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Jefferson Parish hospitals forging ahead on different tracks as inspector general voices concern

By Ben Myers | The Times-Picayune

April 9, 2014

The drawn-out process for selecting a private operator to lease Jefferson Parish’s two public hospitals is half resolved. West Jefferson Medical Center won Parish Council approval Wednesday to negotiate with Louisiana Children’s Medical Center, which was its preference all along, but East Jefferson General Hospital is starting from scratch.

Ochsner Health System’s withdrawal from the competition left East Jefferson without a realistic offer on the table. Children’s had offered to lease both hospitals, but East Jefferson has adamantly opposed joining the that system.

East Jefferson’s first choice, Hospital Corp. of America, withdrew in February, yet Chairman Newell Normand said the hospital’s governing board “is not going to panic.” In fact, the board has already garnered preliminary interest from two national systems, Normand said, characterizing the communications as “just an expression of interest. ‘Let’s see, let’s talk.’” He would not name the systems.

“As the suitors you’ve seen have fallen out, it’s changed the scope of what we are looking at constantly. We have consistently been in the market to make sure we are turning every stone possible,” Normand said.

What’s next for East Jefferson is not clear. Its consultant, Joshua Nemzoff, who has been contacting other hospital companies, said he is not sure whether the board will issue a competitive solicitation.

“Right now it’s obviously very informal,” Nemzoff said, estimating that perhaps half a dozen organizations will show interest. “It’s not like there are 20 possible companies on the list. It’s a much smaller number than that.”

Nemzoff said he expects some interest from local organizations. But the pool of potential lessees is “probably more national.”

With Parish Council approval, the two hospitals began work in 2009 to share some costs and services as a way to keep both hospitals afloat amid rising competition and the rapidly changing landscape of insurance and government reimbursement. Eventually the hospital governing boards decided the only way to survive was to be taken over by a larger health-care network.

Consulting firm Kaufman Hall & Associates, Inc. solicited interest from 17 companies. That pool was narrowed to three, setting the stage for perhaps the most important deal in Jefferson Parish government history, one worth hundreds of millions of dollars.

But in September, the two hospital boards failed to agree on a single operator. Ever since, the selection process has been mired in discord among Parish Council members, and HCA’s withdrawal six weeks ago made it all but inevitable the hospitals would seek separate partners.

The split might have sparked interest from organizations that previously considered a two-hospital deal too big of a bite, Nemzoff said. “Everybody in the outside world thought this was a package deal,” Nemzoff said. “The two of them together are a pretty large package.”

In the meantime, however, East Jefferson’s credit took a hit last month when Moody’s Investors Service downgraded it for the second time in a year.

Nemzoff said his contract with East Jefferson is still being finalized. West Jefferson, meanwhile, has not yet hired a transaction adviser such as Nemzoff. That’s the first step ahead of negotiating with Children’s, said West Jefferson Chairman Harry “Chip” Cahill, adding that board is still determining a process for selecting an adviser.

That selection is expected within 30 days, and the board will then work with Inspector General David McClintock and the Parish Council on how to proceed. “We will all be in it together,” Cahill said.

McClintock, in a memorandum to Parish Council on Monday, said he is concerned the council’s continued failure to establish clear guidelines for the lease process could compromise negotiations and lead to duplication of professional service expenses. “The absence and reluctance to establish a frame work for the process continues to color and compromise an optimal outcome,” the memo states. “There will be unavoidable conflicts of interest if the council permits the hospital’s management team, attorneys, advisers or board members to direct negotiations without a process in place.”

Furthermore, he wrote, “there remains (1) no clear structure and line of authority for future negotiations; and (2) no process which permits a negotiation team to act in such a manner which ensures the integrity of the process.”

In some respects, his memo echoes concerns he expressed in December. And it aligns with a report from the Bureau of Governmental Reseach, which in November blasted the Parish Council for a process that was in “total disarray,” lacking objective criteria and “shrouded in secrecy.”

McClintock also expressed concern that lack of direction in hiring consultants, lawyers and negotiators will “result in substantial, uncoordinated and potentially duplicative institution specific expenditures.” He said the parish has already spent $1.4 million on two merger-and-acquisition consultants, including Nemzoff, and additional money on Chicago-based McDermott Will & Emery for antitrust counsel.

He recommended that Jefferson engage a single negotiating team to work with each hospital board, and to provide “clear direction” to the boards concerning contact with bidders and related expenses.

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