St. Mark’s Hospital to Shut Its Doors
Inside the Final Failed Attempt to Transition Hospital to Local Ownership
A local group’s effort to take over management of St. Mark’s Medical Center fell apart after a vote by the La Grange City Council Monday night, Oct. 2. St. Mark’s announced on Wednesday that the hospital would close effective Oct. 12.
Chief Strategy Officer Sam Wilson of Hospital Center of Excellence (HCOE), along with HCOE chief executive officer Craig Moreau, petitioned the City Council Monday night to guarantee a loan of up to $1.5 million that HCOE had applied for from the lender BCL of Texas.
“We have provided notice to St. Mark’s Medical Center board that we must officially stand down with the failure of the City Council to provide the needed guarantee for the BCL of Texas loan,” said Sam Wilson, Chief Strategy Officer of Hospital Center of Excellence (HCOE), on Tuesday.
At Monday’s meeting,Wilson and Moreau said the $1.5 million loan was the last piece of funding HCOE needed to complete the transfer. Wilson said the loan was needed after three private donors backed out of their commitments.
“Today, we’re requesting the City provide up to a $1.5 million loan guarantee, which must be available by Oct. 4 so we can close the transition,” Wilson said at the meeting.
HCOE announced their intent earlier this summer to replace the Plano-based Community Hospital Corporation (CHC), the organization that currently manages the moneystrapped rural hospital.
The City of La Grange’s Economic Development Corporation had already provided HCOE with a $500,000 grant. In addition, HCOE obtained a commitment for a $1.25 million grant from the Texas Department of Health and Human Services, Wilson said. Nineteen private donors have also committed to invest in the hospital, he said.
Wilson said the federal Department of Housing and Urban Development (HUD), which backs the mortgage on the hospital, had informed HCOE and St. Mark’s that they were willing to approve the change in management if all the necessary funding was in place.
“There is really not an option tonight to maintain the status quo,” Moreau said. “You basically have two options. You have an option to greatly increase the medical services available here, the jobs available here, the economic impact here. Or we’re going to have the alternative, which I firmly believe will be closing the hospital in rapid fashion. I don’t speak for St. Mark’s Medical Center yet, but I’ll tell you that they have echoed similar worries. If HUD does not do this transition the hospital will likely close.”
More than two dozen members of the public attended the meeting, and three of them spoke in favor of the request during the public comment period.
“This feels like a small commitment, one so critical to secure the funding needed to stabilize our hospital for longterm success,” said Angela Schlabach, who works at St. Mark’s in health information management, as well as serving as the hospital’s privacy officer and compliance officer. “Without your support, the reality is our hospital will not survive.”
Laurie Quitta, a registered nurse at St. Mark’s who started her career at the old Fayette Memorial Hospital, recounted several touching stories about births and deaths at the hospital. “Having a hospital to me is way more than a job,” Quitta said. “Please help HCOE and their efforts to keep our hospital open and prospering for the next generation.”
Ed Johnson of the Giddings Economic Development Corporation told the Council about plans for a rail park industrial development in Giddings. He said several businesses were interested in developing the rail park.
“But as soon as the hospital started to close, those businesses walked away,” Johnson said. “It’s one of the top concerns of businesses and developers when they are looking – what kind of medical care facilities do you have? If the answer is ‘none,’ they start looking elsewhere.”
Councilman Ken Taylor asked the HCOE representatives how long the term would be for the BCL loan and how soon they plan to draw on it.
“I’m trying to understand the risk we are taking,” Taylor said. “How quick and how long will it last.”
Wilson said the term of the loan would be for 18 months.
“It’s also established as a working capital line of credit,” Wilson said. “The truth is, we may never draw on it. We have in our financial projection a $2.3 million cushion moving forward. So we may not have to draw on that loan at all. One of the provisions of the loan is that we would draw on local community investors before we draw from that one. If we did draw on it, we’re only going to draw what we need to keep operations. It’s more expensive money than our local (contributors), so we want to go to that source last.”
Wilson said the BCL loan would be collateralized with the hospital land. In the case of a default, Wilson said the risk to the City would be any outstanding loan balance not covered by the value of the property. Councilwoman Kathy Weishuhn asked whether HCOE asked potential donors or governmental entities in Lee County to assist with funding.
“We have not had any success in Lee County,” Wilson said. “We approached some of the high net worth individuals in Lee County. We’ve spoken with over 100 people to raise local funding, in addition to a number of lending institutions … We’ve been down a number of paths, and unfortunately, we were granted today the commitment from BCL of Texas … unfortunately, it has just come down to this. It’s kind of the last approach we have. I apologize for the short duration we have to consider this, but it is what it is.”
Moreau said Bluebonnet Trails Community Services signed a letter of intent with HCOE to lease a portion of the hospital for mental health services. He said revenue from the lease would help support the hospital.
Taylor asked the HCOE representatives whether they will personally invest money in the hospital.
“Do you have skin in the game?” Taylor asked.
“Absolutely,” Wilson said. “We realized early on that it would be really difficult to go to a community and say, ‘We’d like some of your funds but we’re not going to put any of our money up.’ Of the 19 people, five are HCOE members. So all five of us have skin in the game and have committed to putting our own funds in this pot.”
