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Hospital, District escalate dispute

STORY BY MEG LAUGHLIN (Week of August 14, 2014)

The Hospital District and the Indian River Medical Center’s management have escalated their legal dispute over the reimbursement rate for indigent care, and each is now presenting the other with different arbitration demands.

The two parties can’t even agree on which issues are up for arbitration – a good indication how far they are apart in their respective positions. As a result, both sides appear ready to go to full-scale legal war with high-powered attorneys.

The latest escalation came late Friday afternoon, when hospital CEO Jeff Susi had a letter delivered to the Hospital District office, formally informing the District that the hospital was declaring the District in default of the Indigent Care Agreement between the parties.

Further, it said, if the District did not cure the default within 30 days, the hospital would demand arbitration.

The reason given: “The District has failed to negotiate in good faith with IRMC to fairly and adequately compensate IRMC for health and medical services which it provides to indigent residents ...”

What seemed perplexing to outside observers was that the District and hospital were already in the next few weeks headed to arbitration demanded by the District over the hospital’s failure “to meet, bargain and negotiate in good faith ... a mutually satisfactory confirmation of the continuance of the (Indigent Care) Agreement.”

Why, if arbitration was about to begin anyway, would the hospital demand arbitration a month later?

A closer look at the letter exchange between the District and the hospital – each accusing the other of failure to negotiate – suggests the warring parties want to arbitrate entirely different things.

A review of some background information may help put the dueling default demands in context.

In March, the Hospital District, which consists of seven elected trustees who direct local tax dollars to the hospital for indigent care, began negotiating with the hospital over amending the Indigent Care Agreement, a 16-page document which dictates the terms of reimbursement, explains how indigence is determined and defines the relationship between the District and the hospital.  

The District listed six things in the Indigent Care Agreement that it wished to change, the first one being the reimbursement rate. 

Currently, the District, which answers to the taxpayers, uses tax dollars to reimburse the hospital at the Medicare rate. But in March, the District proposed reimbursing the hospital at the average Medicaid rate, which is considerably lower. 

For example: If an indigent patient spends the night in the hospital and the hospital gets the Medicare rate, it is approximately $2,000. But the Medicaid rate would be about $1,500.

Instead of countering with a different offer, hospital board treasurer Jack Weisbaum wrote the District that its “simplistic approach is flawed.”

Then, in mid-May, Hospital District treasurer Trevor Smith came up with a more generous offer for the hospital.

For 2015, the District would give the hospital what it budgeted for 2014 for indigent reimbursement, which was $6,047,000, and would also give it $1 million for Partners, the hospital’s childbirth program. For 2016, the District would give the hospital $6.1 million plus a half a million for Partners. In 2017, the District would give the hospital $6.3 million and would reimburse Partners based on fee-for-service.

The District was offering to increase indigent care reimbursement over the next few years but was decreasing the money for Partners because, as trustees explained it, “the Partners money goes for more than indigent care, which is not the responsibility of taxpayers.”

In late May, the hospital offered its first counter-proposal: “We propose a total cap of $8,147,000 for FY 2015,” wrote the hospital board treasurer.

Essentially, the hospital was requesting the $6 million it now gets plus the $2.1 million it now gets for Partners. But the District did not want to keep giving Partners millions and told the hospital to make another offer.

May and June passed with no offer forthcoming.

On July 1, chief District negotiator Smith died in an automobile accident. Two days later, hospital attorney Bill Stewart wrote District chairman Tom Spackman asking that the District give the hospital $9.4 million for 2015, which was $1.2 million more than the counter-offer from the hospital that the District had already rejected.

Stewart also suggested that the District “participate in mediation” with the hospital.

But District trustees stood firm in their offer, which Smith had spelled out in May, explaining that the hospital had made little effort to negotiate in the previous three months and they saw no reason to extend the negotiation period.

When Stewart asked District chairman Spackman in writing to say what days the District could mediate, Hospital District attorney Jennifer Peshke wrote back: “Dr. Spackman has advised that no meetings between the parties are necessary at this time unless a proposal with new or different terms for consideration by the District is submitted in writing.”

On July 11, the District notified the hospital that it found the hospital in default for failure “to meet, bargain and negotiate in good faith ... a mutually satisfactory confirmation of the continuance of the (Indigent Care) Agreement.”

That meant that if the hospital did not come up with a cure within 30 days, the parties would go to arbitration.

During the 30-day period, hospital board treasurer Weisbaum wrote District Chairman Spackman that the hospital still wanted the Medicare reimbursement rate, which was in place before the negotiations began. Weisbaum accused the District of adopting a “take it or leave it” attitude.

The District did not respond.

On Friday, Aug. 8, one business day before the 30-day period would end and arbitration could begin, the hospital put the District on notice that the District was in default for failing “to negotiate in good faith with IRMC to fairly and adequately compensate IRMC ...”

If the District did not find a cure, said the hospital, it would go into arbitration.

Evidently the hospital and the District want arbitration to be about two separate issues, which are alluded to in the default letters each side wrote to the other.

The choice of words suggests that the District will arbitrate for the right to ditch the agreement since the hospital would not enter into the effort to change it with them.

The IRMC choice of words suggests that the hospital will arbitrate to get money from the District, which the agreement says can include money for “damage, loss, and expense including ... reasonable attorneys’ fees.”

Both sides are hiring high-powered attorneys. Both sides are figuring out their strategies. While both sides have expressed the hope for amicable arbitration, the likelihood of that is becoming dim as the dispute escalates.