This past spring, Florida Gov. Rick Scott signed a bill into law that could change the landscape of public hospital districts throughout the state and puts the role of public hospital districts into the national spotlight.
The new law essentially requires public hospitals in Florida to see if their current governance structure leads to the best care in their area. By Dec. 31, 2012, hospitals must have started a five-month evaluation process that looks at the possible benefits of selling or leasing facilities within the district to non-profit or for-profit health systems.
In total, this law will impact 34 public hospital districts, which are usually seen as the safety-net providers of a community. What's interesting, says Adam Lynch, vice president of Principle Valuation, is that Florida's public hospital districts have to do this on their own without any sort of financial backing. "It's an unfunded mandate," Mr. Lynch says. "By the end of this year, all of these hospitals have to engage someone — a valuation specialist or an advisor — to determine what the hospital's fair market value is."
Most public hospital districts are run by counties or some type of independent authority of a county, and most have taxing authority within the district. However, some don't levy any taxes — 17 of Florida's 34 hospital districts don't — so the process would not necessarily affect taxpayers' pocketbooks.
Hospitals will also have to hold public hearings on these evaluations. When it gets down to the nitty-gritty, Mr. Lynch and Principle Valuation are implementing two main steps:
1. Check for sufficient cash flow. From an accounting standpoint, hospital districts and third parties will have to analyze the hospital's operating cash flow to see if it is generating enough cash to replenish assets. If a hospital is generating sufficient cash, then the hospital is, more or less, able to stand pat.
"If that's the case, then the conclusion is the hospital is sustainable because of the amount of cash it's creating," Mr. Lynch says.
Mr. Lynch adds that CMS' quality data and public cost data must also be used during the process to give a full picture of where the hospital stands from a community care perspective.
2. Consider all alternative management structures. For hospitals that don't make the grade in step one, step two becomes obligatory, and an alternative ownership will be considered.
"What this law does is it challenges the governance structures of these hospitals and asks, 'Is there a better way to do this? Could this care be provided by a not-for-profit that's not affiliated with the government or by a for-profit entity?'" Mr. Lynch says. "Five months into 2013, it's going to be really interesting to see what shakes out of this."
The new law essentially requires public hospitals in Florida to see if their current governance structure leads to the best care in their area. By Dec. 31, 2012, hospitals must have started a five-month evaluation process that looks at the possible benefits of selling or leasing facilities within the district to non-profit or for-profit health systems.
In total, this law will impact 34 public hospital districts, which are usually seen as the safety-net providers of a community. What's interesting, says Adam Lynch, vice president of Principle Valuation, is that Florida's public hospital districts have to do this on their own without any sort of financial backing. "It's an unfunded mandate," Mr. Lynch says. "By the end of this year, all of these hospitals have to engage someone — a valuation specialist or an advisor — to determine what the hospital's fair market value is." Most public hospital districts are run by counties or some type of independent authority of a county, and most have taxing authority within the district. However, some don't levy any taxes — 17 of Florida's 34 hospital districts don't — so the process would not necessarily affect taxpayers' pocketbooks.
Hospitals will also have to hold public hearings on these evaluations. When it gets down to the nitty-gritty, Mr. Lynch and Principle Valuation are implementing two main steps:
1. Check for sufficient cash flow. From an accounting standpoint, hospital districts and third parties will have to analyze the hospital's operating cash flow to see if it is generating enough cash to replenish assets. If a hospital is generating sufficient cash, then the hospital is, more or less, able to stand pat.
"If that's the case, then the conclusion is the hospital is sustainable because of the amount of cash it's creating," Mr. Lynch says.
Mr. Lynch adds that CMS' quality data and public cost data must also be used during the process to give a full picture of where the hospital stands from a community care perspective.
2. Consider all alternative management structures. For hospitals that don't make the grade in step one, step two becomes obligatory, and an alternative ownership will be considered.
"What this law does is it challenges the governance structures of these hospitals and asks, 'Is there a better way to do this? Could this care be provided by a not-for-profit that's not affiliated with the government or by a for-profit entity?'" Mr. Lynch says. "Five months into 2013, it's going to be really interesting to see what shakes out of this."
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