If everything goes perfectly, medical center would open in 2014
Slow-paced land acquisition and lingering questions about financing have led state officials to push back their construction schedule for a successor to Charity Hospital, and additional delays seem almost certain even if the newly created University Medical Center corporation can meet an ambitious schedule for securing the additional money needed to start building.
The targeted date for the new hospital, to be built in the tract of land above, to be fully operational is now Nov. 30, 2014, more than nine years after the state shuttered Charity in the days after Hurricane Katrina.Jacobs Engineering, the project manager for the planned $1.2 billion complex, estimates in its latest monthly report that construction will not begin before Feb. 1, 2011. The targeted date for the hospital to be fully operational is now Nov. 30, 2014, almost six months later than Jacobs had previously projected and more than nine years after the state shuttered Charity in the days after Hurricane Katrina.
Those latest targets depend on the state soliciting bids for construction in December, something that state facilities chief Jerry Jones confirmed cannot happen until the hospital corporation comes up with the additional $425 million or so needed to complete the construction budget. That's a schedule, according to Dr. Fred Cerise, who runs the Louisiana State University System's health care division, that the hospital corporation may not be able to meet.
Governing board has yet to meet
The UMC corporation is created as an LSU affiliate that also involves Tulane University, Dillard University, Xavier University and Delgado Community College. The schools are represented on the 11-member UMC governing board that ultimately will control the hospital and make the decision on how to proceed with bond financing, with the debt ultimately being paid back with revenues generated by the medical center's operations.
Cerise said it is LSU's intentions for the board to hold its first meeting some time in August. In the meantime, LSU has hired two consulting teams from J.P. Morgan and Colorado-based Causey Demgen & Moore to craft a final business plan and recommend financing options.
A $300 million state appropriation and a $475 million federal settlement for hurricane damage to Charity give UMC two-thirds equity already. The potential delay for the overall project could come as a result of UMC pursuing federal mortgage insurance for the bond debt that would cover the gap. The insurance, putting HUD on the hook if the hospital defaults, would improve the interest rate, saving the hospital a significant sum over the life of the bonds. But the application process puts the project schedule at the mercy of the U.S. Department of Housing and Urban Development.
Causey Demgen & Moore was hired to aid the HUD application process, but that cannot move forward until J.P. Morgan completes its revised business plan: a complete review of the complex's size and scope, revisiting previous assumptions about what the hospital will contain, how many patients its various departments will serve, how many of the patients will have private or public insurance, and how those factors come together for an overall forecast of revenues and expenses.
Pulling the plans together
J.P. Morgan's work will build on a string of previously drafted plans, including the latest by a Louisiana Department of Health and Hospitals consultant who said the current 424-bed model could require as much as $100 million in annual state general fund support to be solvent. The Verite Consulting study, authored by Keith Hearle, also recommended that UMC borrow additional money to finance initial operations, bringing the annual debt service to about $36 million or 5.5 percent of operating revenues.
Cerise said LSU hopes to present information from J.P. Morgan to the UMC board in August, though he stopped short of saying a complete revised business plan would be ready by then. He said he hopes that Causey Demgen & Moore will help UMC complete a mortgage insurance application to HUD "by the end of this year or early next year."
The board will not try to sell bonds without having an answer from HUD, Cerise said, and he added that UMC likely would have no other options for mortgage insurance with the private market steering clear of backing major health-care projects in the current economy.
Rejection by HUD also could bode poorly for the prospects of attracting buyers of the revenue bonds themselves, even at higher interest rates. And at least one state official, Treasurer John Kennedy, has repeatedly raised questions about the overall wisdom and viability of the project. Kennedy chairs the State Bond Commission, which approves the sale of revenue and general obligation bonds by the state and its political subdivisions.
Controversy about debt
Gov. Bobby Jindal's administration and LSU officials have consistently said that the new medical center is structured as an independent entity whose debt will not count against the state's borrowing limit. But Kennedy and a handful of lawmakers, buoyed by the Verite report, have argued that the state's annual appropriation to the hospital is likely to exceed the annual debt service, making UMC a de facto state hospital with taxpayers on the hook for the bonds.
LSU System President John Lombardi and Cerise are quick to point out the two-thirds equity already in hand makes the projected debt payments a manageable part of the operating budget. Cerise also expressed continued confidence that J.P. Morgan will ratify previous projections that the new hospital will attract more insured patients than Charity did and generate enough business to justify 424 beds. Those plans are at least partly contingent on UMC capturing privately insured patients whose doctors now send them to other hospitals in the area.
Aside from the lingering financing questions, aspects of the project have also been delayed in recent months.
Land acquisition dragging on
For example, in January, Jacobs Engineering estimated that land acquisition would be complete by June 7. That date is now Nov. 1. The 34-acre site includes 245 parcels inside the perimeter formed by South Claiborne Avenue, Tulane Avenue, South Galvez Street and Canal Street.
Of the 245 parcels on the state footprint, just 20 closings were complete as of June 30. State contractors had completed 229 appraisals, with 211 purchase prices approved by appraisal reviewers. Of those, 187 offers had been made to property owners with 72 offers accepted and 52 closings in process.
Those delays, in turn, have pushed back completion projections for site preparation, and archeological and historical requirements. Separately, there are some complications involving existing utility infrastructure that must be moved before construction can begin in earnest.
In a separate move, New Orleans Mayor Mitch Landrieu has frozen the legal process for closing the city streets that now divide the hospital footprint into neighborhood blocks. Criticizing the design as too suburban and featuring too much ground-level parking, Landrieu won an agreement from the state to have city planners and contractors meet with the state's architects to discuss the concept.
Jones said the state is cooperating with that review, but he suggested that no significant changes would occur because they would cost additional time and money in the design process.
Bill Barrow can be reached at bbarrow@timespicayune.com or 504.826.3452.