Lee Health becoming a private nonprofit hospital. What you need to know

Lee Health has crunched financials for staying as a public hospital or becoming a private nonprofit system and found a conversion would bring gains after an initial hit.

The publicly-elected board of the 1,865-bed system with a $3 billion operating budget was briefed Thursday on how some revenue sources as a safety net hospital would be foregone while new financial opportunities would open up.

A 10-year projection starting in 2025 shows Lee Health’s net patient revenue at $34.5 billion if it stays as a public hospital. It would jump to $35.5 billion with the conversion to a private nonprofit. That would be a gain of $1 billion over the 10-year forecast, according to projections by Ben Spence, chief financial officer.

A key short-term loss would be $60 million in supplemental payments that are currently used to support treating uninsured and underinsured patients, according to Spence.

What are the upsides?

As a private nonprofit there would be greater opportunities to grow and scale services regionally and to enter joint ventures, including with physicians, which is not possible as a public system. The conversion would allow Lee Health to expand outside of the county.

Lee Health’s board has been exploring converting from a public system to a private nonprofit since last year; the aim is to be able to compete better against for-profit hospitals and private equity investments in outpatient medical services.

More: Lee Health going private? Talks continue among public hospital leaders

The board must make a decision by June 20. So far no board member has voiced vehement objections.

Dr. Larry Antonucci, president and chief executive officer, said 60 senior system leaders voted unanimously in two March workshops in support of a conversion. He is recommending going forward.

A public hearing is scheduled for April 25 at 4 p.m. at Gulf Coast Medical Center, 13681 Doctors Way, in Fort Myers. The board will take comment from the public only; there will not be questions and answers.

The next step after a vote would involve negotiating an agreement with the Lee County Commission, which has to approve the conversion. The county commission would not be taking over running Lee Health.

The present Lee Health board would stay on in a transition and new bylaws are being drafted as a nonprofit entity. A mission agreement with the Lee commission is in the works.

What the numbers show

Spence said that while Lee Health has enjoyed 95% of the market in Lee for many years, competitors are looking at the high growth of the county and coming. That goes goes beyond HCA Florida’s plans to build a 100-bed hospital in Fort Myers.

Related: Lee Health should become private nonprofit hospital, consultants say

There’s been scrutiny at the state Legislative level to dismantle public hospitals and he said there are proposals by federal lawmakers to reduce federal subsidies, he said.

Lee Health’s “community benefits” report for last year, which are required of public and nonprofit systems, show it provided $113 million in charity care. It faced $89 million in unpaid Medicaid care and provided $71 million in community outreach. The net community benefit was $179 million after foregone taxes of $94 million.

“We have to compete fairly with new entrants and future changes,” Spence said. “And we need to be on a level playing field with the competition that comes in and that surrounds us.”

In addition to maintaining the safety-net mission, maintaining local control and engaging physicians and other entities in partnerships will be essential. The system needs to double down on cost containment measures and focus on revenue growth.

One concept is to develop a  “break even plan” on Medicare, which does not cover all care costs for patients. Spence said half of Lee Health’s patients are on Medicare and the loss on reimbursement is around 15% on the cost of their care.

An overall operating margin target would be 5%, which he said is doable. Lee Health’s operating margin last year was 5%.

Consultants with Kaufman Hall conducted an analysis that was presented to the board in February that showed a conversion would result in a net loss in operating income ranging from $59 million to $107 million in the first year.

That would adjust the 2024 budgeted operating income from $131 million to either $24 million or $72 million, depending on how Lee Health’s federally supported health clinics would be restructured that would be required.

Some other key points from the consultants show 20% of patients live outside of Lee, and that 58% of fundraising dollars over the past three years come from outside the county.

What was the CEO’s message?

Antonucci reiterated what he has said previously that converting is not a sale of Lee Health.

“I would oppose it,” he said, referring to a sale.

A projection from the Kaufman Hall consultants is that the system would achieve a 6.1% operating margin after the conversion, he said.

Antonucci pointed out the Kaufman Hall report found only 14 hospital systems in the U.S. are like Lee Health and the vast majority have taxing authority.

"So we really are unusual in our current structure," he said. "We also learned that 20% of our patients live outside of Lee County and the opportunity to provide services near where they are, to actually expand a lot of the services that would allow us to increase our volumes, and thereby provide even higher level of subspecialty care as our volumes increase, is something I think that is very important to this community."

Antonucci repeated a request he made at a workshop last week that the board should put a physician leader on the future board.

Attorneys for Lee Health presented a draft of a mission agreement with the Lee county commission that says the services provided by Lee Health to residents would continue in perpetuity so long as the succeeding nonprofit entity is in operation.

The document says Lee Health’s status would remain as a safety-net provider to Lee residents and that an oversight monitoring board will be established.

The oversight board would include three members who represent Lee Health primary care services areas, there would be one attorney and one person with a background in finance and accounting.

The members of the oversight committee would be approved by Lee Health and the county prior to the conversion.

This article originally appeared on Naples Daily News: Lee Health conversion to private nonprofit hospital moving forward