Creative Solutions: An Unusual Partnership Results in a New Hospital Facility
by M. Barry Owens
What does a hospital and government agencies have in common with an American Indian tribe? In Durango, Colo., plenty. That’s where desire, cooperation, and maybe a miracle or two, led to the opening of a much-needed 215,000-square-foot hospital, an adjoining medical office building, and a new planned community.
Until 2006, the Durango metropolitan area of about 60,000 people had relied on an aging downtown hospital, Mercy Medical Center, which was constructed more than a century ago and had had subsequent add-ons. Situated on seven acres, confined by neighborhoods and a river, the hospital had no room for further expansion.
Local government and healthcare officials became concerned that if something wasn’t done, physicians might begin leaving for greener pastures, and the hospital would eventually be forced to shut down. Working with a healthcare consultant, hospital officials formulated a master plan and devised budgets.
“Our next move was to begin a search for a new location,” says Kirk Dignum, CEO/president of what has become Mercy Regional Medical Center.
Development Partner Reduces Costs
The problem: finding a large, relatively flat site
in the mountainous area that would have highway
access and could be developed within the budget,
says Dignum.
Unfortunately, all the locations identified by hospitals and city officials were in a county outside the city’s jurisdiction, meaning additional development costs would add up to $11 million on top of the $77 million bond ceiling placed by Mercy’s owner, Catholic Health Initiatives (CHI) of Denver. That was not an option.
To reduce the hospitals’ overall development costs, the consultant approached landowners interested in developing their properties. At this point, what some in the process have deemed a miracle, began to take shape.
On a nearby reservation, the Southern Ute Indian Tribe, with the help of their land development company, had purchased a large tract of land off their reservation just outside Durango to develop an extensive, planned community. But this is no ordinary American Indian tribe or reservation.
“Considered a sovereign nation by the United States, the tribe of approximately 1,400 people [live] on a reservation over top coal-bed methane gas,” says Tim Zink, special projects manager of a development firm owned by the Southern Ute tribe. “They have more than $1 billion in assets and have an AAA-bond rating, which is better than many countries.”
Over the years the Southern Ute Indian Tribe, using gas revenues as a foundation, created a business empire, which includes an oil and gas production company, a gas pipeline company, a utility company, and multiple land development and construction companies. Their real estate holdings include a Federal Aviation Administration building in Kansas City, the Northrop Grumman Building in Denver, and a medical office building in Las Vegas, according to Zink.
Though farthest away from downtown and, thus, the least favorite of potential sites, the Southern Ute Indian Tribe property had the advantage of having an innovative development company behind it, including all of the tribe’s financial resources. “We saw an opportunity for the hospital to be an anchor to jump start a new Durango development,” says Zink.
In addition, the Southern Ute tribe wanted healthcare services nearby, particularly dialysis because of the high incidence of kidney disease among tribal members. Tribe members also recognized the new hospital would be good for the entire community.
The tribe’s development company had only about a month to put together and make a proposal to Mercy.
Proposal Includes Donated Acreage
Here’s how the proposal ultimately worked out,
according to Jerry Heberlein, a vice president with
hospital’s consulting firm: Mercy received a
donation of 35 acres and purchased another 25 acres,
with part of that purchase price going toward
developing the necessary infrastructure, such as
water, sewer, roads, and power. The Southern Ute
Indian Tribe’s development company built all of the
infrastructure up to the hospital property line. The
total cost of the 60 acres would be $6.4 million, of
which Mercy would pay $3.2 million.
In addition, the tribe’s development company constructed the road access to the hospital, including a required intersection connecting the approximately 700-acre planned development to the highway.
The offer made the tribe’s property the most logical choice. “The hospital was given an offer they could not refuse,” says Greg Hoch, director of planning and community development for Durango.
Overall, the Southern Ute Indian Tribe development would include residential and light commercial following the new urbanism theme of higher density coupled with more pedestrian access, says Zink. The development itself would have 2,300 dwelling units, a couple of schools, a regional park, and two villages with commercial cores.
“Not only would it provide a tremendous job base, it would be the biggest project we have ever had in Durango,” says Hoch.
Project Overcomes Opposition, Complications
But the offer was contingent on a number of factors,
including the annexation of the development area by
the city from the county. The Colorado Department of
Transportation would also have to make adjustments
in its highway plans to place a major intersection
adjacent to the project site.
To complicate things even more, the Army Corps of Engineers would require the hospital and the tribe’s development company to mitigate the affect of the development on wetlands disturbed by the development.
The annexation of the Southern Ute Indian Tribe development required multiple public hearings and meetings, presenting a potential death blow to the deal. But through tenacity, hard work, ingenuity, and perhaps that aforementioned miracle, the project remained on track despite initial opposition from many individuals and groups.
When the community, including city officials, county officials, neighborhood leaders, activists, and others took a hard look at the proposed project, they knew they couldn’t afford not to go along with it, says Hoch.
The annexation was completed in about six months, while at the same time, plans were finalized with state Department of Transportation regarding the highway and the Army Corps on the wetlands-mitigation work. Construction of the hospital and supporting infrastructure followed quickly.
At the same time, the community got on board and contributed $11.5 million to the Mercy Health Foundation, the hospital’s charitable organization, to help pay for many items and programs needed by the hospital, such as equipment, charity care, gardens, a chapel, and renal dialysis, says Karen Midkiff, chief development officer of the foundation.
End Result: New Hospital
In the end, Durango ended up with a brand new 82-bed
hospital, currently staffed by 120 physicians and 40
mid-level practitioners covering more than 35
medical specialties. The hospital provides a
high-paying employer, and the development acts to
spur economic development for the area with a
tremendous job base, says Dignum.
Providing even more benefits to the community, the hospital donated land to the Southwest Colorado Mental Health Center, a Durango-based, not-for-profit organization, to develop a new psychiatric center. The hospital also provided land to Mercy Housing Colorado, a Denver-based not-for-profit organization that provides affordable housing, to build 66 low-cost housing units. (CHI is a strategic healthcare partner of Mercy Housing.)
Perhaps the real miracle, however, was that the project came in at budget. The final cost was $77 million. The hospital was able to whack costs by not having to develop infrastructure (savings of $9 million). Other savings were achieved by pre-purchasing mechanical and electrical material ($750,000 saved) and basing the cost of excavation on time and material rather than using a one-lump sum ($450,000 saved).
“When you look at all the synergy that happened with all the partnerships and cooperation, it is just remarkable,” says Dignum. “Everyone turned out to be winners and the community ended up with more than we could ever have imagined.”
Exhibit: Mercy Regional Medical Center: The
Budget
Original Budget: 77 million*
Actual Cost: $77 million
Savings: More than $10.2 million
- 9 million from obtaining development partner to develop infrastructure
- $750,000 from pre-purchasing mechanical and electrical material
- $450,000 from basing excavation costs on time and materials rather than using a lump sum contract
* In 2004 dollars; budget was based in part on a capped borrowing limit
Source: Hammes Company