'Hospital wars' settlement may be in works

By Michelle Dupler, Tri-City HeraldOctober 10, 2012 

A cease-fire may be on the way in the latest round of Tri-City "hospital wars" between Kadlec Regional Medical Center and Kennewick General Hospital.

The two hospitals have been at odds for almost three years as each requested to add hospital beds to serve more patients, and each has appealed the state's decisions on its own bed awards.

In Kadlec's case, the state granted 55 of the 114 beds the Richland hospital requested, and for KGH it denied a request for 25 beds altogether. KGH also appealed Kadlec's 55-bed award.

But in a special meeting Tuesday, the Kennewick Public Hospital District Board that oversees KGH unanimously agreed to drop its appeals under a settlement proposed by the state.

The settlement asks Kadlec and KGH each to drop their appeals, and for Kadlec to forego any appeal of a decision issued last week approving KGH's financing plan for its Southridge hospital project.

"I think it's a fair settlement for both parties to end litigation and move forward with certainty," KGH CEO Glen Marshall said.

A Kadlec spokesman told the Herald on Tuesday that Kadlec's board has yet to discuss the settlement proposal. The board's next scheduled meeting is in early November.

Kadlec otherwise declined to talk about the proposed settlement.

"For a number of reasons, the discussions between each hospital and the Department of Health are legitimately confidential," hospital officials said in a statement. "We don't believe it is appropriate to discuss the terms publicly unless and until a definitive agreement is reached among all parties."

The conflict over beds started around November 2009 when the two hospitals almost simultaneously filed applications to add beds. Kadlec wanted to add 114 beds to the 188 allowed under its then-license.

KGH had permission to split its current 101-bed allocation into 74 beds at its Southridge hospital and keep 27 at its current building on Auburn Street. But KGH also wanted to add 25 beds back to Auburn Street once Southridge is done, for a total of 126.

No hospital in Washington can expand without first getting a Certificate of Need from the state Department of Health and going through a process of justifying its growth.

The hospitals argued that they often are at capacity and needed more beds to accommodate the growing Tri-City population.

The battle for beds heated up even further when Kadlec in 2010 filed two legal actions trying to get KGH's state permission for the Southridge hospital revoked based on allegations that KGH overstated admissions, occupancy and rates of growth in its certificate of need applications.

KGH denied those allegations, saying Kadlec took the numbers out of context.

One of the legal actions was dismissed and Kadlec dropped the other in July 2010.

Kadlec again questioned the numbers offered by KGH in support of its Southridge project this summer when KGH applied for an amended certificate of need for the new hospital.

KGH filed the amended application because the previous approval was based on a plan to finance the $112 million hospital through the federal Department of Housing and Urban Development, but that plan was dropped when KGH officials determined that HUD's requirements were too restrictive.

KGH then looked to private financiers and ultimately contracted with Wisconsin-based C.D. Smith Construction to build the 168,000-square-foot hospital and lease the building to the hospital district.

Under that arrangement, the hospital district will retain the hospital license and continue to own everything that makes up the hospital's day-to-day operations.

The plan calls for the hospital district to pay rent of about $800,000 a month once the hospital is finished, with a requirement to buy the building for $110 million after 10 years. The lease term is 30 years.

Kadlec officials in written comments to the state described the financing arrangement as a "bad deal" that could put KGH's future in jeopardy and result in a private takeover down the road.

But in a decision sent to KGH a week ago, the state determined that KGH could meet its financial obligations and approved the new financing plan.

KGH started construction on Southridge in June.

Kennewick Public Hospital District board members Tuesday were eager to put the conflict with Kadlec behind them.

"We never wanted to be involved in litigation to begin with," said board member Wanda Briggs. "I think it's a good settlement. It allows both hospitals to move forward in an era of what I hope will be cooperation."

-- Michelle Dupler: 582-1543; mdupler@tricityherald.com

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