Jefferson council members say price not only criterion
The lease of Jefferson Parish’s public hospitals could amount to hundreds of millions of dollars over the course of 30 years regardless of which private operator is selected, but a flurry of last-minute revisions has upped the value of Nashville-based HCA’s bid to more than $100 million more than its closest competitor, according to documents obtained by The New Orleans Advocate.
The three proposals, which have only been discussed behind closed doors, put Louisiana Children’s Medical Center and Ochsner Health Systems behind the national for-profit chain. The proposals also show that both HCA and Ochsner are offering other incentives, in the form of property tax revenue or hundreds of new jobs in the parish, on top of the flat amount they would pay up front to take over East Jefferson General Hospital and West Jefferson Medical Center.
Council members said this week the amount the parish could receive in lease payments, which would have heavy restrictions on its use, might not be the main motivating factor as they prepare to discuss the privatization of East Jefferson General Hospital and West Jefferson Medical Center on Thursday.
“It’s not that you wave an extra million in front of me and I’m supposed to grab it like waving a carrot in front of a donkey?” Councilman Paul Johnston asked. “I want to look at the whole thing.”
During the months the bidding process has been underway, all discussions and documents related to the process have been kept confidential under a broad exemption to public records and meetings laws that allow strategic decisions by hospital districts to be debated in private. That has included meetings by the two hospital boards that included presentations by the suitors and presentations and proposals shared with the members of the Parish Council.
The proposals themselves remain under wraps. But documents obtained by The New Orleans Advocate include summaries from the report prepared by KauffmanHall, the consulting firm advising on the privatization, and revisions to the financial offers made by each of the health care companies.
The documents, however, do not delve into the details of how each company’s approach to health care would stack up or whether their models would be a good fit for the parish’s public medical centers.
Under the proposals presented in the documents, HCA comes away as the clear leader from the standpoint of lease payments. The company, a national chain with deep pockets, is offering $575 million over 30 years for the two hospitals, according to a revised plan it circulated last week.
Children’s, which runs Children’s Hospital, Touro Infirmary and the LSU hospital in New Orleans, ranks second, according to the proposals. Their plan would offer up about $410 million, according to the proposals.
Ochsner, the regional health care giant, offered about $374 million, according to the proposals. Those plans have been revised throughout the process, and particularly since the boards of the two hospitals split on which company to recommend to the Parish Council earlier this month. After a closed-door meeting, the East Jefferson board largely suggested recommending HCA while the West Jefferson Board unanimously selected Children’s as its choice.
HCA in particular has been aggressive about its proposal, revising it several times to add more money to the lease and account for property taxes it would pay. The latest version of their plan was dated last week.
Since the original KauffmanHall report, the HCA proposal has increased by more than $110 million. While both Children’s and Ochsner’s proposals have also gone up, each has increased less than $11 million, according to the proposals.
In addition to the lease payments, all three companies propose spending about $450 million on improvements to the hospitals over the course of the lease.
While proposals of hundreds of millions of dollars are impressive, the lease payments do not on their own represent cash that could be spent directly on the health care centers or used at the whim of the council. The principal amount would be untouchable, similar to an endowment, with only the interest available for annual use. However, with leases being prepaid upfront, that interest is expected to generate substantial revenue from the start.
That interest would have to be spent on health care-related costs that could range from clinics to school nurses to funding inmate care at the jail, a tab now picked up by parish government. However, it remains unclear who would decide how to spend the cash or exactly how much the principal amount would generate in interest.
That could add more weight to additional aspects of the proposals by HCA and Ochsner that would provide benefits beyond just the lease payments themselves.
HCA remains in a unique position: As the only for-profit hospital in the running it would be the only entity that would have to pay property taxes on top of the lease payments. That money, which would amount to about $146 million over the course of the lease according to an HCA proposal, would go directly to local governments to spend how they wished.
Ochsner’s proposal would present its own unique benefit. The company’s plans include the creation of a new call center on the West Bank, which would lead to the creation of 500 new jobs. That would have an estimated economic impact of about $330 million over 10 years, according to the proposals.
None of the three companies have publicly discussed their proposals and representatives cited the confidentiality agreements signed at the beginning of the bidding process when asked about them this week.
“We have a confidentiality agreement and we adhere to it,” Rob Dyer, HCA’s senior vice president of strategy and development said in an email.
Greg Feirn, president and chief operating officer of Children’s, did not discuss the proposal itself but said the parish hospitals were “extremely important community assets and we feel our shared cultures and community minded nonprofit status recognizes that.”
“I don’t want to speak to the numbers you have, whether they’re the final numbers or not,” Feirn said.
Ochsner has requested that the council chairman allow it to speak about their proposal during a public council meeting, said David Gaines, the company’s chief executive officer of system retail services and marketing. If that request were granted, presumably with an opportunity for all three companies to make their case, it would be the first time the council was formally briefed on the proposals.
“We would like to have the opportunity to present our proposal and, if based on the merits of our proposal we’re not the strongest suitor, we can live with that,” Gaines said.
“Without a structure or an opportunity to present this to the council, I’m still unsure on how this decision gets made,” he said.
Exactly how Thursday’s meeting will play out remains unclear. The public meeting exemption for hospitals could allow all substantive discussions to occur during an executive session, with council members emerging only to cast a final vote.
Whether the public would be able to weigh the various proposals under that scenario remains unclear.
Council Chairman Chris Roberts, in an letter to hospital board members written with Councilman Elton Lagasse, said he would be rejecting a proposal by some members of those panels that had sought to have KauffmanHall, hired for more than $1 million, issue a recommendation to the council. It is not clear whether the companies themselves will be allowed to make their presentations to the council.
Roberts did not return several calls seeking comment on the process Tuesday, however in his letter to the hospital boards, he and Lagasse suggested lease payments alone would not be the determining factor.
“(W)e have to remain true to our mission which is providing quality long term health care, not based on a dollar value, rather meeting the needs of our ever changing parish,” they wrote. “In the end, the value of our institutions will be determined by the ability to service the needs of the public.”
Last week, Parish President John Young suggested the process of selecting a suitor needs to be “open and transparent,” potentially including public discussions about some aspects of the proposals. On Friday, Roberts suggested the council could kick the proposals over to the administration for review if they are unable to decide on a single suitor.
Some council members said they weren’t sure what to expect out of Thursday’s meeting.
“I’m going into the meeting on Thursday but have no idea what’s going to happen,” Councilman Paul Johnston said.
Johnston said he would defer to Roberts on whether the various companies should be allowed to present their proposals, either privately or publicly.
Still, Johnston said he didn’t expect a vote on Thursday.
“I don’t have plans to make a decision this week,” Johnston said. “It’s too divided between the two hospitals and so we have to wait and see if everyone can come together in the best interest of the parish.”
Councilman Mark Spears also said he did not know what would occur Thursday, though he said he hoped for more information on each of the proposals.
Spears said he may recuse himself from voting on the hospital issue. The state Board of Ethics cleared Spears, whose wife is a physician at West Jefferson Medical Center, to vote on the hospitals earlier this month. But Spears said Tuesday he’s unsure whether he will participate in the vote. Asked about the decision, Councilman Ben Zahn said that while money could not be the “only factor,” the financial stability of the companies involved had to be taken seriously in light of the financial challenges faced by the hospitals.
“Since this entire issue has been designated as a ‘financial crisis,’ it will be hard for me to consider anything less than a suitor who offers the best long-term financial stability for both hospitals,” Zahn said. “Since all three suitors are obviously successful medical providers, the financial future of our community hospital for 30 years must be considered.”