Fairbanks hospital takes giant step toward independence

FAIRBANKS — A community health-care crisis brought on by a disastrous 1967 flood led to one of the great success stories in the history of Fairbanks — the building of a modern community-owned hospital.

People put aside their differences and pledged the town would never again be faced with the prospect of losing its only hospital, an important legacy that explains why longtime residents are proud of Fairbanks Memorial Hospital.

The most obvious new development on the grounds today is an $88 million expansion, the most costly in the history of the facility,  for a state-of-the-art surgery center. General contractor GHEMM Co. held the groundbreaking in April 2015 on the 90,000-square-foot project.

About 4,700 people go under the knife each year at the hospital. Starting about a year from now, many of those surgeries will take place in seven new surgery rooms about double the size of existing facilities.

The physical change to the hospital is dramatic, but behind the scenes there's an equally significant change taking place. For the first time in nearly 50 years, the hospital will soon operate independently — at least on a temporary basis — not  affiliated with a major Outside hospital management company.

Over the next six months, Fairbanks Memorial Hospital is set to undergo this change to local operational control.

On May 6, the community group that owns the hospital filed papers with the state setting up a new limited liability company to run the hospital starting in 2017.

A strong hospital is an essential element in the success or failure of any community, so there is a great deal riding on the outcome.

Six months ago, the hospital foundation decided to sever ties with Banner Health systems, the Arizona-based company that operates 29 hospitals in seven states.

Banner Health has leased the facilities at fair market value and received a percentage of the adjusted gross income as compensation.

In the decades before a corporate merger created Banner, the hospital operated under a similar arrangement with a Fargo-based entity that was one of the company's corporate predecessors.

With rapid changes in the field of health care, the 29-member hospital foundation board said it wanted more local control on key matters than the Arizona office was willing to accept. The two sides could not agree on future terms.

The Fairbanks foundation, membership in which costs a minimum of $25, elects a board of trustees responsible for hiring an operator.  The trustees are an accomplished group of respected Fairbanks leaders, most with deep ties to the community.

"The Banner role is one where we were more off to the side than we felt was important for a community-owned hospital," said Jeff Cook, president of the all-volunteer foundation board.

"It's a matter of style and culture and in the end we have to make decisions that are in the best interests of our community," he said.

With a divorce in progress from Banner, the foundation began exclusive negotiations with a subsidiary of Providence Health Services early this year as a replacement operator.

Providence, a Seattle-based company that runs Providence Alaska Medical Center in Anchorage and 31 other hospitals in five states, is the third largest not-for-profit health system in the country.

The Fairbanks foundation negotiated with Providence throughout the winter and early spring, but ended the talks in early May, saying it didn't have time to complete a long-term lease.

With Banner's departure now six months away, the foundation can't afford any uncertainty about what happens next, which makes the plan to become independent a logical step.

It already has contracts with health care providers for key hospital services, such as the emergency room, so it would expand that model with other providers.

The foundation hopes to continue with the same top Fairbanks managers, who would leave Banner and switch to the new entity — CEO Dr. Gregory Johnson, Chief Operating Officer Jim Lynch and Chief Financial Officer Steve Leslie.

"We have a great interim administrative team that hopefully won't be interim when we get through all this," said Cook.

"We have a transition team of senior leaders, and they're energized, they're excited," Cook said. "I think they're proud that the foundation has that confidence that we have the talent on the ground."

It's not clear how long the independent arrangement would continue.  This buys time for the hospital to consider over the next few years whether it would be best served in the long run by seeking bids from national hospital operators, allowing them to compete for the business and offer the best terms.

"The reality is we now have more options than we've ever had to provide the best balance and array of services we need," Cook said.

"The main thing now is getting our employees feeling comfortable, getting all the contracts in place, getting ready for the transition," he said.

The foundation has about $160 million in financial assets, its facilities are in good condition and it has a strong mix of patients with good insurance coverage, all signs of strength.

A fundraising campaign to help pay part of the costs of the new surgery center has started, which Cook said is important not just to demonstrate community commitment, but to allow the hospital to be better prepared to deal with the unexpected changes in medicine that will come as time passes.

Cook said the foundation is determined to provide stability for the 1,400 employees of the hospital, as well as for patients and the community so that Banner's departure does not impede services. This is not a plan to cut salaries or benefits, he said.

"We have assured the employees that no one is going to go backwards in this process," Cook said.

Officials from the Fairbanks hospital plan to visit Soldotna this week to talk with leaders of the Central Peninsula General Hospital, a locally owned and operated nonprofit facility.

Dermot Cole is a Fairbanks columnist. The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.