New Bern, N.C.-based CarolinaEast Health System has signed a new lease agreement with Craven County, N.C., to pay $1 to the county government in base rent for CarolinaEast Medical Center in New Bern, the Sun Journal reported Jan. 2.
The new lease, effective Nov. 4, 2024, also requires CarolinaEast to pay the county $450,000 annually in additional restricted rent designated for mental health, substance abuse and public health services.
CarolinaEast has leased the hospital from Craven County for $1 per year since the system was created in 1988. The lease, originally set to expire in October, was renewed in November.
While county officials have argued that the rent is fair to help benefit local residents and the hospital's emergency department, CarolinaEast expressed financial concerns, but pledged to honor charitable commitments to the community.
"Having to suddenly pay hundreds of thousands of dollars in annual rent — for property that the state gifted the county — is not insignificant and will have a material impact on the hospital's operations revenue," Lee Whitman, legal counsel for CarolinaEast, said in a letter shared with the county on Nov. 21 and obtained by the Sun Journal.
However, commissioner Jason Jones said during a board meeting that the $450,000 was decided during county and CarolinaEast negotiations, and was low in comparison to fair market rental value.
"The support of mental health and substance abuse treatment services, in particular, will directly benefit the hospital's ER, which is oftentimes the most expensive medical care and is frequently medical care for which the hospital is never paid due to the circumstances of those in crisis," Mr. Jones said, according to the publication.
Michael Smith, president and CEO of CarolinaEast Health System, told Becker's in a Jan. 3 statement that the funding Mr. Jones is referring to as "benefitting the hospital's emergency department" are Craven County obligations. He also said that CarolinaEast has received two independent appraisals that are "far less" than $450,000 for the state-gifted land.
"Craven County committed itself to support a substance abuse treatment service and has received $15 million dollars in opioid settlement money to pay for those expenses," Mr. Smith said. "The county, by North Carolina general statute, is required to pay for inmate care, and the county is currently running the community clinic. Ultimately, CarolinaEast covers the cost of previously required or committed funds for the county, so they will have an additional $450,000 of unrestricted funds to spend wherever they choose."
Mr. Jones said that the deal also helps resolve a potential financial crisis, as an expired lease risked violating terms of a $52 million bond issued in 2022.
While Mr. Whitman claimed that there was no threat to its debt obligation, Mr. Jones shared lender concerns.
The 10-year lease comprises two optional five-year extensions, with a rent increase of 30% and 10% for each term, consecutively. Both parties consider the matter closed, but are moving forward with caution, the publication said.
Becker's has reached out to Mr. Jones and will update this story should more information become available.