Memorial Health System is laying the groundwork to sue the state’s Public Employees’ Retirement Association over a $246 million estimate of the cost to the city-owned hospital to leave the system.

Memorial spokesman Brian Newsome said the hospital was prepared to go to court to force PERA into a more reasonable settlement.

“Memorial Health System is considering taking legal action against the Colorado Public Employees’ Retirement Association, or PERA, over its claims that the health system would owe PERA as much as $246 million if it becomes a private nonprofit,” Newsome said in a statement. “Negotiations between Memorial and PERA appear to have come to a standstill. During this critical time, in which the city of Colorado Springs is trying ensure continued access to affordable and high quality care, it is disappointing that a third party such as PERA would attempt to tie the community’s hands in this way.”

In January, the $246 million PERA liability sunk a plan to put converting Memorial into an independent nonprofit on the April ballot. At the time, Memorial CEO Dr. Larry McEvoy and then-Mayor Lionel Rivera said the estimate was far more than an independent Memorial could afford.

“When that number came out, that was a show stopper,” said former City Councilman Randy Purvis, who served on the previous council’s Memorial task force and has continued to work on the issue. “That was a number that was so high that I don’t think anyone could afford to take care of it.”

Rivera said he thought the $246 million was just an opening salvo from PERA, like the first offer from a car dealer, and that the two sides would find a middle ground.

“I hoped through the negotiation process a more reasonable number would be reached, but apparently that’s not the case,” Rivera said.

Instead of placing the measure on the April ballot, the previous City Council recommended the nonprofit plan to the incoming council, which voted earlier this week to pursue bids from an independent nonprofit and from external hospital systems, to lease the hospital.

The council hopes to finish that process by the end of the year and pick a winning proposal to put before voters in early 2012.

Councilman Tim Leigh, who serves on the new Memorial task force, said he supports the lawsuit and sees it as essential to deciding what will happen to Memorial.

“Nobody’s going to touch it if they don’t know what the number is,” he said of determining Memorial’s liability. “PERA is playing hardball with the hospital.”

According to Newsome, in the negotiations since January, PERA has provided estimates that range from $150 million to $191 million, based on revised financial estimates, but told the hospital it couldn’t provide a final figure until a deal to spin off the hospital was finished.

A PERA spokesperson could not be reached for comment.

In a letter dated Aug. 17, McEvoy outlined the negotiations that the hospital and state pension plan have engaged in since the $246 million estimate was made public and stated that the hospital was prepared to offer $50 million as a compromise, even though it believes its actual liability should be zero.

“Based on our analysis, MHS has concluded it has no liability whatever to PERA by virtue of the reorganization described above,” McEvoy wrote in the letter.

PERA has told Memorial that the $246 million represents the unfunded liabilities facing the system to cover the hospital’s roughly 4,000 employees. Memorial contends that if a single employee quit the hospital, it would not owe PERA anything additionally to fund that employees’ future costs to the system. By extension, if the hospital’s entire workforce were to leave the system, it likewise should owe nothing more.

Purvis said he hoped the threat of a lawsuit would get PERA’s attention and get them back to the bargaining table.

“I think it’s time PERA decided they were actually going to negotiate in good faith and come to a decision on this stuff instead of keep kicking the can down the road,” Purvis said.

Rivera was less optimistic, saying that he expects the case to end up in court, although he added that bringing more transparency to PERA’s operations would benefit not only Memorial, but also the city, Colorado Springs Utilities and the rest of the state.

“PERA conducts their business using the black box concept and no one knows what’s inside,” he said. “I think it’s going to take a lawsuit to bring the light of day to their box.”

Memorial’s future as a city-owned enterprise has been up in the air for the past two years as council-appointed citizens commission spent much of 2010 studying options for the hospital before recommending that it become an independent nonprofit. Then two council task forces took up the issue.

McEvoy and other Memorial leaders have said that city ownership puts the hospital at a competitive disadvantage and prevents it from preparing for changes in health care.

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Tim Tebow Photo by AP PHOTO