“This isn’t a decision that should be made around money, this is a decision that should be made around patients.” WARNER THOMAS, Ochsner CEO
Three companies seeking to take over Jefferson Parish’s community hospitals made their official pitches to the Parish Council on Thursday, setting the stage for what officials hope will be a final decision on the future of the financially troubled institutions next week.
But some council members appeared concerned about the details of Nashville-based HCA’s proposal for privatizing East Jefferson General Hospital and West Jefferson Medical Center, potentially spelling trouble for a company that had been one of the frontrunners in the process.
The new wrinkle is a provision that would require the parish to reimburse HCA for part of the value of capital improvements it made to the hospitals at the end of the 30-year lease. With the potential for nearly a billion dollars worth of improvements on the table, that requirement could be a deal breaker for the council, Chairman Chris Roberts said.
“If it’s determined HCA is looking to get paid back, that’s going to make it real simple,” Roberts said.
HCA and Louisiana Children’s Medical Center have been seen as the leading contenders to take over the hospitals. The two boards that govern the hospitals could not come to an agreement last week on which of the three bidders they should recommend to the council. The West Jefferson board unanimously recommended going with Children’s, while the East Jefferson board chose HCA. None of the members voted for Ochsner Health System, which has also put forward a proposal.
While the council heard pitches from company representatives, no decision was reached Thursday, and Roberts said council members had not expected to make a selection this week.
The boards of both hospitals are expected to meet to discuss issues raised by council members next week and potentially make a recommendation. At that meeting, the board is expected to delve into some of the questions raised during a three-hour executive session that followed the 20-minute public presentations. Among those questions is how HCA’s requirement for reimbursement factors into the proposals, Roberts said.
Roberts said the council itself will follow up with another special meeting and take a vote at that time. Roberts said the decision could be made by a simple majority vote.
The financial aspects
The financial aspects of the deals each stretch into the hundreds of millions of dollars and, when capital improvements and other factors are taken into consideration, mean the companies are offering up more than $1 billion each.
From the perspective of lease payments and debt, HCA is offering the most generous package as part of the deal. In total, the company would pay about $575 million, though that figure includes the cost of assuming the hospitals’ existing debts, such as pension liabilities. The company has also promised $450 million in capital improvements over the first 10 years of the lease and up to $900 million in additional capital improvements to the hospitals.
Children’s comes in next, with a payment of $524 million, including the assumption of the hospitals’ debts. That would result in proceeds of about $406 million for Jefferson Parish.
The company would then spend about $675 million in capital improvements to the hospitals over the first 15 years of the lease.
Ochsner’s plan would include $372 million in lease payments plus about $76 million toward the pension and debt liabilities at the hospitals. The company would spend $450 million on capital improvements in the first 10 years of the lease and another $900 million over the following 20 years.
Quality of health care
The quality of care offered by each of the companies is a much more subjective process, and each of the companies tried to cast its own hospitals as the most competent at caring for patients.
Ochsner highlighted the chain’s long list of positive ratings from U.S. News and World Report, as well as statistics showing the company has a lower mortality rate when similar, severe cases are compared across hospitals.
CEO Warner Thomas said bringing the Jefferson Parish hospitals under Ochsner’s umbrella would allow the New Orleans area to become a medical hub for the Gulf Coast.
“This isn’t a decision that should be made around money, this is a decision that should be made around patients, the quality of health care around patients and the best interest of Jefferson Parish,” Thomas said.
Noting that Children’s attracts patients from other states, as well as internationally, President and Chief Operating Officer Greg Feirn said that the combination of the two parish hospitals with the LSU medical center in New Orleans, which the company now runs, will allow the company to create “a truly transformational health care system.”
HCA presented its own statistics showing its hospital chain is ranked better on average than some of the local hospitals. The company also touted its commitment to uninsured care, noting that it has a charity care program for those who fall within 200 percent of the poverty rate.
“The number one strategic agenda for HCA for 2013 and for the last several years is to be a premier clinical organization,” said Mel Lagarde, president of HCA Midwest Health System.
The purely financial aspects of the deal only represent a portion of what each company promises in terms of the economic benefits to Jefferson Parish.
The Ochsner proposal includes a promise to create 500 new jobs at a call center on the West Bank. That call center would have a total economic impact of about $330 million over the first 10 years of the lease, according to the proposal.
Children’s would create a similar call center with 300 jobs, and Feirn promised the company would not engage in “layoff strategies” and would “retain substantially all of the employees,” including senior staff. The shared service center is estimated to have an economic impact of about $24.5 million a year. The company also promised to extend its “community benefit service” program to Jefferson Parish, which the presentation said would be worth about $84 million.
HCA, as a for-profit company, remains in a unique position as the only bidder that would pay property taxes on improvements it made to the hospitals. Local property taxes are now estimated to generate about $285 million, according to the company’s presentation. The company also would move its local headquarters on Canal Street to Jefferson Parish.
Each of the companies also spent time attempting to dispel concerns over what their business models would mean for the two hospitals.
For Ochsner, that meant working to assure the council that many of the existing relationships the facilities have with their physicians would remain in place. As a longtime competitor with the medical centers, particularly East Jefferson General Hospitals, some have worried that Ochsner would make changes that would hurt physicians at the two parish hospitals.
Recognizing that some have raised concerns over whether Ochsner’s dominance in the New Orleans hospital market would create problems with federal regulators, Thomas said the company has hired top attorneys who believe anti-trust regulations would not be a problem. Should the deal be blocked on those grounds, he said the company would pay a $10 million “break up” fee to the parish.
Children’s used its deal with the state to take over the LSU hospital, as well as its recent experience buying Touro infirmary, to show the company had grown beyond its roots as a pediatric care facility. The company, the smallest of the three competitors, also provided detailed charts showing it would still have significant money in the bank after the deal.
“LCMC has the financial strength to create a truly transformational health care system,” Feirn said.
Lagarde attempted to address fears that HCA would outsource jobs, saying past takeovers had led to an increase in jobs at the company’s facilities.
But another aspect of HCA’s proposal has apparently caused new concern for council members. At the end of the lease, HCA would expect the parish to pay for some of the costs associated with the value of improvements made to the hospitals, less the amount they had depreciated. Neither of the other hospital companies included a similar provision in their proposals.
Lagarde confirmed that was part of the proposal, but said it was unclear what that cost would be.
“We cannot estimate that at this point,” Lagarde said.