With the estimated market rent expected to increase two to three percent, the Ector County Hospital District took a look at Fair Market Rent values on some of the properties they lease out.
“This is something we do periodically and it’s an assessment of the value of all of our lease properties, particularly properties that we lease to physicians,” Matt Collins, vice president of support services at Medical Center Health System, told the board Tuesday. “We do this in order to remain compliant with our rental values and also to keep things more equitable on the campus.”
Appraisals were done on 18 properties — 14 medical office buildings and four retail facilities — located in Odessa and owned by the district.
“The reason that it’s important is every renewal or new lease that the hospital district engages in with a physician, this will be the basis of the pricing of that lease,” Collins said.
President and CEO of MCHS Rick Napper said the assessment is not something that has traditionally gone to the board to be approved and felt it was important for the entire board to know what the Fair Market Value was to help legitimize the pricing.
“So when you do the leases and rentals with the physicians, probably the most important thing for the board to be comfortable with is that there is a third party independent group that can say to you, as a board, what you are renting that property for is fair market,” Napper said.
The CEO also mentioned several years ago in the healthcare industry there were boards renting properties to physicians to attract them to work at their facility and the prices were way below Fair Market Value.
District 3 Board Member Richard Herrera said he’d seen similar information before and Board President Mary Thompson said they have talked about Fair Market Value in the past, but they’ve never done anything like what was presented Tuesday.
“You get it in each physician contract, you get some information on it, but not as a whole and that’s what I felt was important, that you see it as a whole because this will be what determines those rental lease values for the next three years,” Napper said.
Collins added that they hospital does Fair Market Assessments periodically, but it is the first time they have had the board approve it.
The appraisal assessment, which was approved unanimously, was done by Advanced Valuation System. Collins said the company was selected based on price, their experience in West Texas and the quality of their proposal.
TEXAS HEALTHCARE LINEN
The board also approved an item that would allow them to pledge assets to replace a loan guarantee. MCHS Chief Financial Officer Robert Abernethy told the board Tuesday in 2010 the hospital district partnered with Midland Memorial Hospital and Hendrick Health System in Abilene to start Texas Healthcare Linen to provide linen services for all three hospitals. Being part of that, both Hendrick and ECHD put up a guarantee for the loan. Hendrick put up one-third and ECHD put up one-third, he said.
“I will tell you that laundry has done very well — expanded. We have a number of clients including now Covenant Hospital of Lubbock, Odessa Regional, a number of smaller hospitals in the area so we’re actually seeing return on investment with that,” Abernethy said.
Because of the success of the program, First Financial in Abilene came up with two options to move forward.
Abernethy said option one would be to basically lower the guarantee and then phase it out. Option two, which he recommended and the board unanimously approved, was for a total of $3 million cash or a liquid asset pledge ($2 million from Hendrick and $1 million from ECHD) the pledge of assets would expire September 19, 2019 and there would be no more pledging or guarantee of the loan.
Texas Healthcare Linen would basically be a standalone facility and ECHD would be one-third owners along with Hendrick and Midland Memorial, Abernethy said.
District 4 Board Member David Dunn asked if Midland Memorial Hospital would be shelling any money out, but Abernethy said they determined they could legally not do that as a district. Abernethy said ECHD can because they created what is called West Texas Healthcare Services, which is a wholly-owned subsidiary of ECHD.
IN OTHER BUSINESS
The board took the following action:
>> Unanimously approved three updated agreements for the Family Health Clinic in preparation for a site visit later this month.
>> Heard a legislative update from Rep. Brooks Landgraf, R-Odessa.
>> Heard an 1115 Waiver report update.
>> Tabled a quarterly marketing report.
>> Rejected an interlocal agreement/request to sell property due to lack of information presented and approved a motion to discuss the item again during the next regular meeting.