KSB merger: Dixon council supports dissolving 125-year-old estate gift that created hospital

DIXON — Nearly 125 years ago, Judge Solomon H. Bethea gifted his estate to the city of Dixon for it to be established as a local hospital in honor of his late wife, Katherine Shaw Bethea.

That property has grown to become KSB Hospital, which provides medical services in primary and select specialty areas to the residents of Dixon at its main campus along with those in Lee and Ogle counties through its six other locations.

Bethea, who was a federal judge and served as mayor of Dixon in the early 1880s, gifted his property to the city in 1895. When the city of Dixon accepted the gift, city leaders adopted an ordinance – in compliance with the conditions of the property deed laid out by Bethea - that gave the city the power to select and appoint the hospital’s board of directors.

Now, as KSB is partnering with OSF HealthCare and anticipating a full merger with the organization, the conditions of the Bethea deed must be dissolved through Lee County courts in order for the merger to happen. That’s because the conditions laid out by Bethea that relate to the process of appointing members to the hospital’s board of directors act as a barrier to the hospital’s affiliation with another health care system.

As a result, the Dixon City Council on Monday night unanimously approved a resolution that declares its support to dissolve the conditions of the original deed.

Any company that is going to be purchasing that property and affiliating with KSB is going to want to have its own ownership and decision-making structure in place, otherwise they wouldn’t be willing to make that significant of an investment, Dixon City Attorney Robert LeSage says.

Since there are no known heirs to the Bethea deed, the decision to dissolve the deed will be up to a Lee County judge. The resolution will be used during court proceedings to show the judge ruling over the case that the city is in support of dissolving the deed and supports KSB’s subsequent merger with OSF, LeSage told the council Monday.

In support of dissolving the deed, the resolution says the property gifted to the city by Bethea in 1895 now comprises only a small portion, about 6%, of KSB’s 10-acre main campus in downtown Dixon. It also claims that KSB’s affiliation with OSF will not go against the original intent of Bethea’s gift to the city. Instead, the merger would fulfill Bethea’s wish to provide quality and affordable medical care to the residents of Dixon by allowing KSB to continue to serve the community, the resolution says.

In February, KSB’s board of directors announced that it was formally exploring potential partnerships due to escalating operating and staffing costs, as well as changes to health care financing and how patients use health care.

According to the resolution presented to the City Council on Monday, KSB’s board of directors analyzed the feasibility of continuing to operate the hospital independently and found that it would likely lead to its closure.

Following the COVID-19 pandemic, KSB experienced an increase in expenses including wages, pharmaceuticals, utilities, facility costs and medical supplies. Those increased expenses were not covered by increased reimbursement rates because KSB, like other rural hospitals, serves a large portion of patients on Medicare and Medicaid, which reimburse at a lower rate than commercial insurance, according to the resolution.

As a result, KSB operated with negative margins in 2022 and 2023. Those operating margin challenges led to the erosion of the balance sheet and in January 2024, the hospital’s cash on hand dropped to five days, which made it impossible to borrow funds and reinvest in the organization, the resolution says.

The agreement between KSB and OSF includes $40 million in funding for facility renovations to improve access to care locally and to create seamless referrals to subspecialties, according to a joint news release from the organizations on May 10.

“The great thing is that enhancement really comes from dollars. We have an incredible network of staff right here at KSB,” Dixon City Manager Danny Langloss told the council Monday.

With the affiliation, KSB expects the continued employment of its staff, significant investments in building and technology and enhanced access to specialty resources in the local community, all of which will be outlined in its contract with OSF, Langloss said.

Following the anticipated merger, KSB would be led by OSF’s board of directors, but it will still have some local representation through a community advisory board and a foundation board, KSB President and CEO Dave Schreiner told the council.

The purpose of the foundation board will be to complete a periodic review of the agreement between both organizations to ensure that all of those conditions are being met, Schreiner said.

The community advisory board is intended to provide advice and counsel to hospital management and OSF. The board will focus on insight, guidance and the development of local strategies, in addition to providing feedback on the management of local facilities, according to the May 10 news release.

“We have asked our current board of directors to consider continuation on [the community advisory board] at least for a period of time,” Schreiner said Monday.

All members of the community advisory board and the foundation board would be subject to approval by the OSF board of directors, Schreiner said.

In an interview with Shaw Local, LeSage said a hearing concerning the Bethea deed will be scheduled in the coming weeks in Lee County Circuit Court.

Over the years, the conditions of the deed have been modified. For example, at one time the terms of the deed only allowed women to serve on the hospital’s board of directors and it was expanded to include men, LeSage said. The last time the Bethea deed was modified was in 1978, Lee County court records show.