Jefferson Parish hospital suitors are Ochsner, Children's, HCA

East Jefferson General Hospital building mug
East Jefferson General Hospital in 2007. ( | The Times-Picayune archive)
It's hard to compete as individual hospitals. They get suffocated by the big systems." -- Jack Finn, former head of Metropolitan Hospital Council.

Ochsner Health System, Louisiana Children's Medical Center and the Nashville, Tenn.-based hospital giant HCA, which runs Tulane Medical Center and Lakeside Hospital, are the three finalists pursuing a long-term lease with Jefferson Parish's two public hospitals, according to sources who have been briefed on the negotiations.

Each of the suitors runs at least two hospitals in the New Orleans area, including some of the region's most beloved medical institutions. All three also have also sought to expand in recent years, as frenzied consolidation is reshaping the health care marketplace ahead of President Barack Obama's health care law taking full effect.

News of the competitors' identity come as the Legislature has approved a bill to let the Jefferson Parish Council lease out East Jefferson General Hospital in Metairie and West Jefferson Medical Center in Marrero without voter approval. Current law dating from 2001 requires a successful referendum to sell or lease the hospitals, and the parish has a similar local ordinance dating from 1992.

Thus far, the legislative bill and the hospitals' negotiations for a possible lease have not ignited the kind of public outcry that led the Parish Council to adopt the referendum requirement in the first place. That could change, however, as the debate moves closer to home in the coming weeks.

Council members already are considering calling a special meeting in July to debate the hospital's future. Lease proponents said their proposal would not affect voters' right to approve or reject an outright sale of the hospitals, only the vote on a lease. But in considering taking away the electorate's rights, council members could risk considerable political capital at a time when they face criticism - justified or not - for the construction delays at the Jefferson Performing Arts Center, property tax renewals that failed at the polls May 4 and the black eye left by corruption in the Aaron Broussard administration.

"Some voters are not going to like being told they can't have a say on this, and that's the downside for parish officials," said political analyst Silas Lee. Still, he agreed with hospital officials who say a competitive lease can't be negotiated through the ballot box, because a referendum exposes the deal to likely fatal attacks. Lee said if a lease is the best option for the hospitals' future, "there's probably more of an upside for the council in avoiding a (popular) vote on a lease."

Council members say they understand the political dilemma they face: Voters elected them in part to be stewards of public assets, including the two hospitals. But many of those same voters are likely to be skeptical, or downright suspicious, of any effort to take away their right to approve a lease for hospitals that were built with taxpayer money.

"You don't want to be charged with trying to take this off the public's hands," said Councilwoman Cynthia Lee-Sheng, whose district includes East Jefferson General. "But leaving it as is for five years until we don't have options, leaving it for the next Parish Council, that's not leadership either."

Lease negotiations continue

Executives and the governing boards at Jefferson's hospitals have been trying to arrange a wedding between the two institutions and a third party for more than a year. Their overtures yielded 17 offers, and they interviewed six respondents before narrowing their choices to the three finalists.

Officials recently said the three entities all had a presence in Louisiana, but their identity was not publicly known, until now. Officials involved in the negotiations say they are bound by confidentiality agreements not to disclose the identities of the outside suitors, among other information, but three sources familiar with the talks identified them as Ochsner, Children's and HCA. (See background on the suitors.)

HCA spokesman Rob Dyer said he was "not at liberty to discuss at this time" whether the company was part of the negotiations. Children's spokesman Brian Landry said: "It's is our understanding that East Jefferson General Hospital and West Jefferson Medical Center signed confidentiality agreements and they preclude those who are in negotiations from discussing it."

In a statement, Ochsner President and CEO Warner Thomas said: "Ochsner has tremendous respect for the outstanding healthcare providers in the state of Louisiana. We will continue to evaluate opportunities to work with other high quality organizations across our region to provide more affordable healthcare for patients. Knowing this, it is the policy of Ochsner not to speculate or comment on hypothetical business arrangements."

Mark Peters.jpgDr. Mark Peters is president and chief executive of East Jefferson General Hospital.

Without naming the suitors, Dr. Mark Peters, chief executive at East Jefferson General, said the governing boards at both of Jefferson's public hospitals have followed "a very thorough process, looking at the strengths and weaknesses of the respondents." He said that included examining the suitors' finances, corporate culture and quality of service.

"We feel very fortunate. They are excellent organizations," Peters said.

Public votes created the hospitals

The public's familiarity with the Tulane, Children's and Ochsner names could be a blessing for Jefferson officials, as they argue they need to join a larger health network to overcome restrictions that now have East Jefferson and West Jefferson at a competitive disadvantage. They cite, for example, law provisions that forbid Jefferson's two hospitals to provide services outside of Jefferson Parish or even across the Mississippi River but still within the parish. That has stunted their growth, they said.

The restriction harks back to the 1950s and 1960s, when voters first approved taxes to build the hospitals. As it often happens with change in south Louisiana, hurricanes played a big role in the hospitals' origins.

Through the 1950s, West Bank residents had no hospital of their own but relied on ferries to seek care in New Orleans. After Hurricane Flossy in 1956 shut down ferries and the Huey P. Long Bridge, West Jefferson voters approved a 3.5-mill property tax to build and operate a new hospital.

