If the ordinance withstands the referendum, the lease is binding, he said. If the ordinance is rejected, the lease is null and void but the city has the right to pursue other avenues, he said.