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ECMC sale is key to Kaleida merger But first county must regain control

Erie County Executive Chris Collins wants the county to take back control of Erie County Medical Center so that the facility can merge with Kaleida Health and get the county out of the hospital business.

If successful, Collins said, that will prevent taxpayers from having to cover losses that might arise years from now.

Following up on an idea he has discussed for months, Collins has created an eight-member panel, which includes ECMC and Kaleida representatives, to report back in about four weeks on how best to dissolve the public-benefit corporation that controls ECMC. This step is needed before the public entity can merge with the private Kaleida.

ECMC operated as a county department for many decades. But at the urging of then-County Executive Joel A. Giambra's administration, the state in 2004 made the medical center a public-benefit corporation, an entity with greater management flexibility. The thinking was that improved finances would reduce the hospital's reliance on an annual subsidy.
But the Giambra administration also borrowed $101.3 million in 2004 to avert a budget crisis and placed the debt on the hospital's books. The county agreed to pay the principal and interest over 30 years. In addition, the county agreed to act as a financial backstop by promising to provide annual funding equal to revenues minus expenses. This blank-check obligation begins in 2010.

ECMC reported surpluses the past two years, without counting an annual subsidy it receives from the county. But the hospital's cost to the county is expected to rise significantly as retiree health care expenses climb beyond the hospital's ability to pay.

"The 2004 deal [between the county and hospital] only pretended to get us out of the hospital business. It turned out to be a debacle, the worst transaction in the history of Erie County," Collins said.

Collins wants to get the county out from under that burden and contends it may be possible to accomplish this without state legislation. If so, he's willing to sell the hospital at a bargain price, possibly as low as $1, to the group overseeing the state-mandated consolidation of ECMC and Kaleida.

Reversion of ECMC to the county also would give the county access to the medical center's estimated $180 million in cash, which could be used to pay off its debt and help renegotiate employee contracts, he said.

The agreement that transferred control of the hospital from the county includes a clause that allows termination of the contract by mutual consent of the parties. Collins said he believes this may be enough for the county to regain ownership of the medical center without having to obtain state legislation, which public employee unions are likely to oppose.

"I am not going to pretend that there will ever be the political will in the State Legislature to resolve the public-benefit corporation. The unions have too much sway," he said.

Still, the panel will have to work out the legalities, and the path may not be so easy.

The law creating the public corporation says that termination of the governing entity requires a change in state law.

Moreover, the county in 2004 signed union contracts that provide health insurance for retirees 55 and older. Officials at Kaleida and the group overseeing the consolidation have said they won't engage in a true merger until the county reduces ECMC's costs related to benefits and work rules. For the time being, the hospitals are trying to integrate key services while remaining financially separate.

Also unresolved is whether a sale of ECMC requires approval by the County Legislature and a state-appointed control board. Collins said it may be possible to sell the hospital without County Legislature approval.

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