1. Bradley J. Berg 206.447.8970 | bergb@foster.com WSHA/AWPHD Health Care Leadership in Dynamic Times Collaborations and Partnerships-- Opportunities, Limits and Barriers The Edgewater Hotel Seattle, WA October 12, 2010

2. Collaborations and Partnerships – Opportunities, Limits and Barriers 2 Introduction  Presentation will focus on collaborations and partnerships involving public hospital districts  Collaborations may involve other public hospital districts or other governmental entities, but may also involve nonprofit and for profit hospitals and other types of health care providers  Collaborations may take a wide variety of forms

3. Collaborations and Partnerships – Opportunities, Limits and Barriers 3 Factors Motivating Collaborations  Reductions in payment and changes in payor mix  Reduction in demand  Increase in expenses  Inadequate supply of physicians and other trained personnel  Lack of capital for replacing/upgrading facilities and technology (including electronic medical record systems)  Health care reform encourages integration (Accountable Care Organizations, medical homes, bundled payments, payments for quality outcomes)  Increase in competition

4. Collaborations and Partnerships – Opportunities, Limits and Barriers 4 Potential Responses  Do nothing  Get out of the health care business entirely  Substantially change or reduce the scope of services  Consider one or more collaboration options

5. Collaborations and Partnerships – Opportunities, Limits and Barriers 5 Key Questions  What is your view of the future?  What is your vision for your hospital and health care system and how can your mission best be served in the future?  What is your financial strength?  What is your appetite for risk?  What is your need for control?

6. Collaborations and Partnerships – Opportunities, Limits and Barriers 6 Key Evaluation Criteria—does the collaboration:  Maintain the hospital’s mission?  Maintain and expand services?  Improve quality?  Increase revenue and/or reduce costs?  Increase access to capital?  Increase access to specialized technology and personnel?  Reduce competitive threats?

7. Collaborations and Partnerships – Opportunities, Limits and Barriers 7 Potential Collaborators  Public hospital districts  Other public health care providers  Nonprofit/for profit hospitals  Physicians  Community Health Clinics  Local governments  Payors  Others?

8. Collaborations and Partnerships – Opportunities, Limits and Barriers 8 Collaboration Options  Contracts for specific services or involving specific service lines  Joint venture agreements  Transfer of assets through lease or sale  Merger/Consolidation  Dissolution

9. Collaborations and Partnerships – Opportunities, Limits and Barriers 9 Key Variables in Collaboration Models  Who owns the assets?  Who is responsible for funding capital?  Who has the right to receive revenue and who has responsibility for liabilities and expenses?  Who owns the licenses and provider agreements?  Who employs the staff?  Who is responsible for governance and management?

10. Collaborations and Partnerships – Opportunities, Limits and Barriers 10 Do PHDs Have the Legal Authority to Collaborate? PHD Boards have broad statutory authority to decide - What services are provided - How services are provided - Who services are provided to - Where services are provided

11. Collaborations and Partnerships – Opportunities, Limits and Barriers 11 PHD Statute Authorizes:  Providing services directly or by contract  Providing services through facilities located outside the boundaries of the district  Providing services through ventures with other public or private entities including through joint venture entities

12. Collaborations and Partnerships – Opportunities, Limits and Barriers 12 PHD Statute Provides Additional Authority for Rural PHDs  Rural PHD is defined as a PHD whose boundaries do not include a city with a population > 30,000  Authorizes  Allocation of health services among PHDs  Joint purchasing of equipment and technology  Joint contracting with payors  Other cooperative arrangements

13. Collaborations and Partnerships – Opportunities, Limits and Barriers 13 Collaboration Examples Involving Public Hospitals  Joint payor contacting  Cooperative agreements such as Rural Health Care Quality Network and Western Washington Rural Healthcare Collaborative  Service line joint ventures and agreements  Hospital management agreements  Physician employment

14. Collaborations and Partnerships – Opportunities, Limits and Barriers 14 Collaboration Examples Involving PHDs Snohomish County PHD No. 2 Swedish Health Services: PHD agreed to lease all of its health care facilities to Swedish Health Services. Swedish will operate the hospital under its license. The PHD is exploring other activities beyond operating a hospital.

15. Collaborations and Partnerships – Opportunities, Limits and Barriers 15 Collaboration Examples Involving PHDs King County PHD No. 4 PeaceHealth: In the 1980s, PHD leased all of its health care facilities to PeaceHealth. PeaceHealth operated the hospital under its license. The lease was terminated in the early 90s and PHD resumed operations.