The process was more arduous in East Jefferson. Vocal opposition from some prominent business owners helped doom the first tax proposal for a hospital in 1960. Supermarket magnate John Schwegmann, Jr. even published an open letter calling the proposed public hospital "another step toward socialism" and urging residents to vote no.

It took another storm, Hurricane Betsy in 1965, to turn public opinion around. Two months after Betsy damaged several New Orleans area hospitals, East Jefferson voters approved taxes to build a hospital of their own.

The two hospitals grew rapidly with Jefferson's population boom of the 1960s and 70s. That let the hospitals become self-sufficient. Taxes for the hospitals were last collected in 1986 in West Jefferson, 1991 in East Jefferson.

Dwindling cash reserves

During the growth years, large cash reserves accumulated, helping the hospitals to weather the ups and downs of the local economy and the health care industry for decades. But that well is running dry. The hospitals have dipped into the reserves in the past decade to make up for operating losses caused by rising costs of providing care and falling reimbursement rates from Medicare and Medicaid, a process that accelerated after Hurricane Katrina.

With an aging parish population, Medicare and Medicaid beneficiaries now make up 60 percent to 70 percent of patients at the two hospitals, officials said. That's a financial burden, because while private insurers pay 42 cents for every $1 billed in health care, Medicare pays only 26 cents, Medicaid only 15 cents, Peters said. Dependence on Medicare was one of the reasons that Moody's Investor Service cited in downgrading East Jefferson General's bond rating in March from Baa2 to Baa3.

Hospital officials said they can't continue using cash reserves to balance their operating budgets and pay for equipment and physical improvements without putting at risk their debt rating and the minimum reserves needed to meet debt obligations. Doing so, they warned, could lead to creditors taking over the hospitals in a few years.

Jack Finn, who for decades led the Metropolitan Hospital Council of New Orleans, said Jefferson's hospitals faced growing financial pressure as competitors grew larger and the marketplace changed. Katrina, Finn said, accelerated the process.

"Katrina changed the landscape totally," Finn said, nothing the rapid growth of Ochsner since the storm and the merger of Children's, Touro Infirmary and, soon, the LSU Interim Hospital. "Those outside larger health systems in other regions have found that it's hard to compete as individual hospitals. They get suffocated by the big systems."

Joining larger systems will help the parish hospitals spread their overhead expenses over a larger patient base, reducing per-patient costs, Finn said. Just as important, he said, it would give the hospitals more clout to negotiate with private insurers and - even more crucial these days - with federal and state governments at a time of drastic cuts in health reimbursements.

"The Jefferson Parish political delegation is very powerful," Finn said of state politics. "But don't underestimate the power of larger political influence."

How the laws came about

Ironically, it was the possibility of the parish hospitals signing a deal with outside entities that prompted Jefferson's politicians to impose the referendum requirement more than 20 years ago. In the early 1990s, several non-profit hospitals across the New Orleans area were exploring a partnership to maximize resources. At the same time, national health-care giants were looking for properties to acquire, including in New Orleans. HCA bought a majority interest in Tulane Medical Center in 1995, after essentially talking with just about every hospital in the region, Finn said.

The non-profit partnership of local hospitals never materialized, however, and officials said Jefferson's two public hospitals were not considering a sale or lease a for-profit entity such as HCA at the time. But speculation about a possible sale led to public outrage. Then-Parish Councilman Ed Muniz introduced an ordinance giving voters final say on any hospital lease or sale, and the council adopted it unanimously in 1992.

muniz.jpgEd Muniz sponsored the ordinance requiring a successful public referendum to sell or lease Jefferson Parish's two public hospitals.

 "It was one of the best pieces of legislation I ever sponsored," Muniz recalled recently. "The hospitals were formed by the people, and I thought that should not be changed without a vote of the people."

"There was a huge concern that the hospitals would be sold," said the ordinance's co-sponsor, former Councilwoman Anne Marie Vandenweghe. "The feeling was, if there was a brother-in-law deal, someone would end up with a huge windfall."

Even after the local ordinance passed, occasional interest from outsiders in East and West Jefferson hospitals remained, Finn said. That fed speculation about the hospitals' future, so in 2001, then-state Rep. Joe Toomy sponsored a bill putting in state law almost the same referendum requirements that the Parish council had adopted a decade earlier.

On Thursday, however, the Senate approved a House-backed bill undoing that requirement for a lease, and Gov. Bobby Jindal is expected to sign it. If so, the only obvious obstacle in law is the parish's ordinance.

Hospital officials maintain they can't negotiate the competitive, 30-year lease they're seeking if voter approval is required. They say a referendum campaign would let competitors torpedo the deal, likely hurting the reputation and financial condition of the parish hospitals and the third party on the agreement.

"In order to gather support for the referendum, you begin to reveal your blemishes, and your suitors' blemishes," said Sheriff Newell Normand, who is East Jefferson's board chairman, has said. "It makes it a very uneasy relationship from the beginning."

