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CITY OF SEWARD,ALASKA
RESOLUTION 2014-071
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, APPROVING AMENDMENT NO. 2 TO THE MANAGEMENT
AND OPERATING AGREEMENT BETWEEN THE CITY OF SEWARD
AND PROVIDENCE HEALTH & SERVICES TO REDUCE THE
ANNUAL FIXED PERIODIC FEE BASED ON CARVING OUT PRIMARY
CARE CLINIC OPERATIONS
WHEREAS, the City owns real property consisting of land, a hospital building and
Seward Mountain Haven, a long-term care facility, together with other improvements thereon;
and
WHEREAS, Providence Health & Services Alaska ("Providence") and the City of
Seward ("City") entered into a management and operating agreement ("Agreement") in April,
2003, when Providence began operating the collocated hospital and long-term care facilities on
the City's behalf; the current Agreement between Providence and the City became effective June
3, 2013 and expires June 2, 2018; and Amendment No. 1 between the parties became effective
on April 10, 2014; and
WHEREAS, the City of Seward and the Seward Community Health Center, Inc.
("SCHC") are co-applicants as a federally qualified health center under Section 330 of the Public
Health Service Act, and have been operating the SCHC since March 10, 2014; and
WHEREAS, as a result of carving off the primary care clinic operations previously
managed by Providence, the Agreement must be modified to reflect a reduction in the Annual
Fixed Periodic Fee based on the reduced scope of services and associated direct and indirect
costs related to building space, operating costs, and reduced services.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF SEWARD,ALASKA, that:
Section 1. The City Council hereby authorizes the city manager to execute and deliver
Amendment No. 2 to the Management and Operating Agreement between the City of Seward,
Alaska and Providence Health & Services — Washington, dba Providence Health & Services
Alaska, as presented at this meeting.
Section 2. This Resolution shall take effect immediately upon adoption.
PASSED AND APPROVED by the City Council of the City of Seward,Alaska,this 25th
day of August, 2014.
CITY OF SEWARD, ALASKA
RESOLUTION 2014-071
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THE CITY OF SEWARD, ALASKA
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ean Bardarson, Mayor
AYES: Keil, Terry, Squires, Butts, Darling, Bardarson
NOES: Casagranda
ABSENT:
ABSTAIN:
ATTEST:
Jo anna Kinnegr MC
Clerk
(City Seal)
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Council Agenda Statement (F, e$ w
Meeting Date: August 25, 2014 F, , �' `�`�'a 11
Through: James Hunt, City Manager t.
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From: Kristin Erchinger, Finance Director ididej
Agenda Item: Amendment No. 2 to Providence and City Management&Operating Agreement
BACKGROUND &JUSTIFICATION
Providence Health and Services, Alaska("Providence") and the City of Seward ("City") are parties ("Parties")to a
management and operating agreement("Agreement")which became effective June 3,2013 and which will expire June
2,2018. The Parties executed Amendment No. 1 in March 2014 to reflect the carve-off of primary care clinic services
from the Agreement since the primary care clinic is now operated as a federally qualified health Center("FQHC")under
Section 330 of the Public Health Service Act, with the City of Seward and the Seward Community Health Center
("SCHC")serving as co-applicants of the FQHC.
Amendment No. 1 modified the scope of services in the Agreement to eliminate Providence's operation of the primary
health care clinic. The Parties agreed to a four-month period of time to review the impact of the carve-off of primary
care services in order to better assess the financial impact of the operational change on the direct and indirect costs of
modification in building space,operating costs and reduced services. The current Agreement includes an"annual fixed
periodic fee" ("AFPF") of$900,000 effective January 1, 2014, which approximates the worth of total direct costs,
indirect costs,and management services if purchased on the open market. Since labor represents the largest operating
cost and associated management support cost driver,the Parties agreed to utilize the pro-rata share of labor costs as a
proxy for conducting a market analysis to determine the appropriate reduction in AFPF. The result of this methodology
was compared to the outcome of the previous market analysis,and the estimated pro-rata share of costs is comparable.
Utilizing 2013 figures, the proposed reduction is calculated as follows: Total Full-Time Equivalent Employees =
130.38. Clinic and Front-Desk FTE reduction from primary clinic closure= 8.60, or 6.6%of all personnel. A 6.6%
reduction in management fee=$59,400,rounded up to$60,000. This results in a new proposed AFPF of$840,000,or
$900,000 minus $60,000. In accordance with the terms of the Agreement,this amount will be pro-rated based on the
effective clinic closure date of February 21,2014,and will be subject to an annual adjustment based on the Consumer
Price Index.
INTENT:
The intent of this action is to reduce the reimbursement to Providence of direct, indirect, and administrative support
service costs estimated to be related to the carve-off of primary care clinic services from the scope of services provided
by Providence under the Agreement.
CONSISTENCY CHECKLIST: Yes No N/A
Comprehensive Plan (document source here).p. 13, 27, 56 X
Strategic Plan (document source here):p. 20 X
Other (list):
ATTORNEY REVIEW: Yes X No
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FISCAL NOTE:
The specific fiscal impact of this action is a reduction in Providence Seward Medical&Care Center's annual expenses
of$60,000. Additional impacts of closing the PSMC primary care clinic include elimination of 8.6 full-time equivalent
employees and their associated costs. In addition,the clinic was operating at a financial loss and it is expected that the
CHC,due to its annual federal support of more than$600,000 per year,will see improved clinic financial performance.
