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The miracle hospital in Durango

by M.B. Owens

When project planners attempt to work with city, county, state agencies and federal agencies, along with a unique entity such as an Indian tribe, the results are normally less than stellar. If you add dozens of public and private organizations and thousands of residents into the mix, the results could be even worse. But in Durango, Colorado, cooperation, desire and ingenuity, and maybe a miracle or two, led to the building of a much-needed 215,000 SF hospital, an adjoining medical office building and a new planned community generating economic development for the region.

Until recently, the Durango micropolitan area of about 60,000 people had relied on an aging downtown hospital, Mercy Medical Center, which was constructed more than a century ago with subsequent add-ons. It was on seven acres of land confined by neighborhoods and a river, allowing no room for further expansion of the facility.

Local government and health care officials became concerned that if something wasn’t done soon, physicians might begin leaving for greener pastures and the hospital could eventually be forced to shut down. So hospital officials hired Hammes Company, a health care consulting firm, to help formulate a master plan and put budgets together.

“It was time for us to take positive steps to continue our tradition of meeting the health care needs of the community,” said Kurt Dignum, chief executive of Mercy Medical Center. “Our next move was to begin a search for a new location.”

However, finding a large, relatively flat site in the mountainous area, with highway access that could be developed within the budget seemed to be an impossible task, Dignum said.

Hospital officials together with Hammes Company met with Durango city officials to request help in finding a suitable site for a new hospital, eventually identifying a number of potential properties. Unfortunately, all the locations were in La Plata County, outside the city’s jurisdiction, meaning additional development costs would add up to $11 million on top of the $77 million bond ceiling placed by Mercy’s owner, Catholic Health Initiatives (CHI). That was not an option.

“It was time for us to become creative so we came up with the idea of approaching landowners interested in developing their properties, seeking their involvement in the project to reduce the hospital’s overall development costs,” said Jerry Heberlein, a Vice President with Hammes Company.

At this point, what some in the process have deemed a miracle began to take shape.

On a nearby reservation, the Southern Ute Indian Tribe (SUIT), utilizing their land development company, had purchased a large tract of land off their reservation just outside Durango to develop an extensive planned community. But this is no ordinary Indian tribe or reservation.

“Considered a sovereign nation by the United States, the Tribe of approximately 1,400 people is on a reservation overtop coal-bed methane gas,” said Tim Zink, special projects manager of Three Springs development. “They have more than $1 billion in assets and have a AAA bond rating, which is better than many countries.” Over the years the Tribe, using their gas revenues as a foundation, has created a business empire including an oil and gas production company, a gas pipeline company, a utility company, and multiple land development and construction companies. Their real estate holdings include the FAA building in Kansas City, the Northrop Grumman Building in Denver and a medical office building in Las Vegas, according to Zink.

Though farthest away from downtown and thus the least favorite of the sites, the SUIT property had an innovative development company behind it, Three Springs, which the Tribe owned. The company, working on behalf of the Tribe, was backed by all of the SUIT’s financial resources. “We saw an opportunity for the hospital to be an anchor and jump start a new Durango development,” Zink said.

In addition, the Tribe wanted health care services nearby, particularly dialysis because of the high incidence of kidney disease among tribal members and they recognized the new hospital would be good for the entire community. But Three Springs had only about a month to put together and make a proposal to Mercy, so they had to move quickly.

"The proposal ultimately worked out was for Mercy to receive a donation of 35 acres and purchase another 25 acres with part of that purchase price going toward the development cost of infrastructure such as water, sewer, roads and power, with the development company developing all of it up to the hospital property line," Heberlein said.

In addition, Three Springs would construct the road access to the hospital, including a required intersection connecting the approximately 700 acre planned development to the highway. “The hospital was given an offer they could not refuse,” said Greg Hoch, director of planning and community development for the City of Durango. The offer made the Ute property the most logical choice.

Another component of the development plan was for Three Springs to partner with the city and county, donating about 80 acres of park area and a bike trail for the planned development, according to Heberlein. Overall, the Three Springs development would include residential and light commercial following the new urbanism theme of higher density coupled with more pedestrian access, Zink explained.

The development itself would have 2,300 dwelling units, a couple of schools, a regional park, and two villages with commercial cores. “Not only would it provide a tremendous job base, it would be the biggest project we have ever had in Durango,” Hoch said.
 
But the offer was contingent on a number of factors, including the annexation of the development area by the city from the county. The county could not serve as the new hospital’s home, in part due to a lack of services, such as those provided by Durango’s police and public-safety departments.

Another major issue involved the Colorado Department of Transportation (CDOT) having to make adjustments in its highway plans to place a major intersection adjacent to the project site. To complicate things even more, the Army Corp of Engineers would require the hospital and Three Springs to mitigate wetlands disturbed by the development.

The annexation of the Three Springs development would require multiple public hearings and meetings, presenting a potential death blow to the deal. But through tenacity, hard work, ingenuity and perhaps a bit of a miracle, the project remained on track despite initial opposition from many individuals and groups.

“In this instance we made an extra effort to make this happen including monthly meetings with the Three Spring developers, the hospital and Hammes Company,” Hoch said. "When the community, including city officials, county officials, neighborhood leaders, activists and others took a hard look at the proposed project, they knew they couldn’t afford not to go along with the project," Hoch continued.

The annexation was completed in about six months, while at the same time plans were finalized with CDOT regarding the highway and the Corps of Engineers on the wetlands-mitigation work. Construction of the hospital and supporting infrastructure followed quickly.

"At the same time, the community got on board and contributed $11.5 million of its own money to the Mercy Health Foundation to help pay for many items and programs needed by the hospital such as equipment, charity care, gardens, a chapel, and cardiology and renal dialysis," said Karen Midkiff, chief development officer of the Foundation.

When all was said and done, Durango ended up with a brand new 80-bed hospital and connected medical office building, plus a stunning planned community with connecting intersection, roads, sewers and other services. The hospital provides a high-paying employer and the development acts to spur economic development for the area with a tremendous job base. And to provide even more benefits to the community, the hospital turned around and donated land to Southwest Mental Health to develop a new psychiatric center and land to Mercy Housing to build 66 low-cost housing units.

Surprisingly, the new campus, now called Mercy Regional Medical Center, was constructed below CHI’s initial budget. “When you look at all the synergy that happened with all the partnerships and cooperation, it is just remarkable,” Dignum said. “Everyone turned out to be winners and the community ended up with more than we could ever have imagined.”