This artist's rendering captures the proposed appearance of the front entrance to the new Mackinac Straits Hospital building. Now under construction on North State Street in St. Ignace, the hospital is scheduled to open in April 2010. (URS Corporation, Grand Rapids) Plans for a long term care facility at the Mackinac Straits Hospital North State Street site in St. Ignace began unraveling last June, and by September, the facility was removed from the project when lenders required an immediate financial safeguard to back bond payments. The unexpected request cut into construction funds, say hospital administrators, and came at a time when building costs were rising.

Now, the focus is on construction beginning this summer for a 60-bed long term care unit there, which would include a 20-bed assisted living facility, hospital CEO Rod Nelson told The St. Ignace News Thursday,

January 15.

If actually built, the structure would be attached to the new twostory hospital and would open at the same time as the hospital, in April 2010. There are no guarantees it will happen, said Mr. Nelson, unless a number of things fall into place first.

The new hospital building now under construction has been reduced from 140,000 square feet to 85,000 square feet, leaving a structure that will contain the hospital and the Sault Ste. Marie Tribe of Chippewa Indians health clinic, but not the long term care facility originally planned.

"We were trying to figure out how we could make the project viable, given the construction cost estimates that were coming in," said auditor Steve Thompson. "Because of the unrest in the construction cost of the building materials and the escalation, it became very apparent that we probably weren't going to be able to do the entire project right away."

Mr. Thompson is with Wipfli and Associates of Green Bay, Wisconsin. The firm performed the financial feasibility study for the new hospital.

Plans Shift Away From Long Term Care to Close Deal

By the end of last summer, plans were shifted to secure funding for the hospital and tribal clinic, with the idea to focus later on financing for long term care, said Mr. Nelson. An ambulance building and maintenance garage also were cut from the project then.

"I'm thankful that we were able to close the deal when we did," said Mr. Nelson. "Because otherwise we would have lost the whole thing."

The hospital is funded by a $26.8 million United States Department of Agriculture (USDA) Rural Development loan and $10.4 million in direct loans from the USDA in conjunction with ArborOne Financial through the Farm Credit Association in South Carolina.

"It's not like we didn't have a plan in place," said Mr. Nelson, of the change in construction plans. "We have been talking to people for two years on these different strategies. It's always good to have backup plans. Because we have a network of friends and relationships out there, you're always looking at different strategies. That's why we were able to flip into this one real quick. This wasn't something we just pulled out of the air."

Steve Autore, who chairs the hospital building committee, concurred, saying, "I'm one of those people, I believe everything happens for a reason. Sometimes we don't understand what the reason is, but we continue to have where we want to go and how we want to get to it, and when the time is right, we will be there."

If those plans come together, the institutionalstyle cinder block walls at the current long term care facility on Burdette Street will be replaced by a wood-frame facility on North State Street that has an at-home atmosphere. There will be no long corridors, although a flexible pod design touted a year ago has been scrapped. Rooms will be private with shared baths. The facility will include a common area for families, a room for movies and refreshments, and food will be provided on demand, rather than on a fixed schedule.

"Our intent is to start that construction this summer, understanding there are variables," he said. The long-term care and assisted living structure is estimated to cost about $6 million.

As the hospital sought $37.2 million in financing for a new hospital last year, its troubled financial history translated into a risk to lenders, who required that more than $2 million immediately be placed in a debt service fund. Usually, said Mr. Nelson, such a fund is allowed to be built up over a 10-year period. The money is in place in case the hospital is unable to make bond payments and the funds will stay in the account until the bonds are paid off.

Initial Building Costs

Were Conservative

Initial building costs were conservative, said Mr. Nelson, and to attract cautious investors the construction plans had to be modified to present the least amount of risk to potential bond holders. From the beginning, he said, financial plans called for revenue from hospital operations to be used to pay off the bond debt. Any revenue from long-term care or the county-wide collected millage was not planned to finance the construction project.

Another factor contributing to eliminating long-term care from the original construction plans, he said, was the skyrocketing building cost at the time the hospital was solidifying funding agreements with the U.S. Department of Agriculture and ArborOne Financial. Construction materials, including the price of steel, were increasing rapidly.

Mr. Nelson said the board was under a time constraint from three fronts, the tribal agreement, escalating construction costs, and the threat of a failing national economy.

A commitment was made with the tribe during the land transfer to have a building open by 2010.

"If we had waited another four weeks before we closed the deal, sold the bonds, I'm not sure ArborOne would have went through with this," said Mr. Nelson.

According to Mr. Thompson, the auditor, "The unsettled bond market, from an interest cost standpoint, it probably would have been two percentage points higher, which probably would have killed the whole deal because the cost of funds would have been so significantly different than when you closed in early September."

The hospital closed on the bond financing in early September. Now, said Mr. Thompson, a lot of large construction projects planned by sound financial facilities are being put on hold, a result of the interest cost.