Councilwoman Violet Zbranek questioned whether the City should financially support the endeavor.
“I just feel we are not a lending institution,” Zbranek said. “I have nothing against the hospital or the ER, because it’s really just an emergency center right now. I owe something to the people who voted for me. I think we need to get this out. This is the first we’re hearing about what we’re going to have to put up.”
Zbranek spoke about the drainage issues facing the City of La Grange.
“We have a bad drainage problem, and that’s going to cost us millions of dollars,” Zbranek said. “I’m sorry, EDC has provided $500,000 to you. I just don’t see how we can do this with all the problems we have. I don’t even know if it’s legal for us to do this.”
“They’re not asking us to loan them this money,” said Councilman Bryan Kerr. “It’s a guarantee. They’ve outlined pretty extensively the amount of jobs that are going to be lost, the economic impact. We value our hospital immensely. The jobs – I feel like we have to do something.”
“There is a bigger cost in not doing this than the cost in doing it,” Moreau said. “It will have a devastating impact on city coffers if we lose our hospital.”
Wilson said HCOE needed an answer from the City by Oct. 4 due to upcoming mortgage payments owed by St. Mark’s. He said St. Mark’s had been making the payments out of a mortgage reserve fund. He said HUD was willing to grant an extension to the reserve fund payments if HCOE completed the transition by Oct. 4. Otherwise, St. Mark’s would have to resume regular payments.
“The Chairman of the Board of St. Mark’s Medical Center authorized me to say that if HCOE does not come through with this, then it is not likely that HUD will allow them to proceed with using the mortgage reserve fund,” Wilson said. “If that happens, the hospital will not be able to prolong operations for much longer.”
City Attorney Angela Beck asked why HUD would allow a further extension of the reserve fund payments.
“They have tentatively approved it pending all the financing and funding and the execution of the agreement, part of which includes a resignation of the (St. Mark’s) board and HCOE takes over,” Wilson said. “If we’re not in charge of the hospital as the managing single corporate member, they’re not going to allow the transfer. In order for us to do that, we have to have the funding in place.
“There’s a lot of moving parts here and they all need to come together at the same time,” Wilson added. “The lender is dependent upon a guarantee. It doesn’t have to be the City, but we don’t have any place else to go. HUD is depending on the financing. It’s a Catch-22. Everything has to come into play in the next couple of days by Oct. 4 or it’s not going to work.”
“This is a really hard decision to make in 48 hours,” said Councilwoman Kim Newton. “Obviously we want to save everyone’s jobs. We want the hospital to be here. But we have other considerations and we feel rushed to make a decision, with maybe not all the information so that we feel confident in it.”
Councilwoman Kathy Weishuhn called for a closed executive session so Council could consult with Beck for legal advice. The crowd of attendees exited the council chamber and waited outside for about 45 minutes.
Immediately after the Council reconvened the open meeting, Weishuhn stated the following: “This is a very complex issue with a lot of facets to it. This is a very difficult decision to make. I am going to make a motion to defer until the 16th of October for a more definitive legal opinion from our City Attorney, that it is legal and constitutional to lend credit in this fashion, which would be needed to make a resolution, and also to explore which controls the City could impose on HCOE regarding the funding should it go forward.”
The motion passed without opposition.
“We were clear that this decision had to be made and there were a number of variables at play and we had to complete the transfer by Oct. 4,” Wilson told the Record after the meeting.
Some at the meeting questioned the legality of the closed session Monday night. The Texas Open Meetings Act prohibits closed meetings except in a few narrowly defined cases. After the meeting, Beck told the Record that legal advice about the proposed agreement with HCOE falls under an exception in the Open Meetings Act. Beck said the Council did not discuss the merits of the proposal during the 45-minute session.
During the closed session, Beck said she advised the City Council that if they wished to guarantee the loan, then money would need to be set aside in the budget, which would require an ordinance to amend the budget. The City Charter requires Council to hold two readings of an ordinance before it passes. Furthermore, Beck said she advised the Council that they would need to draft a resolution formally stating the public purpose of this endeavor.
“To lend the City’s credit, it has to be a project that serves a public purpose,” Beck said. “Yes, having a hospital, yes, protecting jobs, etc. etc. But that needed to be fleshed out, and I told that to the City Council, to defend against a lawsuit that I felt would come given the controversy that the hospital has generated in our community. It needed to withstand a litigation assault.”
Beck said the City had not seen an appraisal of the hospital property that would be collateralized in the loan. Nor did the City know whether there were any liens on the property or other title encumbrances.
“There were too many unanswered questions,” she said.
Wilson described the vote to delay action until Oct. 16 as “a way to shut it down without having to vote in public.”
The Record asked Weishuhn, who made the motion to delay, to respond to that accusation.
“It was not a way of saying ‘no,’but it was a way of saying, ‘Let’s put on the brakes for a minute,’” Weishuhn said. “We, as a City, would need a resolution. We would need a budget amendment. We have more questions and want some more information.
“We know they’re in a time crunch, but $1.5 million in a few days is a lot of pressure,” Weishuhn added. “I’m really disappointed, too. I wish there was a way to do it and feel comfortable about it. I wanted to do it. I know all those people who spoke, but you can’t rule on $1.5 million with emotions. We have an obligation to the citizens of the City.”