Broward Health Proposes Community Not-for-profit Status

Broward Health President and CEO Frank Nask is undertaking due diligence on a proposal to transition the giant four-hospital health system from its current not-for-profit public health system status into a community  501(c)(3) not-for-profit corporation.

The board of commissioners of the Fort Lauderdale, Florida-based North Broward Hospital District—one of the 10 largest public health systems in the nation—this month authorized Nask to initiate the transition, which would create a nonprofit corporation led by area business leaders. Under the plan, the corporation comprised of local business and civic leaders would lease the health system from the district and operate its four hospitals, health centers and other facilities. Broward Health's more than 8,000 employees would work for the new corporation, and the system would retain its chartered mission as a safety net hospital for indigents.

Nask says the advantages of transitioning to 501(c)(3) status include the ability expand geographical boundaries, and enter into joint ventures with for-profit healthcare businesses, such as partnerships with physicians' groups, which now are prohibited by Florida law.

"Right now our constitution prohibits us from joint venturing with for-profit entities like physicians," Nask says. "In the world of healthcare when you can do that in a surgery center or radiation therapy it's a big advantage. There are some opportunities out there that we are missing out on."

"The other issue is that there is a joint venture opportunity under the Accountable Care Organization model under Medicare reform, which physicians are always interested in because they like partnering with facilities," he says.

Broward Health collects about $170 million in local property taxes annually, and the health system was projected to report about $3.7 billion in total gross patient revenues, and more than $1 billion in total operating expenses in fiscal 2010.

If the North Broward Hospital District board approves the change, possibly by the end of December, Nask says the new entity could take control by July 1, 2011, the start of the fiscal year, to account for changes in reporting and accounting procedures. "If we flipped in the middle of the year, unless we did an audit, it would wreak havoc with our auditors," he says.

Nask says the health system will hold four "public workshops" over the next month to explain the issue and gauge support.

The change in organizational status is permitted under a Florida law passed in 1982 that was designed to permit the leasing of public hospitals to not-for-profit groups to allow greater flexibility to compete with for-profit hospitals.

The proposal has drawn considerable criticism. Although the due diligence process has been underway for more than one year, critics say they weren't aware of it until the board's announcement on Sept. 10.

William R. Scherer, a former general counsel at the health system for 17 years, called the proposal "a half-baked idea" that he believes is motivated by politics. "My experience at the district has been that every time there is a governor's race there is a great deal of angst about what is going to happen and what the governor's position is going to be and who the new board members are going to be," he says.

Scherer says Broward Health has "floated" the idea of changing its organizational status at least four times, and the move has always fizzled. It's not just a change in tax status, he says, it's a fundamental change in the way the health system operates, adding that Nask and the board don't appreciate the ramifications and complexities of the task.

"They jeopardize their tax revenues. They jeopardize their sovereign immunity. They jeopardize their bonding," he says. "They have hundreds of millions of dollars of bonds. How are they going to redo those? How are they going to transfer assets that are the collateral for those bonds? What are they going to do with the pension plans? How are they going to deal with the thousands of contracts they have? Are they going to rewrite all of those contracts?"

Nask says he doesn't think the switch would be difficult.

"I think it's effortless. We just flip the switch. The core board would be in place, so then it would be a matter of continuing to populate the board with other community leaders," he says. That board, he stressed, would be "populated by local community leaders. We are not bringing in people form out of the area who have no vested interest in how this healthcare system works in the community."

Also, the change in status will allow the 501(c)(3) the option of conducting closed meetings away from public scrutiny. "That is not one of the issues that is driving us. We are being driven by market challenges," Nask says. "Whatever best works for the market challenges I think we are OK with. I'm not all that concerned about who comes to the board meetings."

The bidding process and negotiations with vendors also would become more private, which Nask says could be a good development. "With all due respect to the RFP public bidding process, that means that when somebody bids on something their prices are public information to all of their other vendors," he says. "While it seems like the best way to get the best price, I'm not sure we are getting the best price."

Scherer disagrees, and says that transparency is vital to retain public trust and accountability. "I was there for 17 years. I don?t know of any important business measure that open government hurt," he says.