16. Collaborations and Partnerships – Opportunities, Limits and Barriers 16 Collaboration Examples Involving PHDs Mason County PHD No. 2 Harrison Medical Center: New PHD formed for the purpose of collecting taxes and contracting with Harrison to own and operate an urgent care clinic within the District

17. Collaborations and Partnerships – Opportunities, Limits and Barriers 17 Collaboration Examples Involving PHDs San Juan County PHD No. 1 Peace Health: PHD closing its ambulatory care clinic and contracting with PeaceHealth to construct a new critical care hospital, which will be owned, licensed and operated by PeaceHealth, and a new EMS facility, which will be owned and operated by the District

18. Collaborations and Partnerships – Opportunities, Limits and Barriers 18 Collaboration Examples Involving PHDs Grant County PHD No. 7 Wenatchee Valley Medical Center: PHD contracts with Wenatchee Valley Medical Center to operate a primary medical clinic and pharmacy within the District

19. Collaborations and Partnerships – Opportunities, Limits and Barriers 19 Collaboration Examples Involving PHDs Grant County PHD No. 5 Mattawa Community Medical Clinic: PHD contracts with a separate nonprofit corporation to operate a Federally Qualified Health Center Look-A-Like in the PHD’s facilities

20. Collaborations and Partnerships – Opportunities, Limits and Barriers 20 Collaboration Examples Involving PHDs Skagit County PHD No. 1/Skagit County PHD No. 304 During the 1990s the Districts operated their health care facilities on a joint basis under a joint operating agreement.

21. Collaborations and Partnerships – Opportunities, Limits and Barriers 21 Collaboration Examples Involving PHDs Skagit County PHD No. 1 Skagit Valley Medical Center: PHD acquired a large multi-specialty physician practice and now employs all of the physicians

22. Collaborations and Partnerships – Opportunities, Limits and Barriers 22 Collaboration Examples Involving Public Hospitals University of Washington/Northwest Hospital: UW has become the sole corporate member of the nonprofit corporation that owns and operates Northwest Hospital and has been granted certain reserved powers.

23. Collaborations and Partnerships – Opportunities, Limits and Barriers 23 Collaboration Examples Involving Public Hospitals Other examples - University of Washington/Harborview - Pacific Hospital and Preservation Development Authority/Pacific Medical Centers

24. Collaborations and Partnerships – Opportunities, Limits and Barriers 24 Public Hospital District Issues 1. Constitutional limitations -- prohibition against gift of public funds or property -- prohibition against lending public funds or public credit -- prohibition against owning stock in any private company -- requirement that public funds be used for public purposes

25. Collaborations and Partnerships – Opportunities, Limits and Barriers 25 Public Hospital District Issues 2. Statutory limitations Relating to: -- Appointment of a superintendent -- Sale of real and personal property -- Lease of real property -- Open public meetings -- Public records -- Public bid -- Prevailing wages -- Conflicts of interest

26. Collaborations and Partnerships – Opportunities, Limits and Barriers 26 Restrictions Relating to Outstanding Bonds 1.Bond Covenants -- Restrictions on transfers of property  Unlimited tax general obligation bonds  Limited tax general obligation bonds  Revenue bonds -- Restrictions on issuance of additional debt

27. Collaborations and Partnerships – Opportunities, Limits and Barriers 27 Restrictions Relating to Outstanding Bonds 2.Federal Tax Law Limitations --Restrictions on change in use of property financed with the proceeds of tax-exempt bonds --Restrictions on management agreements or services agreements relating to the use of property financed with the proceeds of tax-exempt bonds

28. Collaborations and Partnerships – Opportunities, Limits and Barriers 28 Government Approvals 1.Certificate of Need 2.Special Approval for sales to for profit entities 3.Licensing 4.State Auditor 5.CMS 6.Antitrust

29. Collaborations and Partnerships – Opportunities, Limits and Barriers 29 Other Legal Issues 1.Labor Issues --Multiple unions --Jurisdiction of National Labor Relations Board versus Public Employees Relations Commission --Compensation and benefits structures --Reductions in work force --Other?

30. Collaborations and Partnerships – Opportunities, Limits and Barriers 30 Other Legal Issues 2.Medicare Reimbursement --Billing under a single provider --Other? 3.State Tax Issues --Business and occupation tax and requirements for social welfare organizations --Property tax exemptions

31. Collaborations and Partnerships – Opportunities, Limits and Barriers 31 Other Legal Issues 5.Restrictions on assignment of existing contracts including significant payers 6.Other?

32. Collaborations and Partnerships – Opportunities, Limits and Barriers 32

33. Collaborations and Partnerships – Opportunities, Limits and Barriers 33 Contact Information Brad Berg Telephone: 206-447-8970 Email: BergB@Foster.comBergB@Foster.com Foster Pepper PLLC 1111 Third Avenue, Suite 3400 Seattle, WA 98101 www.foster.com www.foster.com