Jefferson Parish hospital boards philosophically opposed in lease ...

Four years after Jefferson Parish began endeavoring to merge its public hospitals, philosophical differences between their governing boards are driving a seemingly irreconcilable split over which private company should lease the hospitals. The contours of the divide between East Jefferson General Hospital and West Jefferson Medical Center became clear over the past week in interviews with the hospital chairmen and executives of the two companies that each prefers.

West Jefferson aligns with the local non-profit Louisiana Children's Medical Center, which runs Children's Hospital, Touro Infirmary and LSU Interim Hospital in New Orleans and has a state contract to run University Medical Center, which is under construction in Mid-City. East Jefferson wants to go with the for-profit Hospital Corp. of America, one of the largest chains in the United States and operator of Lakeview Regional Medical Center near Covington, Tulane Medical Center in New Orleans and Lakeside Hospital in Metairie.

The Parish Council has the final say over which company, or companies, will lease the hospitals for the next 30 years. It, too, is divided, although council Chairman Chris Roberts has said he wants the council to make a decision in the coming weeks.

The Jefferson hospital boards draw on conflicting sets of values as they seek stability in an uncertain era for health care. West Jefferson prefers a homegrown organization with a trustworthiness that is validated by its non-profit status. Headquarters location and tax status are secondary concerns to East Jefferson, which is primarily focused on the cash that Jefferson will collect and the financial stability of the company that wins the lease.

West Jefferson views the state's partnership with Children's on the $1.2 billion University Medical Center as a safeguard for the system's future. The thinking there is that Louisiana's government has so much invested in the deal that it would never let Children's falter, much less fail, and thus Jefferson's two hospitals would be in good hands in the long term.

East Jefferson views such reliance on state government as a liability, and Children's as an outfit with little experience in running acute-care general hospitals, much less ?a track record of rapid expansion and growth. Instead, East Jefferson officials tout HCA's "multilevel economies of scale, going up the corporate chain," as East Jefferson Chairman Newell Normand put it.

Normand is exasperated with what he sees as West Jefferson's subjective bias in favor of nonprofits, all the more unjustifiable in his view because HCA is offering $538 million as an upfront lease payment, and would pay taxes on its capital investments in Jefferson's hospitals. ?compared to a $406 million lease and no tax revenue from Children's.

"Give us the data necessary to overcome the financial delta.Articulate to us the characteristics you're banking about Children's that compels you to bypass this delta," Normand said in describing requests to West Jefferson board members. "We don't get responses. We get not-for-profit versus for-profit."

The standard argument in favor of non-profit is that it plows its excess revenue back into improving the organization, instead of paying some of it out to stock holders. Children's President and Chief Operating Officer Greg Feirn stressed the point in an interview Friday.

West Jefferson Chairman Harry "Chip" Cahill bases his preference for Children's on an unquantifiable wariness toward mixing shareholders with health care. ?"I don't know what their motives are, or what their plans for the future are," Cahill said of HCA. "I know what the plans for the future for Children's is."

Normand, on the other hand, said "huge systems" such as HCA are the way of the future in the Affordable Care Act era, and that West Jefferson is arguing for "the status quo." He likens selecting Children's with "going to Harrah's to place a bet on the table," and his reasoning is fiscal in nature. Debt from the Touro and University Medical Center transactions is eating at the $1 billion that Children's holds in cash and investments, and Children's plans to borrow more to finance $406 million in upfront lease payments for the Jefferson hospitals, Normand said, citing financials that Children's provided in its proposal.

That places Children's debt-to-cash ratio in "the sucky arena," Normand said.

"They are burdened with that ratio, and they are very, very nervous," Normand said. "Now that you are starting to grow a system, you have to know how to manage debt, how to do it appropriately. And you have to have a comfort level in doing so."

Cahill, however, said non-profit hospitals are not going the way of the medicinal leeches. The American Hospital Association reports that only 1,025 of 4,973 community hospitals are for-profits, and Cahill said he thinks the ratio is "carved in stone.

The two boards' preferred lessees seem to align with their values, and Children's and HCA executives deploy selling points accordingly. HCA Delta Division CEO Mel Lagarde outlined the firm's plans to expand the Jefferson hospitals' reach through a feeder system of outpatient services. Feirn noted that, as a nonprofit, Children's can comfortably deliver money-losing programs such as mobile dental care, free examinations for low-income children, services for sex-abuse victims and others, without stock holders questioning the financial loss.

Lagarde and Feirn also rebut their organization's perceived weaknesses. Feirn said Children's debt-to-cash ratio would hold around 50 percent after the Jefferson transaction. Lagarde said HCA intends to start a community foundation with a $2 million investment, split evenly among the two hospital boards.

East Jefferson board members are so adamantly in favor of HCA that they are calling on Parish Council to let them to part ways with their West Jefferson counterparts, with each hospital seeking its own lessee. Cahill opposes this because he thinks the New Orleans-area market can support only one major hospital network, after Ochsner Health System.

Lagarde said HCA would consider leasing only one of the hospitals but would not discuss details. Feirn, while not ruling out a single-hospital deal, said ?leasing West Jefferson to Children's and East Jefferson to HCA would put Jefferson's public hospitals in competition with one another.

The way forward in the unwieldy lease process is anything but clear. The immediate argument among Parish Council members centers not on which company to pick, but on whether, and in what manner, they should receive a recommendation from the hospital boards' $1.3 million consultant, Kaufman, Hall & Associates, Inc. Inspector General David McClintock's report on the process is due to be released to the public within the next two weeks, and some council members have said they prefer to wait until then to vote.

Still, Roberts, the council chairman, says he has the four votes necessary to proceed with Children's, a preference he shares with Councilman-at-Large Elton Lagasse. Councilmen Ricky Templet and Mark Spears Jr. have not publicly stated their choice but are thought to be backing Children's. Council members Paul Johnston, Cynthia Lee-Sheng and Ben Zahn have clashed with Roberts over Kaufman Hall's role.?

Source: http://www.nola.com/politics/index.ssf/2013/10/jefferson_parish_hospital_boar.html

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