JEANNE GOCHE

IRON MOUNTAIN — A decision will be made soon whether county taxpayers will potentially be on the hook to keep Dickinson County Healthcare System in business.

The county board was asked Thursday to back a $7 million line of credit for DCHS until a long-term loan can be secured through the U.S. Department of Agriculture’s Rural Development Agency.

The request came from Venable LLP partner Bart Stupak, who is leading a restructuring of the financially troubled county subsidiary. Although DCHS is legally tied to the county, taxpayers now carry no financial liability if it fails.

That could change if Stupak’s request is approved by the county board, which held a one-hour special meeting Thursday to hear his pitch.

“I’m looking for a backstop,” Stupak said, explaining the money may be needed to see the hospital through until it obtains long-term financing in the range of $30 million. Once a federal loan is secured, likely by summer, anything spent from the line of credit will be paid back with interest, he said.

“Our hope is not to use the line of credit at all,” said DCHS interim CEO Jeanne Goche, who came on board a week ago. “You are giving me a little bit of a safety zone. It would be really tragic to lose local control (of the hospital) because of a (financial) blip,” she said.

A $7 million taxpayer guarantee, however, is nearly as much as the county’s general fund budget, which totaled $9.3 million this year. General fund property tax revenues are projected at $5.4 million for the year.

“We can’t put the county under the bus,” Chairman Henry Wender said.

“If we don’t do it, there won’t be any bus,” countered Commissioner Joe Stevens, a liaison to the hospital board.

Commissioner John Degenaer Jr. said he supports the concept of a line of credit, saying DCHS may never have to spend it. “It’s an insurance policy, basically,” he said.

Stupak pointed out that DCHS is the county’s largest employer and “a $300 million enterprise” in terms of annual economic impact.

Under the plan, Stephenson National Bank & Trust would partner with other banks in gathering the cash DCHS may require. The county, however, would be responsible should any borrowing go unpaid.

Washington D.C.-based Venable was hired by DCHS about two months ago to oversee a financial restructuring and offer a turnaround plan. Previously, DCHS was prepared to explore Chapter 11 bankruptcy after two potential buyers of the hospital pulled away.

From the start, Stupak has said a bridge loan would be needed before any long-term financing is obtained. He had hoped Rural Development could provide that money as well, but DCHS lacks sufficient equity. The county holds the deed to the main hospital campus and buildings, which are leased to DCHS for a token sum. Because of that lease, the property can’t serve as collateral for a short-term USDA loan, Stupak said.

The former Northern Michigan congressman also raised the possibility of the county taking on DCHS’s unfunded pension liability, estimated at $26 million, but the board showed no appetite for that.

County Controller Brian Bousley will seek legal advice to define the line of credit so the county’s risk is minimized. “We have to do something to keep the hospital,” said Bousley, acknowledging the commitment involved. A special board meeting may be scheduled next week.

Commissioner Barbara Kramer said DCHS is, essentially, a private entity and the borrowing might be more acceptable if the county weren’t shouldering the risk alone.

“You also need to reach out to the private sector,” she advised Stupak. “Maybe they could also help.”

Despite the need for a line of credit, Stupak remains confident DCHS can become profitable, telling the board he expects it to be “in the black as a health care system” by the end of 2020.

Earlier, at a news conference introducing Goche and chief restructuring officer Dennis H. Smith, Stupak said the next step is finalizing a turnaround plan, including financial forecasts. The long-term borrowing will likely be for 30 years and could also include new investments, such as technology upgrades and a medical building for family practice physicians.

For the short term, Goche, an Iowa health care executive who has provided transitional leadership nationwide since 2008, said she’s focused on stabilizing DCHS’s finances by improving the revenue stream and holding down expenses. A faster turnaround in billing is a first step, she said. Dickinson County, she added is “a lovely community” with “an excellent health system.”

Goche said there are many rural health providers facing similar financial problems. Unlike some facilities, “the clinical care here is excellent,” she said.

Smith, a consultant who formerly worked as president of the Upper Peninsula Health Plan serving 50,000 U.P. residents, echoed Goche’s praise for DCHS as having “an outstanding facility and staff.” Adjustments are needed but “we’ll get through,” he said.

In the discussion with the county board, Smith described DCHS as “a good risk” for a brighter future.

One of DCHS’s off-campus properties, of which there are dozens, is already on a list to be sold, Goche told commissioners.

Jim Anderson can be reached at 906-774-3500 ext. 26 or janderson@ironmountaindailynews.com.