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Indian River Medical Center: Who owns what


By the time a “for sale or lease” sign goes up, it’s usually clear who owns the property. But in the case of Indian River Medical Center, ownership isn’t so obvious.

As the officials currently looking for a healthcare partner know only too well, the hospital has ties to at least three entities, any or all of which could have some stake in a deal. Just who owns what is murky enough that two officials at first gave two different answers as to who owns the hospital’s cancer center.

They eventually agreed: the Scully-Welsh Cancer Center belongs to county taxpayers. The guardian of those properties is the Indian River County Hospital District, which indisputably owns – on behalf of taxpayers – the hospital’s brick-and-mortar main campus and the land it sits on, plus the Behavioral Health Center across the street.

The District leases all that property to IRMC, a separate management corporation that runs the hospital.

IRMC has some ownership claims too, however.  In 1996, it formed a real estate investment arm, Health Systems of Indian River Inc., a nonprofit corporation with a board of directors that mirrors the hospital’s board. Along with owning land by the hospital campus, Health Systems bought Vero Radiology, built the new Health and Wellness Center and is part-owner of medical office space in Sebastian.

And then there’s the third entity, Indian River Medical Center Foundation, which among other capital projects raised $100 million to build the hospital’s much-heralded heart and cancer centers, both now part of the District’s campus and leased to IRMC. While the foundation technically doesn’t own property, it could be reimbursed a portion of those donations if it doesn’t approve of the new hospital partner.

Indian River County also could have a claim on sale proceeds. A relatively recent state law caught Hospital District officials by surprise last year when they discovered it provides for counties to get half of the proceeds from the sale of a District-owned hospital. Those proceeds would be paid out not for healthcare directly, as the taxes the District collects are, but for new healthcare related business ventures.

An attorney for the hospital, Jon Gatto, who specializes in public hospital leases, warned the IRMC board in a November meeting that if any deal with a partner in the months ahead isn’t precisely structured, the 50-50 split could be triggered and a public referendum could be required to approve the sale.

Such a vote is spelled out in the legislature’s special act that formed the Hospital District.

“Prior to any decision to sell all or substantially all of the facilities which make up Indian River Memorial Hospital, the district shall cause a referendum to be held at which the electors of Indian River County shall have the opportunity to express their approval or disapproval of the proposed sale,” states the special act.

And that’s “no matter if your partner is for-profit or not-for-profit,” Gatto pointed out to the board.

The difficulty would arise “if the partner decided they wanted to own all the assets, including the District assets,” instead of continuing to lease them from the District, according to hospital consultant Barry Sagraves of Juniper Advisory.  In that case, “they would definitely need a referendum,” Sagraves said, noting that an outright sale would mean it would take longer to complete the transaction.

Gatto advocates a “hybrid” deal with the various entities that are involved that would include a new partner buying some assets and leasing others. As Gatto explained it to the hospital board of directors, the trouble begins if “the whole shebang” is sold.

“If the assets that are leased by IRMC continued to be leased [by the new hospital entity] and the assets that are owned by IRMC were purchased, then if you carefully structure the transaction, you can avoid the 50-50 split and a lot of the parade of horribles,” said Gatto.

That gives new urgency to the issue of asset ownership.

In the 32 years since the Indian River County Hospital District first leased its hospital to a management company, lines have blurred around which entity owns what buildings and businesses.

Not only was there confusion on the part of top officials about who owns the cancer center, there is still some uncertainty as to whether Vero Radiology and the Wellness Center revert to the District when the hospital’s lease expires in 2034. After District trustee Allen Jones examined the issue closely along with hospital board chairman Wayne Hockmeyer last year, they agreed those properties likely would revert to District ownership.

But with four hospital systems competing to take over IRMC, it seems doubtful the IRMC lease will ever see its natural expiration. All four have asked for an amended lease in their initial proposals.