Parish officials will have to weigh how much control they are willing to cede in exchange for the competitive advantages of joining a larger system
Privatization was not necessarily the endgame four years ago, when Jefferson Parish officials began to chart a course to financial viability for the parish's two public hospitals. At that time, officials say, the broad goal was to somehow consolidate East Jefferson General Hospital and West Jefferson Medical Center, both of which were seeing a large share of Medicare and Medicaid patients instead of the more lucrative patients who pay with private insurance.
Now, however, hospital officials and Parish Council members are on the verge of giving up sole control of the hospitals, by leasing both to an outside operator. Key decisions in the process could come as early as next week.
Leasing would leave ownership of both hospitals in the public's hands. But it would let a private entity make the decisions about managing the hospitals.
That wasn't the intent in July 2009, when the Parish Council formed an umbrella agency, the Jefferson Parish Hospital and Health Services District, to consider the future of the two separate service districts that are in charge of the hospitals. The council and parish president appoint members of the individual hospital boards, and those members make up the board of the umbrella agency.
"The intent in the beginning was for East and West Jeff to end up partnering as one hospital, where they could do purchase acquisitions, back-office operations, negotiations with insurance companies, all of those things," council Chairman Chris Roberts said.
The 427-bed West Jefferson Medical Center's operating income last year was $5.9 million, a 20 percent dip from the previous year, according to its most recent audit. The 420-bed East Jefferson General Hospital, meanwhile, operated at a $4.6 million loss in 2011, the most recent year for which an audit is available.
Somewhere along the way the umbrella board, operating with secrecy allowed by a 1984 state law largely shielding hospital service districts from public scrutiny, decided that folding the hospitals into a larger system was the best way to unify them. In April 2012, the council agreed to hire Kaufman Hall, an Illinois-based management consulting firm, for $1.3 million plus expenses to manage the process and provide advice. The two hospitals are splitting the cost.
Kaufman Hall initially corresponded with 17 health care providers. All but four signed nondisclosure agreements, according to hospital officials.
West Jefferson Medical Center in 2011. By early this year, the firm had winnowed the list to three finalists: Ochsner Health System, Louisiana Children's Medical Center and Nashville, Tenn.-based HCA, which runs Tulane Medical Center and Lakeside Hospital.
The public's first inkling that the two hospitals might be put into outsiders' hands came in February. That is when hospital officials persuaded the council to ask the Legislature to allow a lease without a public referendum. The council itself similarly amended a local ordinance on July 10.
At the time of that vote, East Jefferson General Chairman Newell Normand, who also is the Jefferson Parish sheriff, said the hospitals hoped to recommend a lease partner by early September for council approval and to have a letter intent regarding the lease by fall. Now the umbrella board is set to meet on Tuesday, possibly to choose a lease partner.
The Parish Council meets the next day, although it seems unlikely to make such an important decision then, without more public notice. More likely, it would wait until its Aug. 28 meeting.
Public-private partnerships of the type now being considered for Jefferson's hospitals are increasingly common in an era of health service consolidation. These partnerships can take many different shapes. Paul Salles, chief executive officer of the Metropolitan Hospital Council of New Orleans, described two extremes.
On one end of the spectrum are mergers and acquisitions involving property transfers. Jefferson officials have already ruled out a sale of the hospitals.
On the other end are management agreements in which private operators provide contracted services within publicly owned facilities. A management agreement might let the public service district boards, or the unified umbrella board, retain oversight over all matters, including staffing. But such an arrangement would prohibit the boards from exploiting, for example, the greater bargaining leverage that being part of a conglomerate provides, Salles said.
West Jefferson Chairman Harry "Chip" Cahill said the finalists for the lease offered "more than just basically management offers." "A lot of the proposals we got were, 'We will come in and manage it for 10 percent,'" Cahill said. "Well who wouldn't do that?"
The middle ground between selling and contracting services usually involves lease arrangements, which differ according to the needs of patients, government bodies and local market realities. Jefferson officials are keenly aware that the hospitals are two of the parish's most valuable assets, and are a source of civic pride.
"Many people in Jefferson Parish were born there. Their kids were born there. Their grandkids were born there," Roberts said. "More important to me than anything is how these institutions remain part of the community but do so in a way where they continue to be financially viable."
Achieving that balance will figure into advanced negotiations once the council approves an operator. Parish officials will have to weigh how much control they are willing to cede in exchange for the competitive advantages of joining a larger system.
One constant in the various lease scenarios is that private operators want a level of control proportionate to their share of risk, Salles said. "No business will want to be at risk for profits and losses but not be able to operate the facility the way they see fit," he said.
Cahill said he expects the hospitals' executive structure to remain in place. But he added that he hadn't "seen anything specific on that whatsoever."
"I don't think anyone would go into this deal with the intention of getting rid of the structure," Cahill said. "People aren't looking at us because we are doomed and doing anything wrong. We are a system that needs to get bigger."