News

Contracts lay out details of joint venture

By Bill Moss, Published: June 12, 2012

A series of contracts between Pardee Hospital and Mission Hospitals of Asheville sets out details of plans for a $28 million, 81,000-square-foot medical campus on 17 acres of Mission-owned land on the county line in Fletcher.

After a year and half of debate and an election season that saw two joint venture opponents beaten decisively, the documents make clear that if opponents still hope to block the project, they would have a lot to undo. When it comes to the complicated and contested partnership between the two public hospitals in the two largest counties in the southern Blue Ridge, it appears the train has left the station.
Mission and Pardee, in some cases jointly and in others with Mission as the lead, have agreed on an ownership arrangement covering the land, building and medical practices, hired a construction manager that will receive a fee of almost $700,000, set the scope of work for the medical complex scheduled to open in November 2013.
The Henderson County commissioners have had no discussion directly about the contracts. Commissioner Bill O'Connor last week held up a two-inch thick binder and said the agreements prove the need for the Board of Commissioners to explore the sale of Pardee. Commissioners voted 4-1 against his motion to initiate a process that could lead to a sale.
The documents could provide fodder for opponents who say that the joint venture could potentially favor Mission. Much of the work has been done with Mission in the lead, although Pardee has the option to own half the property and the practices. As an anchor tenant it also has the option to use the building to provide certain services.
The Hendersonville Lightning and Hendersonvillelightning.com obtained the 12 separate documents, including contracts, legal memorandums, exhibits and attachments, from the Henderson County Board of Commissioners after a public records request.
County attorney Russ Burrell released the documents to the Lightning mostly unredacted, although some sections were blacked out for what Pardee attorneys described as "competitive health care information" exempt from North Carolina's Public Records Law.
The memorandums, contracts and attachments provide the following details:
• The framework for the agreement between the two hospitals is laid out in a Jan. 25, 2012, letter of understanding between Pardee and Mission. The Phase 1 building will house imaging services through Asheville Imaging and Hendersonville Radiological Consultants, an urgent care center, outpatient rehab services, a retail pharmacy, lab services, a mobile pad for future use of mobile services, conference and community room space and 20,000 square feet of physician office space — half of which Pardee would lease. The agreement lists the endoscopy clinic that is the subject of a certificate of need application strongly opposed Park Ridge Health Care, which owns the Fletcher hospital less than five miles from the Mission-Pardee project.
• Although Mission currently owns the 17-acre piece of land, the documents create a complex legal structure under which Pardee could own half the property including the medical office building. Mission will lease the land to a separate Real Estate LLC. Pardee has an option to acquire "a 50 percent tenant-in-common interest in the land" at fair market value when the phase 1 construction is complete. A construction schedule shows the medical complex opening on Nov. 11, 2013.
• The two hospitals have agreed to form a management services organization (MSO). The MSO, under a board chair rotating annually between the two hospitals, will provide services that could include human resources, buying equipment and furniture, vendor management, business planning and budgeting and marketing. The agreement requires that each hospital will apply for state regulatory approval for each clinical service it wants to offer on a mutually agreed-upon time frame. A contingency plan requires the two parties to reach a consensus on how the project "may proceed or be unwound in the event that necessary CON (certificate of need) approvals, Letters of No Review (when the state determines no CON is needed) or other needed approvals are not obtained."
• The documents grant substantial power to a construction management firm as a third-party negotiator. A letter on May 4 to Kenneth R. Beuley of the Keith Corp. says that Mission is ready to invite lenders to loan money for construction, apply for a building permit and allocate money to start work. Mission hired the Keith Corporation, a commercial construction management firm from Charlotte, in March 2011 to negotiate the formation of the partnership with Pardee for the joint venture. The joint venture partners were to pay the development managers $200,000 when the initial agreement was signed and 2½ percent of the project cost — or $670,657. The firm will receive 85 percent of its fee during the 19-month construction term with 15 percent held until "substantial completion" of the project. The Keith Corp. "will play the lead role in negotiating leases with the Henderson County Hospital Corporation and Asheville Imaging," the joint venture agreement says.
• Cost of the project includes $4 million for the land, $3.3 million for design and engineering, $22.8 million for construction and other costs for a total of $28.3 million. After equity and tenant payments, the owners would borrow $15 million, the documents show. (The owners identified $833,000 in cost reduction as they fine-tuned the scope of work in January of this year.)
• A construction schedule shows permitting and design work under way over the next four months and construction starting on Oct. 1 with land clearing. The medical building would open for business on Monday, Nov. 11, 2013.