Assembly shoots down hospital service area boundary move

Editor’s note: This article has been corrected to show that if the assembly chooses to reconsider the ordinance at its Aug. 9 meeting, it could still make it onto the Oct. 4 regular election ballot.

The boundaries of the Kenai Peninsula’s hospital service areas will stay where they are for now.

The Kenai Peninsula Borough Assembly struck down a proposed ordinance at its Tuesday meeting that would have moved the common boundary between the Central Kenai Peninsula Hospital Service Area and the South Kenai Peninsula Hospital Service Area about 12 miles to the south. The move would have shifted a number of residents into the Central Kenai Peninsula Hospital Service Area, which has a significantly lower mill rate.

The assembly was divided on a number of issues, with the vote only failing because the assembly was hung 4-4, with assembly member Stan Welles absent. The ordinance could still make it onto the Oct. 4 ballot if the assembly chooses to reconsider it at the Aug. 9 meeting.

Chief among the issues brought up was the loss of revenue for South Peninsula Hospital. Homer’s hospital, a 22-bed facility about 75 miles south of Soldotna, serves Homer, Seldovia, Anchor Point, Fritz Creek and the other smaller communities on the Lower Kenai Peninsula. Although the hospital holds less outstanding debt than Central Peninsula Hospital, it also has more limited revenue and resources, and depends more on the revenue from its mill rate. Residents of South Peninsula Hospital’s service area pay a 2.3-mill tax on their property, while residents of Central Peninsula Hospital’s service area pay .01 mills.

Many residents of the area between Ninilchik and Clam Gulch, who would be affected by the change, have said they use Central Peninsula Hospital for their medical emergencies and needs. Moving the line would only be fair, said assembly member Brent Johnson, the ordinance’s sponsor.

The original line followed the precinct line for Ninilchik and was placed there against the will of many of the residents, annexing them into a service area for a hospital they do not use, he said.

If the proposal had gone to ballot, only the members of the current Central Kenai Peninsula Hospital Service Area and those who would be taken into it would be allowed to vote. Though it seems fair to allow Homer to vote, it could swallow the voice of people in Ninilchik, Johnson said.

“(In 1969) they had a vote, and in Ninilchik, three people voted in favor of making that hospital service area,” Johnson said. “Forty-three people voted against it. They were swamped by the vote in Homer. What would that answer be now?”

However, more than a dozen people testified to the assembly Tuesday night, urging them to leave the line alone because of the potential damage to South Peninsula Hospital’s finances. South Peninsula Hospital CEO Bob Letson told the assembly the change would remove between 20 and 30 percent of the hospital’s capital budget, which was approximately $1.5 million last year, he said.

Johnson took issue with this, saying the percentage was overinflated to make it sound dramatic. Letson said the tax revenue is calculated out of the capital budget, which is determined after the bond retirements and operating expenses are paid, and thus comprises a larger percentage.

Depending where the line would have been placed, the hospital stood to lose between approximately $150,000 and $300,000 annually. Even if the funds came out of the capital budget, that would impact the hospital’s ability to purchase new equipment and stay current on treatments, Letson said.

“What might look like a small, even reasonable idea to you would have very large negative consequences for our organization, our providers and those we serve, and may put in jeopardy one of the borough’s biggest assets,” Letson said.

Another point of contention arose about the Ninilchik Tribal Council Community Clinic, the one permanent medical clinic in the approximately 800-resident community of Ninilchik. South Peninsula Hospital partners with the clinic and allows the doctors there to use its labs and medical imaging services; two years ago, when the clinic could not find a primary care physician, South Peninsula Hospital recruited Dr. Sarah Spencer to work there for part of the week.

Spencer testified via telephone to the assembly, asking them not to move the line because of the potential repercussions for the clinic. If the service area boundary were moved south of the clinic, South Peninsula Hospital could not legally still offer services there, and the Ninilchik Tribal Community Clinic is the only medical office between Homer and Soldotna, she said.

“South Peninsula Hospital is providing a lot of services to the Ninilchik residents,” Spencer said. “We served just over 600 Ninilchik residents over the last two years, in a town of just over 800 people. We serve a lot of the population there.”

Multiple others who testified, the majority of whom were either South Peninsula Hospital employees, South Kenai Peninsula Hospital Service Area Board members or hospital operating board members, said drawing the line through Ninilchik would divide the community against itself. Ninilchik resident Kathy Wallace told the assembly that this wouldn’t be the case.

“There isn’t any panic,” Wallace said. “It’s just saving people money on their mill rate. … If you want to be fair maybe the borough should pay the same tax rate for all the hospitals.”

The borough has looked at unifying the hospital service areas before, though it would involve operational changes between the lease and operating agreements the borough signs with the hospital operating boards and would likely raise the mill rate for central peninsula residents as it dropped the rate for those on the lower peninsula. Borough administrators have also looked at adopting borough-wide health care powers to administer the hospitals, but that would require a governance change that has not taken place yet.

When Johnson originally proposed moving the line in 2015, Borough Mayor Mike Navarre had asked him to wait because the borough’s Healthcare Task Force was supposed to consider a borough-wide health care structure. On Tuesday night, he said he wished he had not asked Johnson to wait as it would have ended the discussion there. If it went forward, it would not necessarily mortally wound South Peninsula Hospital, he said.

“This by itself doesn’t crater South Peninsula Hospital’s finances,” Navarre said. “There will be some impacts. They can be managed in part because this year there was an increase in oil properties as a result of the Cosmopolitan development.”

Assembly President Blaine Gilman said he thinks the only way to go in the future will be to establish borough-wide health care powers and that he will introduce something along those lines in the down the road.

“It’s an unfair system that we have in our borough, and just moving the line doesn’t fix the problem,” Gilman said. “The fix is for us to acknowledge that we’re in the health care business in this borough, that we have hospitals, and we need to really adopt health care powers and consolidate the different service areas or just have health care powers throughout the entire borough, including Seward, because Seward needs some financial assistance.”

 

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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