Finance Department: ijL .A.G'tr 44)
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RECOMMENDATION: Seward City Council approve Resolution 2014- authorizing Amendment No. 2 to the
Management and Operating Agreement between Providence Health& Services Alaska and the City of Seward.
AMENDMENT NO. 2 TO
MANAGEMENT AND OPERATING AGREEMENT
BETWEEN THE CITY OF SEWARD
AND
PROVIDENCE HEALTH & SERVICES — WASHINGTON
DBA PROVIDENCE HEALTH & SERVICES ALASKA
This Amendment No. 2 ("Amendment No. 2") to the Management and Operating
Agreement between the City of Seward ("City") and Providence Health & Services-Washington
dba Providence Health & Services Alaska ("Providence") is made this 26th day of August, 2014.
Providence and the City may be referred to in this Amendment as a "Party" or, collectively, as the
"Parties."
RECITALS
WHEREAS, the City and Providence are Parties to a Management and Operating
Agreement effective June 3, 2013, as amended by Amendment No. 1 thereto ("the Agreement"),
under which Providence manages Providence Seward Medical & Care Center ("PSMCC"); and
WHEREAS, the Parties entered into Amendment No. 1, effective February 15, 2014
("Amendment No. 1"), to modify the Agreement to, among other things: (1) recognize that
certain primary care clinic services formerly managed and operated by Providence would be
discontinued, and replaced by primary care services operated by the City of Seward and the
Seward Community Health Center, Inc., as co-applicants awarded designation as a federally
qualified health center under Section 330 of the Public Health Service Act ("the FQHC"), and (2)
provide for future renegotiation of the Annual Fixed Periodic Fee described in Section 7 of the
Agreement, once the FQHC became operational, to reflect an appropriate prospectively applied
reduction in the management fees paid to Providence associated with the above-noted change;
and
WHEREAS, Providence Seward Family Care clinic closed February 15, 2014 and the
FQHC, known as Seward Community Health Center, opened March 10, 2014; and
WHEREAS, as required by Section 7 of the Agreement, the Parties have evaluated the
impact of the foregoing change on the overall costs incurred by Providence associated with
management of PSMCC, and have reached agreement regarding modifications to the Annual
Fixed Periodic Fee necessary to reflect that change for the remainder of 2014; and
WHEREAS, the Parties now desire to revise Section 7 to the Agreement to memorialize their
agreement regarding the above-noted change to the Annual Fixed Periodic Fee.
AMEND ENT
NOW THEREFORE,the parties hereby agree as follows:
1. Revised Section 7. Section 7 to the Agreement is hereby revised and replaced in its
entirety with the following:
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Until January 1, 2014, the Annual Fixed Fee Period Fee ("AFPF") will continue
to be computed under the provisions of the previous Management and Operating
Agreement between the parties that had an effective date of October 8, 2008. For
calendar year 2014, the City shall pay Providence the AFPF at two different
quarterly rates, with the second rate reflecting the full prospective application of
the removal of costs previously associated with Providence's management and
operation of the primary clinic operations at PSMCC on or after February 15,
2014: (1) for each of the first two quarters of calendar year 2014, the City shall
pay Providence $225,000, payable by the City quarterly, in arrears; and (2) for
each of the last two quarters of calendar year 2014, the City shall pay Providence
$195,000, payable by the City quarterly, in arrears (for a total AFPF of$840,000
in calendar year 2014). This fee will replace any allocated costs and/or
management fee computed under the provisions of the previous agreement, and is
intended to approximate the worth of purchasing the same or similar services on
the open market.
Beginning January 1, 2015 and each January 1st thereafter, the AFPF will be
payable by the City in equal quarterly amounts, and will be based upon the total
AFPF applicable in calendar year 2014, as adjusted by the Consumer Price Index
for the second preceding twelve-month period ended December 31 (Anchorage
Alaska, All Urban Consumers — Not Seasonally Adjusted, Base: 1982-1984).
(For example, January 1st 2015 will be adjusted based on the CPI for the full year
which ended December 31, 2013.) Partial years shall be pro-rated. Both parties
understand and agree that the City has other financial obligations to Providence
pursuant to the terms of this Agreement.
3. Capitalized Terms. All capitalized terms in this Amendment shall have the same
meaning given to such terms in the Agreement unless otherwise specified in this
Agreement.
4. Continuation of Agreement. Except as specifically amended pursuant to the foregoing,
the Agreement shall continue in full force and effect in accordance with the terms
in existence as of the date of this Amendment No. 2. After the date of this
Amendment No. 2, any reference to the Agreement shall mean the Agreement as
amended by this Amendment No. 2.
The Parties have executed this Amendment No. 2 on the date first above written.
AGREED TO BY AND BETWEEN:
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For CITY OF SEWARD:
James Hunt, City Manager Date
ATTEST:
Johanna Kinney, CMC
City Clerk
(City Seal)
For PROVIDENCE HEALTH & SERVICES —WASHINGON
DBA PROVIDENCE HEALTH & SERVICES ALASKA:
Bruce Lamoureux, Chief Executive Officer Date
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