Pursuing a New Structure

No, just the opposite. This action will help assure that Lexington Medical Center remains local and independent for years to come.

It will give Lexington Medical Center the flexibility to make decisions at a local level that are best for our community.

Our current governmental structure limits the benefits we can offer employees, as well as limits our investment options. We are restricted from partnering with other organizations that provide services we don’t offer.

Health care organizations face many challenges including declining reimbursements, expensive medications and technology, and for-profit competitors, resulting in mergers that create large conglomerates.

Our current governmental structure makes it more difficult to compete with other health systems.

As a governmental entity, Lexington Medical Center employees enroll in the SC Retirement System, which is an enormous financial burden.

SC Retirement System Pension Costs

• Lexington Medical Center spends more than $106 million annually in pension expense.
• Lexington Medical Center’s pension expense is 21.3% of our payroll. Most hospitals pay just 1% to 3% of payroll for retirement expense.
• Lexington Medical Center’s portion of the state’s unfunded pension liability is $758 million dollars and is increasing substantially every year.
• Enrolling new Lexington Medical Center employees in an alternate retirement plan will reduce this annual expense and liability over time.
• Without this change in structure, pension liability increases substantially.

In most instances, it is not.

• Most new Lexington Medical Center employees do not want to contribute 9% of their paycheck to the pension system.
• Employees are unlikely to work at Lexington Medical Center (or at the Medical University of South Carolina) for 28 years to earn a pension.
• The state retirement benefit is not portable.

Participation in the SC Retirement System is a financial burden on both the hospital and many of our employees, putting the hospital at a disadvantage financially and in our ability to recruit new employees.

As a governmental hospital, Lexington Medical Center is severely restricted in our ability to earn a return on our reserve. Lexington Medical Center earns, on average, less than 2% on our reserve. Other hospitals earn higher returns and can use those funds to provide patient care.

A not-for-profit hospital must earn income to grow and reinvest in their community. Lexington Medical Center has one of the lowest earnings in South Carolina due to our exorbitant pension expense.

For nearly 50 years, Lexington Medical Center has worked to create a reserve for future growth and unforeseen circumstances. Lexington Medical Center has approximately $750 million in reserves.

Our annual operating costs, however, are more than $1.2 billion, so this reserve only covers 63% of our annual expenses. Lexington Medical Center also has significant debt and liabilities that total $1.4 billion. Cash-to-debt and liabilities are only 54%.

Because of the unreasonable pension expense, bond agencies have downgraded Lexington Medical Center’s financial rating to BB-, A and A1. These lower bond ratings restrict Lexington Medical Center’s ability to borrow money to build new facilities and grow to best serve our community.

A stronger cash position would allow Lexington Medical Center to invest in new facilities and services and to weather unplanned disasters—like the COVID-19 crisis—without laying off employees or eliminating services.

The COVID-19 pandemic has accelerated the need for this change and demonstrated why it’s vitally necessary.

During the COVID-19 pandemic, Lexington Medical Center—like hospitals across the country—had a sharp decline in revenue.

While COVID-19 impacted our bottom line, we were the only hospital in the Midlands that did not furlough or lay off employees during this difficult time.

Transitioning to a non-governmental structure would give us the flexibility we need to make the best decisions to face unexpected challenges like COVID-19 successfully.

Because this change is structural, nothing would change for our friends, families and neighbors. Nothing would change for our physicians and current employees.

Becoming a non-governmental, not-for-profit organization would simply level the playing field and ensure we stay local and independent.

Lexington Medical Center would have a 21-member board that would oversee the hospital’s operations. The current 20 board members of the Lexington County Health Services District, who were appointed by Lexington County Council, would transition to become the new Lexington Medical Center board.

Lexington County Council would then appoint a new nine-member board of directors—one member from each council district—to oversee the Lexington County Health Services District and ensure Lexington Medical Center upholds all our assurances to the county and continues to meet the needs of the community.

The community assurances are:

• Prevents change of control for Lexington Medical Center
• Prevents sale or lease of substantially all Lexington Medical Center assets
• Prevents dissolution of Lexington Medical Center
• Prevents use of Lexington Medical Center funds outside the county that would cause a material reduction in essential health services in the county
• Ensures no actions would materially alter the charitable purposes of Lexington Medical Center
• Ensures continuation of charity care or community benefit services by Lexington Medical Center
• Ensures continuation of participation in Medicare and Medicaid by Lexington Medical Center
• Annual reporting addressing significant financial, quality and strategic matters affecting access to health care in the county

Lexington Medical Center’s main campus sits on 18 acres of land owned by Lexington County. As a governmental, not-for-profit entity, Lexington Medical Center has operated on the campus without any payment to the county. Under the new governance structure as a non-governmental, not-for-profit organization, Lexington Medical Center would pay a fair-market-value annual land lease of $1.2 million.

Through this new board structure, Lexington County Council would retain significant oversight of the Lexington County Health Services District to ensure Lexington Medical Center upholds our community assurances.

The newly appointed nine-member Lexington County Health Services District board of directors will ensure Lexington Medical Center meets our assurances to Lexington County and to our community members. Lexington County Council will retain significant oversight over the Lexington County Health Services District and Lexington Medical Center.

Changing our structure would allow us to offer new employees retirement benefit options such as a matching 401K program. Current employees would remain in the SC Retirement System.

Lexington County Council must approve an ordinance allowing this change.