Immediate (February 23, 2005)

Mike Noble

Fletcher Allen Public Relations

(802) 847-2886

Fletcher Allen CEO Updates Public Oversight Commission About Renaissance Project and Fletcher Allen Overall

Fletcher Allen Seeks to Amend Building Project Certificate of Need

BURLINGTON VT - Fletcher Allen President and Chief Executive Officer Melinda Estes, MD, provided an update about the Renaissance Project and Fletcher Allen overall to the Public Oversight Commission (POC) today at a public hearing in Berlin, Vermont.

Estes Addresses the POC

• Estes reported that the Renaissance Project remains on schedule overall and that the new Emergency Department will open this summer, followed by the Ambulatory Care Center and new Inpatient Psychiatry Unit in the fall.
• Estes reported that Fletcher Allen has filed two requests with the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA) to amend the approved Certificate of Need (CON) amount for the Renaissance Project by up to $14.2 million to reflect recalculated capitalized interest costs and increased BISHCA consultant costs.  (See CON Proposed Amendments Background below)
• Estes reported that Fletcher Allen generated a net operating income of $6.4 million in the first four months of the current fiscal year, which began October 1.  That was $400,000 above budget.
• Estes cautioned that going forward, Fletcher Allen will be challenged to meet its year-end target of $27 million net operating revenue for fiscal year 2005, which ends September 30, but that the organization is working very hard to achieve this goal.  She also noted that potential reductions in Medicaid payments would add to the financial challenges.                                                   
• Estes reported that the organization is currently preparing for a spring visit from the Joint Commission on the Accreditation of Health Care Organizations (JCAHO) for a tri-annual accreditation site survey. This will be the last "scheduled" site survey by JCAHO. In the future, JCAHO will conduct "unscheduled" survey visits at will.
• Estes reported that Fletcher Allen is in the process of developing a three-year strategic plan which is expected to be complete this spring.
• Estes also reported that Fletcher Allen will hold a public forum on Tuesday, March 8, at 6 p.m. on the Medical Center Campus to discuss the results of its recently published Community Report, which includes information about the quality of care we provide to our patients. At this forum, Fletcher Allen also will welcome input into its three-year strategic plan.

CON Proposed Amendments Background

Recalculating Capitalized Interest

The first proposed CON amendment seeks authorization to increase the amount of a portion of the project's financing costs, known as capitalized interest, by up to $13 million.  Capitalized interest is interest expense associated with a bond issue that is paid during construction.  The amount of this interest is considered part of a project's cost, and therefore part of the authorized CON spending limit.

The proposed amendment corrects an error in the calculation of the capitalized interest associated with Fletcher Allen's April 2004, $270 million bond issue. In connection with year-end work, Fletcher Allen determined in November that it had underestimated the total amount of interest on the bonds that must be capitalized.  The error occurred because the continuing interest on the outstanding 2000 bonds had not been counted.  In addition, the amendment seeks additional capitalized interest to account for expected increases in interest rates and for any potential extension of the construction period in a worst case scenario.

This information was promptly reported to BISHCA and to the Fletcher Allen Board of Trustees as soon as it was recognized, and it has been reported in Fletcher Allen's monthly reports to BISHCA since November.  After discussions with BISHCA, Fletcher Allen filed formal notification late last month on its intent to seek this amendment.

The amendment would align the CON documents with the monthly reports filed with the state by Fletcher Allen and the financial information filed by Kaufman Hall, the independent financial consulting firm that Fletcher Allen has retained, at the request of the state, to submit quarterly financial reports about Fletcher Allen.

The actual interest expense associated with the project bonds remains unchanged.  Fletcher Allen has been properly paying and accounting for its interest payments in its financial statements and reports.

Consulting Costs Increase by $1.2 Million

Fletcher Allen also has submitted a second request to increase the project's authorized expenditures by $1.2 million to cover the cost of consultants used by BISHCA, and consultants used by Fletcher Allen at BISHCA's direction, rather than pay the consultants out of contingency funds earmarked for construction costs.  BISHCA's consultants cost more than initially estimated, and Fletcher Allen's consultants have been engaged longer, and for a broader scope of work, than planned when the CON was approved in November 2003.