To the taxpayers of Henderson County:

The following is a letter that was sent to not only Henderson County Judge David Holstein but to the Commissioner's Court as well:

February 28, 2007

Honorable Judge David Holstein

Henderson County Courthouse

100 E. Tyler St., Suite 102

Athens, Texas 75751

Re: Annual Report of the Henderson County Hospital Authority

Dear Judge Holstein:

Thank you for allowing me, as Chairman of the Henderson County Hospital Authority board of directors, to present our annual report to the Henderson County Commissioners ' Court, as required by by-laws of the Authority.

As you are aware, formation of the Authority was authorized in 1982 by the Commissioners ' Court and enabling state statutes, pursuant to action by the County to remove itself from financial responsibility and political ramifications associated with the operation of Henderson County Memorial Hospital. At that time, the County conducted an extensive review of options available to it for disposition of the hospital and relief from the adverse financial impact caused by hospital operations and considerable liability imposed on county taxpayers as a result of being in the hospital business. At that time, the County had unlimited exposure from escalating litigation in all areas of health care as well.

Further, the County bore the entire burden of meeting statutory responsibility for the provision of care to its indigent citizens.

On review, it might appear that the Henderson County Commissioners' Court acted with considerable forethought in seeking an alternative to:

1) Replacing an aged and outdated physical plant with a new hospital, entirely at taxpayer expense.

2) Continuing to support negative financial results at the hospital from the county treasury.

3) Maintaining the taxpayers ' unlimited exposure to unforeseen litigation cost as a result of the County continuing as the hospital operator.

4) Continued increase in taxpayer cost of care for indigent county residents.

After spending much time considering the various proposals presented to a countyappointed hospital advisory group by Presbyterian, Baylor, and many other notable hospital organizations, the commissioners did this:

1) Sanctioned the formation of the Henderson County Hospital Authority, as provided by state law, and transferred responsibility for hospital decisions to the Authority board of directors, a group appointed solely by the Court.

2) Entered into a lease agreement with the Authority for a period of 99 years in order to accomplish the transfer referenced above.

3) Granted approval for the Authority to sub-lease the existing facility to East Texas Medical Center for a primary term of thirty years after recognition of ETMC's proposal for immediate construction of a new hospital, the cost of which would be borne entirely by ETMC and without cost or liability to Henderson County taxpayers, as being most beneficial to the County. Subsequent options extend for another sixty years, or until 2072.

4) Received assurance that Henderson County citizens would never become obligated to pay for the construction and outfitting of a new hospital; the cost of which exceeded $30 million.

5) Obtained a commitment that ETMC would provide hospital services to the indigent, at no cost to the County, for as long as the hospital was leased to that organization.

6) Established an agreement that title to the property on which the NEW hospital to be constructed would transfer to the County, with recognition that ETMC was providing all the money for construction and the County none, in contemplation that ETMC would maintain possession of the hospital under its long-term sublease with the Authority.

The relationship between ETMC, the Authority, and the County for the past twentyfour years could be described as amicable; all parties having demonstrated apparent satisfaction with hospital operation for a long period of time.

In November, 2004, County Judge David Holstein and County Attorney James Owen caused to be issued a notice of default to ETMC, citing deficiencies in compliance with technical provisions of the 24- year-old agreements. Matters of import were listed as:

1) ETMC's program for providing various forms of insurance as required by the agreements,

2) A revelation that all properties owned by ETMC, wherever located in Henderson County, were to become the property of the County, and

3) A determination that `indigent care' was to be interpreted differently than had been the case for twenty-four years.

Issuance of this notice of default was not discussed with, nor approved by, the Commissioners' Court in any open meeting of that body.

Judge Holstein also declared the entire board of directors of the Henderson County Hospital Authority to be improperly seated and called for reconstitution of the board. In early 2005, this was accomplished through action of Commissioners' Court and a nine-member board representing all reaches of the county was seated and charged with reviewing the agreements and submission of its findings with regard to compliance. Judge Holstein helpfully provided extensive material to each new board member in order to educate each with regard to the hospital agreements and as substance for the complaints alleged against ETMC. (Writer's note: The judge's concern regarding the proper standing of board members may flow from the fact that the Authority had modest activity over a long period of time in its administration of the ETMC sublease.)