By having the clinic and the hospital - and not long term care - as part of the project, said Mr. Thompson, the Medicare program will reimburse approximately $300,000 more a year.

"That is pretty significant to the organization's financial performance," he said.

When all of these factors were coming together last year, Mr. Nelson said, the hospital board made the best decision for the organization as a whole.

In July 2007, the hospital began a $3 million capital campaign to raise funds for the new hospital. Through pledges and donations, about $600,000 has been raised so far, said Mr. Nelson. The bond holders only would accept what was deposited in the bank.

"They wouldn't take our word that we would raise the $3 million," he said. "That was another hurdle we had to overcome. [It was] little in the scope of the project, but that was a pretty big blow to us."

The fundraising campaign continues, with donations now planned for hospital equipment, said Mr. Nelson.

Three Plans

for Long Term Care

Now, the board is considering three plans for long term care, including financing the structure itself, finding a group of investors that would finance it, build it, and then lease it back to the hospital, or a combination of the two.

The proposed 42,000-squarefoot wood-framed building would be attached to the hospital building now under construction. It would include long term care, assisted living, and some administrative offices. Mr. Nelson is quick to add that for the project to move forward, three things need to take place: An approved design, a feasibility study, and financing.

The board and lenders must agree on a design, which would include long term care and assisted living in one building, yet separated.

With a design in place, construction costs need to be finalized, which is expected to take place by February, with a feasibility study completed by Mr. Thompson. The study would include annual payments for the cost of the building, which would be added to the hospital's overall financial picture.

Then, ArborOne must approve the project, said Mr. Nelson, as they have the ability to prevent the hospital from incurring any additional debt until the new hospital is complete. This may be the most difficult part of the process, he said; with the hospital under construction and not generating any revenue, this is the riskiest time for bond holders.

The USDA does not guarantee the bonds until the hospital building is occupied, added Mr. Thompson.

Long term care used to be the cash cow for the hospital, but the Medicare and Medicaid reimbursements that supported it have been redirected to less costly programs, like home health care and other assisted care. Requirements for admission to long term care are more restrictive now, said Sharon Martin, director of nursing.

As a result, added Mr. Nelson, "We have to figure out not only how to maintain and improve the quality [of care], but deliver it at a lower and lower cost."

Long term care is 90% funded by Medicaid, he said.

The proposed assisted living facility would provide an option for those who do not meet the requirements of long term care.

"I think the organization is really trying to identify ways they can provide services to the elderly in the community under the reimbursement constraints that they have," said Mr. Thompson.

The Burdette Street long term care facility now operates with 60 beds, which meets the needs of the community, with only one person on the waiting list right now, said the hospital board chairman, Ron Mitchell.

Construction Is on

Schedule for Hospital Charlie Livernois, senior superintendent of Skanska of Southfield, the new hospital construction management company, said construction is on schedule. All of the underground work is complete, including all sewer and water pipes. Parking lot and roads have been graded. Steel for the structure is going up and the sides of the building will be seen when the steel work is complete. Around April 1, roof work will begin, he estimates.

Mr. Livernois meets every two weeks with Mr. Autore and his building committee. The work is bid out in stages and the committee reviews bids coming in on various projects at the construction site.

"Certainly we have the dollar amount going forward in the back of our mind," Mr. Autore said, "but we also have local employment at the forefront, trying to bring as many jobs to the area as we possibly can."

The hospital board is working on plans for a $2 million outpatient surgery building, which could include a joint venture with other hospitals and physicians, said Mr. Nelson, although the project is about two years from beginning.

"The campus is being designed to accommodate a number of different services," said Mr. Nelson.

The new building will cost about $23 million. Of the $37.2 million obtained for the project, some money was placed in the debt service fund, the Mackinac Island Medical Center debt was refinanced, $3 million is planned for new equipment, $1.5 million is set aside in contingency funds, and other money went to the cost of issuing the bonds and legal expenses.

The county-wide hospital millage is up for renewal this year, and Mr. Mitchell said the hospital likely will seek a renewal of the current 1.2 mills.

The levy generates about $900,000 for long term care and is used to offset the operating deficit of the facility. Hospital revenues make up the difference, said Mr. Nelson.

Services To Be Included at New Hospital Site

Fifteen private acute care rooms will be on site. Each will have its own bathroom. The hospital now has 10 beds in a semi-private setting, with shared bathrooms.

Aqua therapy will be added and a 13-foot by 18-foot pool will be constructed for rehabilitation. Patients now must travel to Sault Ste. Marie or Gaylord for this service.

Chemotherapy stations will increase from three to six.

The dialysis unit will expand from three chairs to six chairs.

The Radiology Department will include upgraded services for CAT scans and mammography; MRI services will be offered for the first time.

Cardiac rehabilitation, stress testing, and nuclear medicine services will be provided on site.

Physicians will be located in one area.

The emergency room will be expanded and a decontamination room added.

An inpatient pharmacy will be included. A cafeteria will offer views of Lake Huron and serve staff and visitors.