Pushing forward
Erlanger transformation underway with next key votes expected in August
Erlanger Health System is closer to becoming an independent nonprofit organization as leaders on the board work to develop the charter, bylaws and covenants that will govern the new entity, dubbed “Erlanger Health.”
Since the 1976 private act that created the Chattanooga-Hamilton County Hospital Authority — commonly known as Erlanger Health System — was amended in the most recent legislative session to allow the Erlanger board to explore a new governance structure, board members have been working alongside Hamilton County government and legal counsel to transition the health system from a government entity to a charitable organization organized under Internal
Revenue Code 501(c)(3).
Board Chairman Jim Coleman, who will soon vacate his position on the board to take over as Erlanger’s CEO, said the transition team has been ironing out the details and plans to bring those before the Hamilton County Commission in the coming weeks.
Board Secretary Vicky Gregg said in that same interview that at minimum, the commission will get an update on the progress and an opportunity to ask questions during a July meeting in preparation to take action on several Erlanger items Aug. 17.
“It’s just a question of how much we can get solidified by then and ready to go,” Gregg said.
Once those steps are approved by the commission, focus will shift to developing the “definitive agreement” — a large document containing all the details of the transaction — that Coleman and Gregg predict will take until mid-2023 to complete, review and
“We’ve been hearing it takes 12 months, sometimes — maybe more — to get that confirmation. So, that could be the only hangup. We may get the definitive agreement done before we get that letter, and then we’re still sort of stuck waiting.”
– ERLANGER HEALTH SYSTEM BOARD CHAIRMAN JIM COLEMAN ON HOW LONG IT WILL TAKE TO GET NONPROFIT STATUS FROM THE IRS
ready to come before the County Commission for a final vote. The Tennessee attorney general must also approve the transaction.
Though that document could be ready sooner, Coleman anticipates officials could be held up waiting on official 501(c)(3) certification from the IRS. Though they’ve already applied for that designation, he said the IRS is facing a “big backlog” of approvals.
“We’ve been hearing it takes 12 months, sometimes — maybe more — to get that confirmation,” Coleman said. “So, that could be the only hangup. We may get the definitive agreement done before we get that letter, and then we’re still sort of stuck waiting.”
Once the definitive agreement and IRS certification are finalized, likely sometime in 2023, Erlanger will no longer be a government entity.
Despite the monumental changes to Erlanger’s governance, Coleman said he expects little to change from the perspective of employees and patients.
“Our commitment is to be transparent about what’s going on, but it’s behind the scenes,” he said.
Coleman said the “most significant issues” of the transition thus far have centered around how to define the covenants that are in the private act, particularly around oversight and monitoring.
The law states that under its new structure, Erlanger must continue its mission of providing charity care, emergency and trauma services, major clinical service lines, the children’s hospital, federally qualified health centers, population health and participation in the federal Medicare and Medicaid programs.
Other required covenants include agreeing to protect the current workforce and employee benefits, including full responsibility for the hospital’s pension plan.
Erlanger must establish “appropriate processes and procedures to ensure adherence to the covenants and commitments,” including an oversight body to hold hospital leadership accountable to those commitments, according to the private act passed by the legislature to allow the transformation to move forward.
The private act also states that Erlanger cannot be sold, leased or transferred without approval of the Hamilton County Commission, Tennessee attorney general and the oversight board once it’s created.
“This perception that the Erlanger board is going to go off into the sunset” and potentially sell the hospital are the biggest questions from the public, Gregg said, but she said it’s important that people understand there will be a monitor in place.
“That will be in place for a number of years — we’re still working on exactly the duration of that — and they will be looking over our shoulder in terms of accountability on the covenants and commitments,” she said. “There would be a way, if people felt that we weren’t living up to what we have indicated, to get some resolution.”
Coleman said the oversight board will likely have three members — a professional with experience as an oversight monitor and two qualified community members — who ensure all the covenants in the private act are enforced.
“We would envision they would probably meet quarterly, just to look through and make sure that we’re maintaining and meeting our commitments to all the covenants,” Coleman said.
Covenants around the particular service lines are the “least formed,” Coleman said, because it’s difficult to predict what service lines will be essential decades from now given how quickly science and health care evolve. For example, many surgeries that were performed in hospitals 10-15 years ago are now done on an outpatient basis.
“We’re trying to put guards in that we do commit to those service lines unless there’s some major event — change in reimbursement, change in technology — that would make that service no longer feasible to be held in an acute care hospital,” Coleman said. “So we’re trying to sort of figure that wording out, and I think we’ll get there. We’ve made good progress in the last couple of calls.”
The main Erlanger board — which is comprised of 11 members who serve without compensation — will initially be formed much as it is today. Currently, the county mayor appoints six trustees with the approval by the County Commission, the General Assembly appoints four trustees by a majority vote and the chief of the medical staff also serves as a trustee.
Gregg said the initial board will likely be appointed by the Hamilton County mayor in consultation with the local legislative delegation.
“Once that initial board is set, then it becomes a self-perpetuating board,” she said. “There would be terms for the people on the board, and you’d have classes every year that would be up for renewal.”
Based on the most recent discussion, three members annually would have an opportunity to leave or continue to participate on the board, and members would be limited to three terms.
“That’s still in the forming stage, but that’s what the conversation has been,” Gregg said.
Ultimately, Coleman said the goal is to build “profiles of board member skill sets” that they would like to have on the board at all times, which will guide a nominating committee in future selections of board members.
Gregg acknowledged that the board and attorneys will need to educate the new Hamilton County mayor and commissioners about the Erlanger transition, since the county will continue to play a role in the process once current Mayor Jim Coppinger leaves office at the end of August.
“The commission is going to change quite a bit, too, Sept. 1,” she said. “So, there’ll be work to be done getting that group up to speed as well.”