During the course of 2005, several committees of the Authority board were established to consider each of the issues raised in the November `04 default letter and to present results of their work to the full board for consideration and action. Shortly before the board met in December `05, a second default letter was issued to both ETMC and the Authority by the County, notwithstanding the fact that the Authority was due to release its findings and submit a report to the County.

Minutes of meetings of the Commissioners' Court provide confirmation that commissioners did not authorize the issuance of either notice of default and that the matter has not been considered in any open meeting of the Court.

At its December `05 meeting, the Authority board found ETMC to be in substantial compliance with the terms of its sub-lease agreement. The annual report to the County, issued shortly thereafter, included a discussion of the board's work and a statement to the effect that default had not occurred. This report to the County was not acknowledged, nor was it presented to the commissioners in open meeting for review or consideration.

In March `06, the Authority board met again and passed a resolution calling for a joint meeting between the Commissioners ' Court and the Authority board in order to have direct dialogue with them and seek resolution before the entire matter developed into a costly legal battle. A letter requesting placement on the Court's next agenda for consideration of a joint meeting with the commissioners was submitted to Judge Holstein and prefaced with a courtesy telephone call. Judge Holstein refused to place the board's request on the Court's agenda, but did sequester the commissioners in closed session with County Attorney Owen and a Tyler lawyer. Mr. Owen participated directly, and often, in noticing ETMC of its alleged default, advising and encouraging the Court to dissolve the agreements, along with providing commentary to local media, but now leaves the county to hire outside counsel to handle the extensive litigation that lies ahead. If the County loses its bid to take ETMC's facilities, we could be faced with hundreds of thousands of dollars in legal costs, plus damages of great proportion.

To date, we have not been able to meet, as a county-appointed board, with our elected officials. Following our inability to gain audience with our commissioners, ETMC filed suit in United States District Court; citing their inability to allow threat of confiscation of all their medical facilities in Henderson County, and various other actions, to remain unresolved.

Thus far, the county has expended approximately $150,000.00 of taxpayer money to pursue dissolution of the primary lease with the hospital authority and the un- derlying sublease with ETMC. The Authority has spent $30,000.00 in legal costs and these have been assessed against ETMC. It is likely that ETMC has spent as much, or more, than the County and the Authority combined.

We would ask that you gentlemen remain mindful that each and every member of the Henderson County Hospital Authority Board was approached by one or more of you and asked to volunteer to serve the community as a member of the hospital board and to carefully examine the questions raised by Judge Holstein and County Attorney Owen. That charge was accepted, completed, and reported to you in written form early last year, after considerable study and numerous meetings of our members. As your fellow taxpayers, friends, and neighbors across the county, we have the very same interests many of you have. We want to help in every way to see the best healthcare services made available to all Henderson County citizens, including ourselves. At the same time, we believe it incumbent upon the County to honor its written agreement with the Authority; and to allow us to do the same with ETMC according to its sublease.

We also wish to communicate concern that Henderson County did not receive its share of funds from the State of Texas tobacco settlement during 2006 due to the County's failure to file the required application on a timely basis. Our taxpayers cannot afford the loss of $369,000.00 that would have augmented the hospital's ability to meet its commitment to indigent care. Because of inept management or malevolent action, the County is additionally exposed for this large sum of money. While we understand there is considerable controversy regarding who made this decision, it is one that has cost the County and ETMC a great deal.

We encourage our county leaders to seek accountability and take every measure to insure this against happening again.

The board has also discussed the present and future impact of the County's move against ETMC with regard to their ability to address the need for facility and service expansion in a growing county. We have great concern and belief that present litigation prevents ETMC from committing resources for capital expansion in Henderson County to accommodate these needs. Until resolution occurs, our county's principal healthcare provider and largest employer, is shackled. More than two years have already passed since this conflict began, yet our county has continued to grow and healthcare needs have grown in proportion. We encourage the Court to take serious note of this particular point; our citizens are certain to require it.

Members of the board have also adopted a mission statement that reflects the Authority's responsibility to Henderson County in its service to them.

A Strategic Planning Committee has recently started the task of giving greater direction to the board with regard to projecting future healthcare needs and providing greater definition of the Authority's role in meeting them.

In closing, I would like to emphasize to each of you that we are doing the work you appointed us to do and we stand ready to join with you in seeking a much more responsible, and far less costly, solution to the challenges before us.

Sincerely yours,

David Monk, President Henderson County Hospital Authority