Newell Normand.jpgSheriff Newell Normand, chairman of East Jefferson General Hospital, said a referendum on leasing the two hospitals would damage them.

Lee, the political analyst, said a referendum would require the parish to spend "a huge sum" to wage the kind of campaign needed to educate voters on such a complex issue. "Anytime you put something to a vote, everything becomes fair game," Lee said.

Even the original sponsors of the voting requirement, Muniz and Toomy, said what made sense then might not make sense now. "I'd feel strongly that the vote of the people should remain in place prior to a sale," Toomy said. "But given the changes in the operations of the hospitals in these years, I would think the vote of the people would not be necessary for a lease."

Vandenweghe said she's not convinced of the need to sidestep voters. She said officials should share more information to persuade voters to approve a lease in a referendum.

"Go out and educate the voters on why (a lease) is needed. ... If there's a problem, lay it all out," she said. She said requiring voters' approval for a lease "was a good idea in 1992, and it remains a good idea now."

Where's the outrage?

Among the most vocal supporters of the referendum requirement in Muniz's 1992 ordinance were leaders of Jefferson's homeowner associations. So where's the public outrage now that politicians are talking about taking away that right? As hospital officials have begun holding public meetings to make their case, they've met skeptical questions, to be sure, but none of the pitchforks-in-hand tone that dominated the debate in the 1990s.

Several community leaders interviewed recently said the circumstances of the health care market have changed dramatically, and so have the politics. As the full implementation of the federal Affordable Care Act approaches, more and more residents fear the uncertainty that comes with it, especially in mostly conservative Jefferson Parish, where many residents talk of Obamacare as a four-letter word. Those concerns appear to be helping parish officials find audiences receptive to their messages.

But residents said they've also seen, as health-care consumers, the changes in the marketplace, and they worry about the future of the parish hospitals.

Oscar Pipkins, president of the West Jefferson Civic Association, said if his group saw a potential problem with the hospitals' lease "we'd be the first ones to object. But we don't want a situation where the hospital finds itself at more of a disadvantage, reducing the choices West Bank residents have."

As for voters not being able to approve a lease, Pipkins said his group would normally oppose taking away voting authority. "But if this gets dragged out into a political election, the hospitals may become less attractive to suitors. It's a win-win situation to have the hospitals remain viable."

Ralph Brandt, president of the East Jefferson Civic League, said the group won't take an official position until its board meets next month. Brandt said that the public's "natural perspective" is to question why it should not be allowed to vote on the prospect of a lease.

"But then when you understand the reasons, you can understand why. It's one of those conundrums," he said.

Parker Lynne.jpgLynne Parker, longtime political activist in East Jefferson, said a referendum would lessen the opportunity for Jefferson Parish to get the best deal in leasing its hospitals.

Lynne Parker, a long-time East Jefferson activist, said she still remembers what a "hot-button issue" a hospital lease or sale was back in 1992. Parker, who has clashed publicly with several councils and parish presidents, said she understands the hospital's arguments.

"A lot has changed in Medicare and Medicaid, and now we're going to have Obamacare. All of us know health care will change further," said Parker.

Parker also supports letting the council vote on the lease by itself. It's a position she admitted would sound like heresy to her in just about every other public issue.

"My concern about a public vote is that it takes away the best opportunity for negotiations. You cannot negotiate something like this in public," Parker said. "Unless something comes to light that I have not heard yet, I'm in favor of the council voting on the lease."

She said voters still may examine the hospitals' arguments closely, as well as any proposed lease. More opposition probably will surface as the debate moves to the Parish Council, where residents are more likely to show up than in the Legislature in Baton Rouge, she said.

Parish Council Chairman Chris Roberts said the council is likely to begin the process next month to consider changes to the 1992 ordinance and allow a lease of the hospitals without a popular vote. Roberts and other public officials repeated they would not consider ending the referendum requirement for a sale of the hospitals.

The council would then debate the proposal and the hospitals' situation at a special meeting likely in early or mid-July. The public would have a chance to debate the proposed ordinance then, officials said.

Several council members admitted that they wanted to see whether the Legislature would change the referendum requirement first, before starting the debate at the local level. After all, why face the political headache if Baton Rouge didn't come through?

Lee, the political analyst, said the key to get support to give up a right to vote is sharing as much information with the public as possible about the hospitals' challenges, and making clear what benefits to health care service would come form a lease. Muniz agreed.

"They should be transparent and tell the people upfront why they're doing what they're doing," Muniz said. "I have nothing but respect for the sheriff and Dr. Peters, and I trust they will do that."

Councilman Paul Johnston, whose district includes West Jefferson Medical Center, said he isn't sure yet about eliminating the referendum requirement. But he said voters, as they learn more about the hospitals' situation, will understand why the council is considering the issue.

Lee-Sheng, who said her children were born at East Jefferson General, said whatever strong feelings the public has in this debate come from their care for their hospitals.

"In that case, they need to take the time to learn about their situation," she said, "and hopefully they will." 

CORRECTION: An earlier version of this story incorrectly said Ochsner did not provide a statement. Ochsner CEO and President Warner Thomas provided a statement, which by mistake was omitted earlier.