At their first meeting with negotiators for LCMC Health over the fate of West Jefferson Medical Center last week, Jefferson Parish negotiators were stunned to find the company was offering what was described as a “significantly different” proposal that substantially changed the terms that had originally won LCMC the favor of the Parish Council, according to sources briefed on the negotiations.
Although LCMC has denied any attempt to change substantial elements of its initial proposal to take over the hospital, the new proposal has thrown additional confusion into an already contentious lease process that has created significant fissures on the Parish Council. In question are elements of the agreement that are worth tens of millions of dollars.
LCMC said the latest proposal presented to the parish’s negotiating team, which includes firms well-versed in hospital mergers and finance, represents just a draft agreement and is not intended to change the terms originally offered to the parish. But an email from parish consultant Josh Nemzoff to council members obtained by The New Orleans Advocate said it was “very unusual” for negotiators to put forward an agreement with so many changes nearly two years into discussions about leasing the parish’s public hospitals.
“The difference between these two documents from both a legal and a business perspective is simply stunning,” Nemzoff said in the email. “They are two completely different deals.”
Nemzoff declined to comment on the email or the LCMC proposal Thursday, saying he had been asked by his clients not to discuss the negotiations publicly. But Councilman Paul Johnston and others who have been briefed on negotiations said they were surprised and concerned by what they saw as last-minute changes to the deal.
“I’m not happy with that. They were picked by the council by a 7-0 vote because they wanted West Jefferson hospital and West Jefferson wanted them,” said Johnston, one of four council members who have been largely skeptical of LCMC throughout the process. “For them to come in and totally change the letter of intent and try to reduce the price, I’m surprised they would do that.”
Councilman Chris Roberts, however, said judgments on what was proposed last week were premature and the council needs to find out exactly what is now on the table.
“I don’t know how much of this is pandering and people trying to position the thought process of the public,” said Roberts, who has been a staunch supporter of LCMC throughout the process. “I think it’s still too soon to decipher that, and if anyone was looking for the facts no one would even be able to comment on it.”
The proposal itself is still under wraps. The Parish Council is expected to try to get a clearer idea of it at a special meeting next week.
LCMC Health operates Children’s Medical Center, Touro Infirmary, the Interim LSU Hospital in New Orleans and other hospitals in the region. It was selected to run West Jefferson after a bitter battle over the fate of that hospital and East Jefferson General Hospital that divided the boards of those two facilities and caused significant rifts on the Parish Council.
Its proposal called for LCMC to pay $225 million up-front to the parish to lease the hospital for 30 years, plus additional commitments regarding how much it would spend on improvements to the hospital and other guarantees to the parish.
According to Nemzoff’s email, many of those sections were substantially altered or eliminated in the new proposal, known as a memorandum of understanding. Key among the changes are the elimination of a promise that LCMC take over $33 million in pension liabilities for employees at West Jefferson, as well as changes to how LCMC would calculate the amount it would invest in improvements at the hospital, according to Johnston and others. Those sources said both Nemzoff and a negotiator working for the parish’s other consultant, the Hogan Lovells law firm, had agreed that the new proposal made those changes.
“They have gutted that document and changed the rest of it in a material fashion,” Nemzoff wrote in his email to council members. “This was done unilaterally by LCMC at the first meeting Cliff (Stromberg, of Hogan Lovells) and I ever attended in our capacity as advisers to the Parish Council. I will not speak for Cliff, but my opinion is that they have decided that they do not like the deal they signed and they believe that they have the leverage to change it.”
In an email Thursday, LCMC President and Chief Executive Officer Greg Feirn “categorically” denied the company had made any changes to the deal it presented earlier this year.
“The draft, and I emphasize draft, Memorandum of Understanding was designed to establish the confidentiality required during any detailed due diligence process, and reconfirm the core deal elements as set forth in our Letter of Intent,” Feirn said in an email. “This draft MOU was first discussed by the negotiating teams on June 27, 2014, and DOES NOT revise the consideration offered for West Jefferson Medical Center.”
Feirn specifically denied any changes had been made in regard to pension liabilities, lease payment or capital improvements.
Johnston said he hopes that is the case.
“We want the deal to go through and want everything to go fine, (but) we want to make sure they don’t change the agreement we made earlier,” Johnston said.
Roberts reiterated concerns that LCMC’s proposal was being misinterpreted and said that making details of closed-door negotiations public was likely going to make the entire process more difficult.
But, he said, if there are substantial changes, he would suggest the parish walk away from the deal.
“If any of this ends up changing what has been proposed in a way that isn’t beneficial to Jefferson Parish, I would be the first one to say that it’s not acceptable,” Roberts said.
Follow Jeff Adelson on Twitter, @jadelson.