Erlanger’s move to private nonprofit complete. Here’s what to know.

From the Chattanooga Times Free Press: The Tennessee attorney general has signed off on Erlanger Health System’s transition to an independent nonprofit organization — the final step in the process of converting Chattanooga’s largest and only safety net hospital from a government to a private entity under Internal Revenue Code 501(c)(3).

Erlanger officials confirmed the approval in a statement, thanking the attorney general and community leaders for their help in reaching this milestone, allowing the newly formed Erlanger Health to launch Saturday.

“We began this journey over a year ago with one goal in mind — to place Erlanger in a sustainable position that would allow us to continue our mission as the region’s safety-net hospital,” said a joint statement from board Chair Shelia Boyington and Erlanger CEO Jim Coleman. “Becoming an independent nonprofit 501(c)(3) organization will give us greater flexibility needed to sustain and grow our services and do our utmost to ensure we are here to provide the best health care possible to everyone in our community for decades to come.”

Erlanger grew to become one of the nation’s largest public hospital systems in the 132 years after it was founded.

The health system has six hospitals across Southeast Tennessee, including the only children’s hospital within 100 miles, a hospital in Murphy, North Carolina, and an academic teaching program affiliated with the University of Tennessee College of Medicine.

The flagship Baroness hospital along the East Third Street medical corridor is home to the region’s only Level 1 trauma center, which treats the most severe injuries and illnesses, and the Southeast Regional Stroke Center, which provides the highest level of stroke care and is one of the nation’s busiest stroke centers.

Erlanger is Hamilton County’s largest employer, with more than 6,700 full- and part-time workers as of Friday, and is expected to bring in more than $1.1 billion net patient revenue in the 2023 fiscal year, according to hospital records.

A long road

Restructuring Erlanger was a significant undertaking for the Erlanger board, management and local elected officials.

The effort was initially spearheaded by Coleman, who at the time was chair of the Erlanger board, Trustee Vicky Gregg and former Hamilton County Mayor Jim Coppinger — all of whom contended that change was needed in order for Erlanger to remain competitive and viable in the modern health care era.

In a phone interview Friday, Coppinger reiterated the value Erlanger brings to the Chattanooga region. He considers helping to facilitate the Erlanger transition among the top five accomplishments of his 11-year tenure as county mayor.

“If you’ve had any serious illnesses or accidents in your family, and you’ve had to experience having to go to Level 1 trauma and you live within a 50- or 100-mile radius of here, you may end up there,” he said. “And then you realize, ‘Wow, I didn’t know that much about Erlanger,’ but it really is important.”

Before any changes could be made, state law needed to be amended to give hospital leaders the legal authority to pursue and transition to independent nonprofit status.

In March 2022, the Hamilton County Commission passed a resolution requesting Hamilton County’s legislative delegation propose an amendment to the 1976 private act that created the government entity Erlanger, which is officially called the Chattanooga-Hamilton County Hospital Authority.

It took some delegation members longer than others to come around to the idea, but Coppinger said a major turning point came when Rep. Patsy Hazlewood, R-Signal Mountain, filed the initial legislation in the House. Senate members eventually followed suit, and Gov. Bill Lee signed the bill into law that May.

“It just shows you: When people work together and communicate well together, big things can happen,” Coppinger said, noting the expertise of legal teams representing both the county and Erlanger was invaluable in the process.

One of the biggest concerns for Coppinger and other elected officials was ensuring employees’ jobs and benefits were protected and the mission of Erlanger was preserved once the hospital was no longer a government entity.

Months after the state law was changed, Hamilton County commissioners approved a 50-page “mission agreement” containing 13 covenants the new Erlanger Health must adhere to once it becomes private and is therefore no longer subject to the sunshine laws that long provided a window into operations at the health system. Some of those promises include maintaining key service lines and teaching hospital status while providing charity care to area residents.

A three-person oversight monitor board has been appointed to ensure Erlanger upholds the covenants for 15 years after the transition is complete.

“Things came together at the right time, with the right members of the board and the right people seeing the importance,” Coppinger said.

Going forward

While hospital leaders are confident in the move, becoming an independent nonprofit alone will not ensure Erlanger’s viability. Continued uncertainty and rapid change within the industry make managing any acute care hospital in the United States — particularly those that care for large portions of uninsured patients — a daunting task.

Erlanger on average has provided $135 million worth of uncompensated care over the past three fiscal years. Supplemental government funding has offset that figure somewhat, bringing net uncompensated care to a $76 million average each year, a hospital spokesperson said via email.

Erlanger management is projecting approximately $136.4 million worth of uncompensated care in the new fiscal year, which began Saturday. However, Erlanger will lose some supplemental funds now that it’s private, meaning the health system will net a larger amount of uncompensated care going forward. Management is budgeting to provide a net $90.5 million worth of uncompensated care in the new year.

While the health system has exceeded budget and outperformed many of its peers in recent years, decades of thin margins have left Erlanger with many costly infrastructure needs, amplifying the urgency of maintaining strong financial performance.

Historically, the public could attend the hospital authority board’s quarterly budget and finance meetings, which provide visibility into how Erlanger is doing financially.

Officials have repeatedly said the transparency required by their government status was a disadvantage in competing with private businesses.

The hospital authority board will still exist, and those meetings will continue to be open to the public. The authority board will primarily oversee Erlanger’s pension, bonds and lingering transactions that occurred under the old structure.

But the bulk of decision-making will take place under the new private board. That means it will be harder to know if Erlanger is thriving or struggling under its new model.

In their joint statement, Boyington and Coleman said hospital leaders remain committed to open communications and will continue to provide regular information to the community. Though different from the old Erlanger, the health system will be subject to certain public reporting requirements, including reporting financial activity under the IRS’ Form 990 process.

“Like other hospitals that operate as independent nonprofit 501(c)(3)s, we remain accountable for our performance to a number of federal and state public bodies and under a number of regulatory structures, including the Tennessee attorney general, the federal Medicare conditions of participation and an accreditation process approved by the U.S. Centers for Medicare and Medicaid,” the statement said.

The public can also still file open records requests for information that originates under the authority.