In The News › Jefferson hospital lease finalists trade shots as Parish Council prepares for a decision

Jefferson hospital lease finalists trade shots as Parish Council prepares for a decision

By Ben Myers | The Times-Picayune

November 25, 2013

As the Jefferson Parish Council nears a decision of which private company will operate East Jefferson General Hospital and West Jefferson Medical Center, the two leading competitors for the deal are picking apart each other’s proposal in hopes of gaining an advantage. The selection has been on hold for three months since the two hospital boards failed to agree on an operator: East Jefferson prefers Hospital Corp. of America, and West Jefferson endorses Louisiana Children’s Medical Center.

HCA and Children’s officials criticized each other’s proposals in interviews last week as Inspector General David McClintock finalized his report on the wayward lease process, which the Bureau of Governmental Research has said is in “total disarray.” Executives with two companies sought to cast doubt on the other’s offer, including employment guarantees and potential barriers to closing a deal.

McClintock said he expects to release his report at the end of this week. Parish Council Chairman Chris Roberts has been holding up the council’s vote until that report is made public.

But over the weekend, Roberts, an outspoken critic of HCA’s offer, said he also wants an outside auditor to validate financial data in all three proposals under consideration, including that of Ochsner Health System. Ochsner is considered a long shot for the lease because of federal antitrust concerns.

Roberts also said he hopes to schedule two public hearings, one on each side of the Mississippi River, before the council votes on the lease.

HCA’s counterattack to Roberts’ scrutiny includes raising antitrust concerns about Children’s proposal. Company officials questioned whether a Jefferson deal with Children’s might also be subject to lengthy federal review, effectively delaying execution of the lease by four to six months. HCA Vice President Billy Douglass said the Federal Trade Commission’s review of a Children’s deal would likely be more extensive, because the Children’s system would grow from three to five hospitals, effectively pairing with Ochsner as the two dominant systems in the New Orleans-area market.

A deal with HCA, on the other hand, would bring the Nashville, Tenn.-based firm ‘s market presence on par with Children’s and Ochsner, creating three major players, Douglass said. HCA currently operates Tulane Medical Center in New Orleans and Tulane-Lakeside Hospital in Metairie on the South Shore. It also runs Lakeview Regional Medical Center in Covington.

A Kaufman Hall & Associates, Inc. slide presentation dated Aug. 6 indicates that antitrust concerns with HCA are “less of an issue” than with Children’s and Ochsner “due to market presence of other players.”

Children’s executives dismissed any regulatory difference between the two firms as inconsequential.

But Children’s President Greg Feirn questioned whether HCA can move forward with the Jefferson hospitals lacking approval from Tulane University, its partner in the Tulane hospitals. HCA owns a 75 percent stake in the Tulane properties and intends to buy out the remaining 25 percent as a precursor to a Jefferson hospital lease. A nonbinding agreement on such a transaction is in place, and HCA says in its Jefferson offer that “extensive and detailed” negotiations with Tulane “substantially mitigate any closing risk.”

Feirn said that agreement was struck before the idea of splitting the Jefferson hospitals – with West Jefferson leasing to Children’s and East Jefferson to HCA – was part of the public discussion.

He also highlighted a portion of HCA’s offer that promises to “retain the number of employees necessary to avoid liability” under the Workers Adjustment Retraining and Notification Act, which requires 60-day notification ahead of mass layoffs. “I think it should be concerning they feel the need in a nonbinding letter of intent to reference the WARN Act,” Feirn said.

HCA has insisted that large-scale layoffs are not in its lease plans, and its letter of intent to lease the hospitals pledges to provide comparable positions in New Orleans or Jefferson Parish to any employee whose job is eliminated “due to moving to a shared service platform.”

Douglass acknowledged the guarantee doesn’t apply to all types of workers, but he said “our proposal does not contemplate job losses.” “We are not coming in to make this work on the back of layoffs,” Douglass said. “Period, end of story.”

On the other hand, Douglass said, Children’s offer promises only to retain “substantially all of the hospitals’ employees in good standing for at least 18 months.”

Douglass denounced what he called “fear mongering” by Roberts, particularly with statements that the parish could end up owing HCA hundreds of millions of dollars for unamortized capital investments. Drawing on an investment schedule that HCA devised, Parish Council research staff estimate the parish could owe HCA upwards of $600 million at the end of a 30-year lease.

But Douglass said it’s impossible to know what that obligation might be until the investments occur, in coordination with parish officials. If HCA builds a freestanding clinic in another parish, for example, the firm might agree to keep it instead of requiring the parish to buy it back. “It’s hard to know which assets would or would not even be put in that scenario,” Douglass said.

Yet as Feirn said the investment and depreciation schedule underlying the council’s buyback estimate is the same one HCA used to project its estimated property tax payments of $194 million, an advantage to its offer that HCA has trumpeted.

Still, Douglass said both companies’ offers contain uncertainties about end-of-lease obligations. He questioned whether Children’s intention to consolidate local administrative functions within a new “shared service center” in Jefferson Parish could pose difficulties for the Jefferson hospitals if they elect to withdraw from the Children’s system at the end of a 30-year lease. The Jefferson hospitals might have to buy services from Children’s if they want to separate, Douglass said.

“This asset they are talking about building can’t just be turned over,” Douglass said.

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