Children’s Medical Center to operate N.O. East Hospital

In a move that solidifies its growing influence within the metropolitan hospital market, Louisiana Children’s Medical Center will take over the operation of the New Orleans East hospital under construction at the site of the former Pendleton Memorial Methodist Hospital.

Under the deal, announced Friday as a signed “letter of intent” with the city, Children’s will replace the Franciscan Missionaries of Our Lady of the Lake Health System, which originally had been selected to run the hospital.

If the deal is completed, the company will gain its fourth asset in the New Orleans area, moving it closer to what officials described as a goal of creating a metro-wide nonprofit system.

That strategy has been the underpinning of the ongoing bid by Children’s to lease Jefferson Parish’s two public hospitals, and it’s unclear how this new deal will influence that debate.

“We’re going to bring quality health care to New Orleans East,” Children’s President and Chief Operating Officer Greg Feirn said. “We’re going to bring some financial stability to make sure it’s a sustainable enterprise, be able to leverage some of our support services that will actually minimize the cost, and it’ll allow them to be part of LCMC, a nonprofit system here helping the community.”

The $130 million New Orleans East Hospital project includes renovating portions of the old hospital, which flooded during Hurricane Katrina, and building some new facilities. The project has been touted by city officials as necessary to provide for the health care needs of those living east of the Industrial Canal.

Officials broke ground on the project earlier this year and expect it to be completed by early June.

The Children’s deal will not involve payments from the company to the city or vice versa. Instead, Feirn described it as a joint venture between the city and the company.

Over the past few years, Children’s has aggressively grown from a single pediatric hospital on Henry Clay Avenue to become a major player in the New Orleans health care market, primarily through the acquisition of Touro Infirmary in 2009 and a deal signed this year to run LSU’s planned new public hospital in the city.

When the $1.1 billion University Medical Center now under construction in Mid-City is ready to open in 2015, Children’s will manage it for the state, and the Interim LSU Hospital will close.

Adding the New Orleans East Hospital to its portfolio gives Children’s a facility in a new geographic area, one Feirn said is poised for growth in population and services.

“We think that market is a growing market; we think a hospital out there will help it redevelop faster,” he said.

The New Orleans East Hospital plays into Children’s long-term plans in multiple ways. On the most basic level, the facility adds an additional 80-bed hospital to the nonprofit’s portfolio, giving it additional strength in its competition with Ochsner Health System, the regional health care giant.

As a small hospital without specialized services, it could also serve as a conduit to bring patients in need of complex or specialized procedures to the downtown LSU hospital, which Feirn said already provides much of the health care for residents in the area.

Perhaps the most ambitious element of the company’s plan is the creation of a metro-wide health care network, which would give Children’s the ability to negotiate with insurance companies to create HMO-style plans that would reduce costs for consumers who remain within its network. But to make that work, the company would need to have wide geographic reach.

While this deal would give Children’s a major presence in eastern New Orleans, the company’s push to lease East Jefferson General Hospital and West Jefferson Medical Center would give it significant territory to the west. The outcome of that quest isn’t clear, as Children’s is locked in a heated battle with HCA, a national company that runs Tulane Medical Center, to be named the parish hospitals’ operator.

Jefferson Parish Council members have been split between the two companies for months.

Ochsner, which also put in a proposal to run the two Jefferson hospitals, has been largely pushed aside in that discussion, in part because of concerns that expanding the already large system could provoke antitrust questions from the Federal Trade Commission.

Feirn dismissed suggestions that the New Orleans East Hospital deal could raise such scrutiny for Children’s, noting that the hospital will be relatively small and the company’s operating agreement for it was set up to avoid those concerns.

The Franciscan Missionaries of Our Lady Health System will continue overseeing the hospital until construction is completed in early June.

Catherine Harrell, a spokesperson for the Franciscan Health System, said that company has long been an advocate of creating a local partner for the New Orleans East hospital. While the original announcement in 2011 touted the Franciscans as the hospital’s future operator, she said, “Things are different from two years ago.”

The Franciscan Health System also had been tapped to run the public hospital in St. Bernard Parish, but it pulled out last year after disputes with the board that runs that hospital. Some have suggested it did not make sense for the Baton Rouge nonprofit to run only one health care center in the area.

Officials said Friday that bringing the New Orleans East Hospital into the Children’s system would benefit the area.

“It is really a great opportunity for the community,” Harrell said. “Having that connection to a larger facility is really great for New Orleans East for services that might not be available at the smaller facility.”

Staff reporter Laura Maggi contributed to this report.