Today marks the beginning of the governor’s annual budget hearings, the administration’s annual dog and pony show for state agencies heads to highlight the happenings of their departments.
It’s also a time to explain what each agency would cut if forced to do so.
Over the full week, Gov. Bill Haslam will hear each department head explain agency spending plans and how they would cut 3.5 percent from their bottom lines, an exercise assigned each year by the governor’s office. However, revenues feeding the state’s $33.8 billion appear flush so far this year.
Here’s a short list of what to watch for as the budget hearings unfold this week:
- The Department of Corrections budget. After a wild year of headlines ranging from taxing schedules for prison guards to safety in correctional facilities, the presentation from the department’s commissioner, Derrick Schofield will be telling. The commissioner has insisted there is little to see in the department’s troubles, but whether he comes to the governor with a wish list of spending to make those problems go away -- and how it’s received by the governor -- will be worth watching.
- Judging the winds on education funding. With a lawsuit seeking more state money for education currently sitting in Davidson County Chancery Court, many are wondering whether and how the governor will boost funding for schools. Close to a dozen school boards across the state have either sued the state or are thinking about it to fight Haslam for more education dollars. Separately, the governor has struggled to keep his vow to increase teacher pay faster than any other state in the country. With the debut performance of first-year Commissioner Candice McQueen presenting the Department of Education’s proposed budget, the key will be whether the governor hints at what kind of moves he will make on either of these fronts.
- The gas tax pitch from the Department of Transportation. Commissioner John Schroer has made it no secret in recent years that he wants the state to figure out how to better fund a mound of backlogged transportation projects. After he and Haslam spent the better part of a year trying to convince legislators to take up that challenge in earnest, it will be key to see how much gas Schroer and the governor give to calling for a change in the gas tax.
- How much money does Haslam have to play with? After a scare in 2014 that forced the state to renege on promises to increase pay for teachers and make budget cuts, the governor is unlikely to spend the state’s growing revenues wildly next year. But with state tax collections so far this fiscal year up $223 million more than expected -- posting the strongest first quarter growth since 2004 -- the governor will likely have more money to play with next year. Watch for what the governor says, or hints, about spending money on.
- The tenor of TennCare talks. Following his failed attempt to get state legislators to approve his plan to increase healthcare access to 280,000 low-income Tennesseans this year, the issue of health care is still beating. Healthcare and social services eats up about a third of the state budget each year, and although the legislature is uninterested in the governor’s so-called “Insure Tennessee” plan, the growing cost of healthcare is one the administration and legislature will have to wrap their arms around next year.
Catching up on two recent news items from West End-based Cumberland Pharmaceuticals:
First, the company said an Illinois judge has ruled in its favor in a patent case related to its Acetadote product. Industry giant Mylan Labs and other companies had challenged Cumberland’s patent to a new formulation of Acetadote but the court granted the local company its patent through the summer of 2025 and issued a permanent injunction preventing other firms from marketing a generic version of Acetadote until then.
Separately, Cumberland executives have ended their relationship with Pernix Therapeutics, which had been handling parts of the supply chain, sales and promotion of Cumberland’s Omeclamox-Pak treatment for H. pylori infections and other ulcer diseases. Instead, Cumberland will now work with Gastro-Entero Logic — which helped develop Omeclamox-Pak and get regulatory approval for the treatment — and bring the drug’s promotion work in house.
Vanderbilt University Medical Center still plans to grow its affiliated network of physicians as the official split from Vanderbilt University nears, but not through the acquisition of other health systems.
Vice chancellor for Health Affairs and Dean of the School of Medicine Jeff Balser said the system would focus on collaborative affiliations with providers throughout the Southeast, according to the VUMC Reporter. The Vanderbilt Health Affiliated Network currently compress 3,400 physicians and more than 50 hospitals in the region.
Expanding the VHAN was a central goal for the system after VUMC and Vanderbilt University announced an operational split last November. The legal separation is expected to occur in early 2016.
"As the national health care economy restructures to fewer health systems, we have a choice — leading such a system or being part of someone else’s system," Balser said. "We want to lead our system and control our destiny. We believe that health care should be delivered in a certain way."
The split from the university is expected to give the hospital administrative flexibility to partner with regional providers. VUMC leadership hopes to reach an additional 1 million lives in the Southeast by 2020, the Reporter said.
The Tennessee Health Services and Development Agency last week approved freestanding emergency department plans for Sumner Regional Medical Center and TriStar Summit Medical Center.
HSDA counsel Jim Christoffersen confirmed that LifePoint Health hospital Sumner Regional will move forward with its five-room project, which is expected to cost $7 million. The TriStar Summit standalone ER in Mt. Juliet will consist of eight treatment rooms and has an estimated cost of $11.1 million.
Several other Middle Tennessee hospital systems have filed certificate-of-need applications for freestanding ERs this year. TriStar Southern Hills and Saint Thomas Midtown were both denied in March for projects planned in Brentwood, while Community Health Systems' subsidiary Gateway Medical Center was approved last month for an ER in Clarksville.
Healthcare Realty Trust has paid nearly $28 million for a three-story medical office building on the campus of Northwest Hospital in Seattle. The deal is the latest in a number of Washington acquisitions for the Nashville-based real estate investment trust, which finished 2014 with $210 million invested in the Evergreen State. The Puget Sound Business Journal has more details here.
Hospital company LifePoint Health will soon have more cash in the bank than expected. The company's offering of eight-year senior notes grew Thursday to $500 million from $300 million and has been priced at 5.875 percent. Executives plan to use the moeny for general corporate purposes, including acquisitions and share buybacks. LifePoint stock (Ticker: LPNT) was up more than 1 percent to nearly $70 early Friday.
Avondale Partners analyst Paula Torch says investors should look at the beaten-up shares of AAC Holdings — they've recovered only slightly from their summer slump — as a chance to buy a company with a clear growth pipeline and the financing to pull it off.
Yes, the legal issues in California that caused the stock to fall in the summer are still there, Torch says, but she has her fingers crossed that there will be clarity in the coming months. In the meantime, the AAC team has access to $100 million in M&A capital, and an organic expansion push should grow to 1,200 the beds in AAC's portfolio next year, with another 150 new beds slated for 2017.
"AAC continues to execute well and fundamentals remain intact with overhangs resulting in a compelling valuation vs. growth. We believe census remains strong, referral sources are healthy, and recent financing provides an extended bridge to execute on its current expansion plans," said Torch, who is sticking by her $32 price target for AAC, shares of which are changing hands this morning at $22.70.
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