leveland Memorial Hospital, Inc. is a not-for-profit hospital located in Shelby, North Carolina, with 261 licensed acute care beds and 120 long term care beds. The hospital is often referred to as Cleveland Regional Medical Center (CRMC). Beginning October 1, 1997, this facility was leased to Carolinas Health Care System (CHCS) for $1.4 million per year for 11 years; half of the yearly lease payment is fixed and the remainder based on operational results. Up to $300,000 per year is paid to a community organization providing primary care for indigent persons in the county.

Conversion Process

Motivation. Maintaining a viable community hospital was the primary motivation of the lease. In 1993 the CRMC signed an affiliation agreement with CHCS; the relationship between these entities was continued through a contract management arrangement signed in 1994. These dealings in times of crisis proved beneficial in the eyes of the hospital board and county commissioners, who moved to a lease to continue to strengthen the changes that had been made and to make the hospital more viable in the long term.

Public Oversight. The county commissioners were ultimately responsible for agreeing to the lease, and will determine how the proceeds are spent in the future. The county commissioners technically have oversight over the hospital, but have ceded this power in the past to the not-for-profit board that ran the hospital. The hospital board was in favor of the lease arrangement with CHCS, and played an active role in related discussions and negotiations.

The Attorney General had no role in this lease arrangement, and no antitrust issues were raised.

Fair Value. The lease payment appears to be relatively small, given projected revenue streams the hospital is likely to generate. However, many viewed the linkage with CHCS as beneficial for reasons difficult to measure, including expertise in hospital management, the ability to link with a regional health system, and the ability to avoid the chance that the hospital would be purchased by an outside, investor-owned hospital corporation.

Community Control

The community has lost control of the operation of the hospital and the cash flows from its operations, but only for 11 years. However, the implications of not renewing a lease arrangement or entering into another type of affiliation at the end of the current lease with CHCS are unclear. A community board with broad powers of overseeing clinical mission and day-to-day operation of the hospital remains intact, as stipulated by the lease, with authority granted by CHCS.

Community Health Impact

Hospital Survival. The hospital board felt that a proactive move to increase market share and ability to contract was needed in order to stave off purchase offers from for-profit hospital chains. The hospital had a managerial crisis in the mid-1990s, and both the affiliation and the contract management arrangement with CHCS appear to have been beneficial. Considering the expansion of managed care into the area, the board felt that an alliance with a regional health care system would prove beneficial to the health of the hospital. The general standing of the hospital has been improved by affiliation with CHCS and the lease arrangement.

Access. The lease has not resulted in any barriers to care for uninsured or Medicaid patients. The lease arrangement means that closer referral and specialty clinic links with CHCS are likely, potentially expanding access to certain services in the community. The lease arrangement has had no effect on the hospital's historical policy of providing care to all persons without regard to ability to pay.

Cost. The lease arrangement has had no appreciable impact on cost of care at the hospital. The cost of care at the hospital appears to be in line with similar facilities in the area. The lease arrangement is still relatively new, so it is not clear if it will have an impact on cost.