Credit Crisis To Slow TCMH Expansion, Remodeling

The Texas County Memorial Hospital board of trustees voted unanimously to approve an $18 million, 38,000-square foot expansion and related renovation to the existing hospital, “contingent upon appropriate financing” at last week’s monthly board meeting.

Appropriate financing will require current bond interest rates to go down to build the entire hospital project, which includes new construction of an emergency department, radiology suite and medical surgical floor and extensive remodeling and renovation in other areas of the hospital such as laboratory, education, cardiopulmonary and cardiac rehabilitation.

TCMH officials initially faced delays in the building project when construction materials prices rose earlier this year. Rather than pursue the project with estimated bids projected to be $16.4 million for new construction, TCMH requested that JE Dunn Construction Co., the contractor hired to manage the project, gather hard bids from the various subcontractors involved in the project. JE Dunn received bids from 110 subcontractors.

Kevin Wagner, senior project manager for JE Dunn, described the numerous bids as “good coverage” which usually translates into “good pricing.”

“For example, we had seven bids on the steel for the project,” he said.

Wagner explained that JE Dunn typically needs three contractors to place bids in order for the bids to come in within budget and five subcontractor bids will typically come in below budgeted expectations.

“The more interest we have from subcontractors in a project, the better it is,” Wagner said.

Wagner explained that JE Dunn did “a lot of work on the front end” in working with subcontractors and telling them exactly what was needed for the project.

Gary Hansen, principal at HMN Architects in Springfield, the architectural firm working on the hospital project, commended the pre-bid work done by JE Dunn.

“From our perspective, I’ve never seen so many bidders,” Hansen said.

After receiving the new bids, the new portion of the project will cost $14,636,450 for construction, which doesn’t include some contingencies also part of the project. Adding the cost of new furnishings and funds to renovate old portions of the hospital vacated by the new construction brings the overall cost up to $16.8 million, lower than estimated projections given to TCMH in July. The inclusion of some contingencies makes the total outlay about $18 million.

Wes Murray, chief executive officer at TCMH, was pleased with the results of the bids, which came in at $268.12 a square foot.

“Originally, the construction was projected to cost $300 a square foot,” Murray said. “After seeing this new number, I believe we got some great bids. Unfortunately, the current economic situation has affected the bond markets adversely.”

TCMH intended to finance the new construction with general revenue bonds – a tax-exempt bond. UMB Bank, NA, in Kansas City provided TCMH with a feasibility study for the bonds earlier this year. It showed that TCMH could handle a debt capacity of $17.5 million – which would cover the cost of the hospital’s expansion project.

“Right now the banks have millions of dollars in unsold bonds due to the current financial market,” Murray said.

Interest rates for the TCMH project have increased up at least two percent up from coupon rates a month ago that ranged from 4.4 percent to 5.9 percent.

“With the interest rate increase our debt capacity doesn’t change, but what we are able to get for that debt capacity does change,” Murray explained.

“The fluctuation of the bond market could dramatically increase the cost of the project,” Mark Forbes, board member, concurred.

Murray and hospital board members agreed that the hospital’s project was important enough to continue forward and to pursue if appropriate interest rates for the bonds could be obtained.

JE Dunn will continue to put together specific documents related to the subcontractor bids – approximately a two-week process. UMB Bank will prepare the bond documents which will take about four weeks.

“We have 45 days to accept the bids from the subcontractors, and perhaps within that time we will have a window of opportunity to finance appropriately,” Murray said.

Murray also realizes the current economic situation may not turn around in the next few weeks.

“We may have to turn around and re-bid this project when the bond market improves,” he said.

JE Dunn and HMN both agreed to work with TCMH as needed to help the hospital complete the project.

“We have a great project ahead of us,” Murray said, “and I don’t believe we should let this issue take away from the need to do the project.”

Dr. Charles Mueller, chief of staff and general surgeon at the hospital, hopes that with appropriate financing the hospital can build the planned new core hospital, then look toward future building projects that will focus on areas such as ICU, surgery and obstetrics.

“We need to build this, but we don’t need to get in over our heads,” Mueller said. “It would be nice to get ourselves in a situation where we can focus on other areas and build this hospital into what it needs to be for the next 20 to 30 years.”

Murray thanked the board for continuing to pursue the building project despite the hurdles faced.

“I have faith that we can do this project,” he said.

Omanez Fockler, chair of the TCMH board, remained positive.

“We can still have other good things happen with this project,” she said. “We need to press forward and see what happens.”

In other news, Murray reported that TCMH received $24,265 in federal transit administration funds from the Missouri Department of Transportation. The funds will be used to offset costs of operating the TCMH Medivans.

“Originally we received a grant from the Missouri Foundation for Health to help us start and run the Medivan program,” Murray explained. “There is an even greater need for the Medivan today, but our grant for running the program has run out.”

Murray noted that TCMH is committed to continuing the low cost transportation program, and the new grant funding will help offset about half of the funds needed to run the Medivan in the upcoming year.

The Office of Rural Health has given TCMH $8,282 in grant funding to be used for quality improvement as part of the Small Hospital Improvement Plan. TCMH qualified for the funding due to the hospital’s location in the Delta Region Authority.

TCMH did not receive a USDA loan to assist with purchasing land and building a clinic and ambulance base in Mountain Grove.

“The application for the federal funds was submitted during the quarter when the least amount of federal funding was available,” Murray said. “However, our overall goal is still to have a presence in the Mountain Grove market.”

TCMH will continue to pursue the federal loan program during future application periods.

In financial news, Linda Pamperien, chief financial officer at TCMH, reported a positive bottom line of $19,303 in August and year-to-date balance of $238,043.

As in July, the August numbers showed an increase in outpatient services, particularly in cardiac rehabilitation, radiology and the emergency room.

Present at the meeting were Murray, Pamperien, Mueller, Doretta Todd-Willis, director of nursing; Joleen Senter Durham, director of public relations; JE Dunn representatives, Wagner; Vance McMillan and Matt Evans; and board members, Forbes, Fockler, Jane Kirkwood and Janet Wiseman.

Board member Larry Southern was not present.

The next meeting of the TCMH board of trustees is noon Tuesday, Oct. 28, in the downstairs meeting room of the hospital.

Leave a comment

Leave a Reply