Ky. Voices: HealthFirst operating in city's interest

finances sound; cooperating with audit of lease deal

May 27, 2013 

HealthFirst had planned to raze this building at 496 Southland Drive in Lexington and replace it with a clinic.

PHOTO BY PABLO ALCALA | STAFF — Lexington Herald-Leader Buy Photo

  • At issue: May 15 Herald-Leader article, "State auditor to examine clinic deal; Edelen to focus on HealthFirst real estate transactions;" and April 26 Herald-Leader editorial. "Waste of money worth scrutiny; Health clinic plan may be abandoned"

From the beginning, the HealthFirst Bluegrass board has acted in a prudent and fiscally conservative manner to bring a new community health center to Fayette County.

Our single motivation is to increase access to primary health care services. We have overcome many difficulties over the last two years.

When the Herald-Leader editorial called for a review by the Auditor of Public Accounts, HealthFirst provided information to Auditor Adam Edelen the very same day. We offered to work with him without reservation.

We did so two weeks before Mayor Jim Gray asked publicly for the audit focusing on the lease agreement for the Southland Drive project.

The recent headline, "Audit to scrutinize $11.7 million Lexington public health clinic" may have given readers the wrong impression. The auditor is limiting his review to the lease agreement and pre-construction activities.

HealthFirst's $16.7 million budget is not being scrutinized. Financial auditor Blue & Co., recently gave us an unqualified or "clean" opinion for our 2012 financial statement.

When the board voted in April to pause and take a hard look at the viability and sustainability of building and opening a new clinic on Southland Drive, the decision was based on:

• The possibility of losing up to $1.2 million in health tax funding.

• Cuts of up to $200,000 in our federal grant due to sequestration.

• An annual $200,000 increase in Kentucky Employees Retirement System costs.

• Additional lease costs of $300,000 per year due to delays in approvals.

• The challenge of funding start-up costs for the new clinic in 2014.

Since April, a number of financial issues have been resolved with the commitments of support from the health department and notification that sequestration cuts will not reduce our federal grant. The board voted May 16 to continue the building project.

When the lease on the Southland Drive property was signed in June, 2012, no rent was due until December, saving $155,000. From December, rent was deferred until March. This allowed us to move forward with the project without incurring monthly costs for the site. The editorial's estimate of $250,000 paid in rent and fees is contradicted by the facts.

HealthFirst has not incurred any fees, paid any brokers or spent any other funds to obtain the lease on the Southland Drive property and will not do so in the future. We have paid legal counsel and our commercial broker for their advice, but any commissions on the lease will be paid by the landlord.

The $11.7 million of capital development grant funds cannot be used to purchase real estate. As a start-up entity, HealthFirst has been unable to buy property. Landlords have been unwilling to lease property under the requirements of the federal grant, which include a Notice of Federal Interest and HealthFirst control for at least 10 years.

That was true until Greg McDonald and Ted J. Mims, owners of the Southland Drive property, stepped up and supported this project.

This community should thank them for doing what no one else was willing to do.

An agreement with Mims to act as project manager was signed August, 2012. It was approved after a selection process that included determining the approach for implementing the construction process, developing the job description as an independent contractor, and identifying the desired qualifications. The position was then advertised in the Herald-Leader.

The candidates were evaluated against a qualifications scoring grid included in the newspaper advertisement. This process only began after the lease agreement was signed and acquisition of the properties by the landlord had been completed. Mims applied for the project manager position and was considered with more than 30 other candidates.

Mims' $15,000 monthly project manager fee is 1.5 percent of the project's total value of $12 million. The typical fee paid in the private market is as high as 5 percent to 7 percent of total project costs.

So the contract with Mims is somewhere between 30 percent to 50 percent of what the market typically might demand for that type of expertise.

There have been many positive developments over the last eight months and a number are primarily due to Mims' efforts. He has worked on activities related to neighborhood engagement, city planning, site engineering, architectural drawings, environmental assessment and historical preservation. He facilitated the selection of a construction management company. All are completed or waiting approval to move forward with bidding the project and final federal approval. These activities refute Herald-Leader reports that there are few tangible results.

Information provided out of context and with incomplete analysis and inaccurate timelines seems to build a damning case. It suggests the HealthFirst board, staff, contracted professionals and others involved in this project are less than forthright in our actions. Nothing is further from the truth.

HealthFirst is routinely reviewed by external granting bodies, auditors, regulators, insurance companies and government agencies and always welcomes opportunities for improvement.

We respect the role and responsibility of the auditor and ask the Herald-Leader to do the same, since it was the paper's editorial board that called for the audit in the first place. It is the right thing to do.


At issue: May 15 Herald-Leader article, "State auditor to examine clinic deal; Edelen to focus on HealthFirst real estate transactions;" and April 26 Herald-Leader editorial. "Waste of money worth scrutiny; Health clinic plan may be abandoned"

T.A. Lester is board chair and Tom Burich is building committee chair of HealthFirst Bluegrass.

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