Sturgis Hospital Interim CEO Jeremy Gump provided Sturgis City Commissioners with a significant update Wednesday regarding the hospital’s financial status. According to Gump, the hospital’s application to become a Rural Emergency Hospital (REH) is still being processed and, if it does not go through within days, Sturgis Hospital will be depleted of all funds.

“I had been asked earlier today to come to the commission to provide an update on the status of the hospital and, in particular, hospital finances,” Gump began, providing commissioners with a brief overview of the hospital’s recent financial struggles.

Approximately one year ago the hospital board advised the city commission the hospital would close by the end of the month if there wasn’t a “miracle intervention.” The board asked the State of Michigan for $15.8 million to assist the hospital in keeping the doors open until the end of the year, at which time a new federal law would go into effect enabling Sturgis Hospital to convert to a REH. “Since that meeting, the laws required by the State of Michigan to enable us to become a REH were not passed until after Christmas,” Gump said. “We submitted our application at the beginning of May and that is still in process.” 

While the request to the State of Michigan was for $15.8 million, the hospital was provided with $11 million. “We originally projected that the $15.8 million would last us six months and enable us to make that conversion and, unfortunately, we did not get that amount,” Gump said.

“The laws were not in place for us to make the change to REH on January 1, so at this time we are in the same position we were in 12 months ago. We are again in the position that if this does not go through very, very quickly as far as our application process — and by very, very quickly I mean days — we will again run out of money probably by the end of June.”

In terms of why this financial crisis might be a surprise, Gump said, “We received a very, very large invoice just slightly over $800,000 from our Emergency Department physician group. That is what has tipped the needle here.

“The good news is we’ve received a letter of intent from an organization that is not just interested, but has provided a letter of intent to acquire Sturgis Hospital as quickly as possible. They understand the situation,” Gump said, adding he was presently waiting for a second letter of intent to arrive at any moment. 

According to Gump, a significant challenge in finding a partner for the hospital has been the lease payments the hospital makes to the City of Sturgis. Gump shared the hospital has received many verbal offers to date contingent on scenarios such as acquiring the hospital if the city took nothing, or if the city gave the buyer $2.5 million.

“The letter of intent we have received says the entity who’s interested in acquiring the hospital would commit to the City of Sturgis to keep the hospital open for at least the next five years, invest $20 million in the hospital, and expand services of the hospital, including reopening inpatient services,” Gump said.

“We’ve provided them with our financial condition and how quickly we need to make this happen. Unfortunately, at this point, I think the most material item falls back to each of you as to what can the city do on its bond or on the lease payments to make the hospital attractive for somebody to acquire.”

Gump reported the hospital received a valuation of the facility and its equipment based on a distressed sale, and the appraised value was around $2 million to $2.2 million. “I’ve advised the two parties who were speaking with of that appraisal,” he said.

City Manager Andrew Kuk asked, “You mentioned you provided the potential purchasers with a lot of information. Have you received information from those potential purchasers in terms of financials, and is the hospital doing due diligence with them?”

Gump answered saying, “We have had an outside firm do some due diligence on the independent, individual parties involved. We have received information regarding the financial resources. We know the entities involved have significant resources, and they have signifiant ongoing businesses. These folks have been involved in health care for their careers, this is what they do.”

Commissioner Brandon Kinsey asked Gump if there was an educated guess on how long the application might still take to become a REH. Gump said it was a day-to-day process.

“We have a grant from the state for $250,000 we know we’re going to get, but it’s not dispersed until September,” Gump told the commission. “We have over $130,000 we should be getting back from the state unemployment. Once we become an REH, we know they will retroactively apply the REH and we would get another check for about $550,000. We are close to a million dollars of cash that’s sitting out there we are waiting for.” Gump added that an infusion of one million dollars of cash would last the hospital approximately 45 days. 

Commissioner Robert Hile asked if the purchaser’s letter of intent is contingent on the hospital receiving REH status. “No, in fact the letter of intent would imply the opposite,” Gump said. He explained the hospital had placed licensed, inpatient beds into escrow for five years but the hospital can get the beds back if they decide not to become an REH and resume inpatient services. “Right in the letter of intent we have it says: ‘Let’s get those beds back.'”

At the end of the commission meeting Hile asked if there was any update on the impending second letter of intent, and Sturgis Hospital’s Chief Operating Officer Bobby Morin said he received notification the second letter of intent had been received, and he sent it to Gump and Sturgis Hospital Vice-Chairman Joe Haas.

In other business

• A decision was made to move the public hearing scheduled for the evening regarding millage rates to the next meeting on June 28. “We just heard from the hospital, we had a budget work session on Monday night to discuss things, and there’s a lot of things that are fluid at the moment. I do believe it might be in our best interest to just table this until our second meeting on June 28 to make a decision on what we want to do in regards to the millage,” Mayor Jeff Mullins said.
• The commission approved…
  • the hiring of an additional Wastewater Operator.
  • the renewal of the marketing contract between Sturges-Young Center for the Arts and FocalPoint.
  • a five-year proposal from GRP Engineering for electric engineering and consulting services. 
  • a plan for the M-66 Utility Phase 1 project between W. South St. and Fawn River Rd. The plan would replace the existing 10-inch water main with a new 12-inch, ductile iron water main and find a location to build it.
• The commission confirmed the second reading and approval of amendments to the City Code of Ordinances as it pertains to accessory structures.

Beca Welty is a staff writer and columnist for Watershed Voice.