Questions arise over how Jefferson Parish Council would spend windfall derived from lease of hospitals

In months of discussion about privatizing Jefferson Parish’s two public hospitals, the amount of money the parish stands to make off the deal has been at the forefront of the debate.

Less discussed, however, has been exactly what the parish will do with the hundreds of millions it stands to gain from an upfront payment for East Jefferson General Hospital and West Jefferson Medical Center, regardless of which of company is selected to run them.

Officials have generally agreed that the payment itself would be kept in a trust left untouched, but that the Parish Council could spend the annual interest on health care related expenditures. Officials envision a wide range of uses for the money, including the creation of new assisted living facilities, better health care services in the school system and paying for existing health care items already in the budget.

Several parish officials said this week that details of how the interest — which could amount to at least $10 million a year — would be regulated and spent are on the back burner for now. With the likelihood that it will be months, if not a full year, before the final agreement is inked, Sheriff Newell Normand said the main focus at the moment is choosing which of three companies should run the medical centers.

“We’ve not had many conversations relative to that particular issue,” said Normand, who chairs the East Jefferson hospital’s board. “That’s obviously a hurdle we’ll jump once we get this done.”

The council is now considering proposals from three companies: HCA, Louisiana Children’s Medical Center and Ochsner.

HCA, a for-profit company based in Nashville that runs Tulane Medical Center, has made the most generous offer when it comes to lease payments. After existing pension liabilities and debts at the hospital are taken into account, the parish would receive about $537 million once the deal is finalized.

Children’s, which runs Children’s Hospitals, Touro Infirmary and the LSU hospital in New Orleans, comes in second, with an offer that would provide the parish with $406 million.

Ochsner, which runs several hospitals and dozens of health care centers throughout the region, has proposed paying about $372 million.

Since this would be the first time the parish is addressing lease payments from the hospitals, there are no ordinances that specifically address how they can be used.

“This just came about when these suitors made their proposals,” Parish President John Young said. “What do we do with this money? I think most people want to make sure we preserve it for future generations and spend it on health initiatives.”

Legal opinions given to the hospital boards suggest the payment itself would have to be put into a trust, and parish officials would be unable to access that money under most circumstances, Normand said. The parish could also be required to divvy up the new revenue so that the East Bank and West Bank each got a share proportional to the value of their hospitals, he said.

There appears to be a consensus among council members that additional protections should be put in place. Council Chairman Chris Roberts said he plans to call for a charter referendum that would require the money be kept in the trust and specify how any returns would be used.

Amending the charter would prevent future councils from raiding the fund.

“The principal is going to need to be off-limits for good unless we ever retake operations of the hospitals,” Roberts said.

Officials also said the principal should remain intact in case the company selected to run the hospitals defaults on its obligations or the parish takes them over directly at the end of the lease. So far, that appears to be the only situation envisioned for tapping into the fund.

Roberts said an amendment would be put before the voters well before a final agreement was signed, a process that Normand estimated could take nine months to a year.

Exactly how much in annual interest would be generated from that trust remains an open question. No formal estimates of what kind of returns could be expected has been presented publicly, but Roberts suggested the amount could be significant.

“A conservative, decent estimate is about $10 million a year,” he said.

If that holds true, the health care trust would generate a substantial revenue stream for the parish, equal to about a quarter of the money it expects to bring in from taxes this year.

Based on the proposals made to the Parish Council last week, the fund would need to generate a return of between 1.8 percent and 2.7 percent each year to meet that goal.

That suggests a more aggressive strategy than the parish now uses for its General Fund, which is limited to relatively safe investments like government bonds.

The exact returns the parish has received on that account was not available Friday but the state General Fund, which faces similar restrictions, has generated returns of around 2 percent over the last two years.

Other state funds with fewer restrictions have posted gains of more than 4.5 percent in recent years. At that rate, the parish could reap between $16.7 million and $24.2 million, depending on which company it selects.

Other communities that have privatized their hospitals have set up similar trusts and advisory boards and used money generated by the deals for a wide variety of programs, such as Alzheimer’s centers, educational grants to train medical specialists needed in the area and even basic programs like immunizations.

“You want to be backfilling what other not-for-profits are doing already,” Normand said.

Robert already has his sights set on one particular use for at least some of the money: more retirement communities for the parish’s aging population.

“We need to make sure there are reputable, solid offerings for our seniors. And exploring the idea of retirement-style community setting operated by East Jefferson and West Jefferson should be something we should do,” Roberts said.

Councilman Ricky Templet said he also supports using the money to improve services for senior citizens.

“Our constituents are maturing more now, (and) we have to make sure we have the services that keep addressing their needs,” Templet said.

The requirement the money be dedicated to health care would not necessarily prevent the council from using those funds to boost other areas of parish spending, however.

The parish already spends millions of dollars a year on health-related issues, including about $3.5 million to pay for inmate care at the Jefferson Parish Correctional Center.

Depending on the exact terms of the arrangement, General Fund money that now goes to those programs could potentially be swapped out for money from the lease payments.

That would essentially free up the money from the trust to be used for any purpose the council desires.

Paying for the cost of inmate health care, as well as putting some of the money toward health insurance provided to parish employees could be an important use of those funds, Councilman Ben Zahn said. But he said the first priority should be plugging money back into the hospitals to shore up any financial uncertainties that might remain after the privatization.

Young did not directly endorse the idea of using the money to increase spending elsewhere in the budget but said it could be on the table.

“That certainly is an avenue that could be explored because that would free up money from the general fund, which would obviously help secure our high bond rating and also allow other initiatives to be funded,” he said.

A final vote on which hospital is selected could come as early as next week, after the boards of both hospitals meet and report back to the Parish Council.

The boards and the council go into next week’s meetings with no clear consensus on which company would make the best partner for parish. However, it appears there could be a shift away from HCA, which had been one of the frontrunners in the process.

On Thursday, council members express concerns about two elements of HCA’s proposal: a requirement that the parish reimburse the company at the end of the lease for part of the cost of capital improvements made to the facilities, and another that would allow the company to buy the hospitals outright when the term is up.

The company dropped the purchase option from its letter of intent on Friday. However, there remain serious concerns among many council members over the capital improvements provision.

That requirement would have the council repay the company for value of improvements that had not been fully depreciated over the course of the lease.

With HCA promising to make up to $1.35 billion in investments in the hospitals over the 30-year term, that could add up to a significant sum.

It remains to be seen whether discomfort with the buy-back provision will swing some council members who now favor HCA to Ochsner, which was essentially out of the running before last week.

The local hospital chain has received praise from council members, even those whose initial preference had been HCA or Children’s.

“I think we’re waiting to see what’s going to happen,” Roberts said.