East Jefferson hospital bid slashed by $75 million

East Jefferson General Hospital’s deteriorating financial condition played a key role in Louisiana Children’s Medical Center’s decision to cut about $75 million from its offer for Jefferson Parish’s two public hospitals, according to a letter that accompanied the new proposal.

The letter suggests that East Jefferson, whose finances have suffered more in recent years than those of West Jefferson Medical Center, has become a drag on the deal, and warnings of a potential bond downgrade have dropped the value of the hospital system the parish hopes to privatize.

Children’s has maintained its previous offer for a 30-year lease for West Jefferson Medical Center alone, and that offer is now worth more than half the combined total for both facilities.

In a letter to parish officials and the consultant hired to guide the Parish Council as it determines what to do with the two hospitals, Children’s President and Chief Operating Officer Greg Feirn wrote that these are difficult problems with which to deal.

“Deterioration in the hospital credit profiles and negatively trending operating margins are not easily remediated in today’s healthcare environment; therefore, LCMC Health has been forced to re-evaluate its almost two-year-old analysis,” Feirn wrote in the letter, which was obtained by The New Orleans Advocate.

Children’s and Ochsner Health System are the only two companies remaining in contention to run the two parish hospitals after the national for-profit company HCA dropped out of the process last month. Until HCA’s action, the council and the two hospitals’ boards were deadlocked on how to proceed with the lease process.

West Jefferson’s board and the council members who support it pushed for Children’s to take over both hospitals, while East Jefferson’s board and its allies on the council called for leasing the east bank hospital to HCA and leasing the West Bank facility to Children’s.

Ochsner is expected to submit new proposals for the medical centers soon, though it was not clear Friday whether those proposals have been completed.

Children’s revised proposal, submitted last week, drops its previous offer of about $406 million for both hospitals to $330 million if it is required to pay off the bond debt associated with the facilities. Should it not be forced to pay off that debt, its original offer of $451 million was dropped to $375 million in the new proposal.

Children’s offer for only West Jefferson — prompted by Parish Council discussions about splitting the hospitals and uncertainty over how the parish will handle East Jefferson — remains unchanged. It has offered $225 million in lease payments for that hospital alone.

Discussing the latest letter Friday, Feirn said there was no one reason for the reduced offer.

“Anytime a process such as this continues on as long as it has, there are points when it becomes necessary to sort of re-evaluate,” he said. He noted that the original offer was submitted almost two years ago, when parish officials first began considering the idea of leasing the publicly owned hospitals to private operators.

“In today’s ever-changing healthcare arena, one month is an eternity, and with any healthcare transaction of this size, especially one with this level of complexity and tenure, things change,” Feirn wrote.

Children’s officials declined to discuss their revised proposal earlier in the week, saying it was being kept confidential. Feirn agreed to discuss the letter sent to the council Friday after it was independently obtained by The New Orleans Advocate.

East Jefferson hospital officials were unavailable to discuss the medical center’s financial status.

Parish officials and hospital board members said the money the parish gets from privatizing the hospitals will be kept in a fund that generates interest. Although the money from the lease itself will not be used — to provide a financial cushion should something go wrong with the deal — the interest would be spent on health-related programs in the parish.

Both public hospitals have faced a troubled financial picture in recent years, complicated by bond covenants that require them to keep significant amounts of money on hand.

Earlier this month, and just days before Children’s submitted its revised offer, Moody’s Investors Services warned that it could downgrade about $164.3 million in outstanding bonds issued by East Jefferson. The Moody’s analysis painted an increasingly troubled picture of the hospital, citing “larger than expected” operating losses and a drop in cash on hand at the hospital.

In discussing the financial status of East Jefferson, Feirn pointed to his nonprofit company’s track record at Touro Infirmary. Children’s took over that hospital in 2009 when it was considered a “troubled asset,” Feirn said. In the three years leading up to that deal, the hospital lost $80 million, but it has made $20 million in the three years since, officials said.

Feirn also stressed several times that his company would like to run both Jefferson hospitals.

“LCMC remains committed to Jefferson Parish and both of those hospitals, and we recognize the wisdom of trying to keep those hospitals together under one nonprofit system,” he said.