Negotiations to lease parish-owned West Jefferson Medical Center to a private operator appear once again to be in trouble, with a key negotiator for the Jefferson Parish Council accusing LCMC Health of radically altering its offer for the hospital, potentially lowering the value of the deal by $29 million.
Also, once again, LCMC officials have sought to downplay the concerns raised by consultant Josh Nemzoff.
In an email to parish officials this week, Nemzoff accused the nonprofit local hospital system of seeking to change important aspects of the deal eight months after negotiations began.
Spurred by Nemzoff’s email, which was obtained by The New Orleans Advocate, the Parish Council has called an emergency meeting for Friday to discuss the status of the negotiations. It remains to be seen whether the latest concerns will cause a significant breakdown in talks or if this represents just another bump on an already long and rocky path.
LCMC — which already operates Children’s Hospital, Touro Infirmary and Interim LSU Hospital and will run the $1.1 billion University Medical Center, now under construction in Mid-City, for the state — was chosen by the council in April to run the West Jefferson hospital, but negotiations over a lease have dragged on ever since.
Nemzoff’s memo, addressed to the Parish Attorney’s Office and then shared with council members and their staffs, warned that LCMC is seeking to change the way it handles bonds issued years ago by West Jefferson and has questioned an agreement requiring the hospital to help care for inmates at the parish jail.
Those issues come on top of what Nemzoff described as a change in the way LCMC would guarantee the deal, backing it with only $40 million rather than the full $1 billion in LCMC assets system officials had touted during early discussions about the lease.
“I have absolutely no interest in allowing a bidder to take $29 million off the table and then justifying it by saying, ‘Well, they were paying us too much anyway,’ ” Nemzoff wrote in his memo. “Not where I come from. My job is to protect my client. These people are dropping their bid by $29 million at the eleventh hour, and I am not of the opinion that they should be allowed to do this.”
Nemzoff declined to comment on the memo Thursday.
LCMC President and CEO Greg Feirn denied Thursday there have been any significant changes in the company’s offer. He said the way LCMC plans to handle the bond debt is in keeping with an option in its original proposal and that it is reviewing the issue of health care for prisoners after only recently learning about the program.
“We think they (the negotiations) are going exceptionally well and are completely surprised by this supposed email that was sent to the council,” Feirn said. “It’s very surprising, and what’s most surprising is we haven’t changed our offer.”
The first point of contention involves whether LCMC would make payments on the West Jeff bonds after the lease begins or whether it would pay them off early, which would cost the parish $12 million. Both options were on the table at the beginning of negotiations, but LCMC is now offering only to pay off the bonds early, Nemzoff said.
Feirn said paying off the debt would be in the best interest of the hospital, in large part because LCMC could issue new bonds with lower rates and without some of the restrictions facing West Jefferson. It’s one of those provisions — that the hospital keep enough cash on hand to fund 100 days of operations — that led parish officials to consider leasing the medical center in the first place when it began tapping into its reserves to make up for declining revenue.
The deal LCMC offered the parish takes into account the fact that a penalty would have to be paid, Feirn said. If the bonds are paid off early, LCMC has offered to pay the parish $225 million, a $13 million premium over its offer if it continues to pay off the bonds, he said. That represents its share of the penalty, he said.
“We can put a more favorable debt structure in place, and ultimately, that’s better for the hospital,” Feirn said. Asked whether the issue was a deal-breaker, he replied, “I don’t want to say anything is non-negotiable, because we’re still working through what is, in my opinion, a very productive negotiating period.”
The second major issue involves medical care for prisoners at the Jefferson Parish Correctional Center. Parish ordinances require Jefferson’s two publicly owned hospitals to pay for that care, but Nemzoff said in the memo that LCMC is refusing to pay those costs, which would amount to $17 million over the life of the contract.
“Early on in the process, LCMC attempted to extend the lease for a significant time period with no additional consideration,” Nemzoff said. “One of the reasons, in fact the primary reason, that we agreed to go from a 30-year lease to a 45-year lease with no additional payments was they had told us in writing that they would not decrease their price even though our operations were down. Instead, they have unilaterally dropped their price simply because they felt like it. They are now offering us $29 million less for a 45-year lease than they were in the (letter of intent) for a 30-year lease.”
Feirn said his system has not refused to provide care for inmates but instead has been seeking more information about the issue, which he said came to LCMC’s attention only recently. He said that responsibility was not clearly outlined in financial documents the system’s officials had seen early in the process.
“That one is a bit of a surprise. It’s a fairly new issue, and through due diligence, we were requesting more information,” he said.
The final issue involves just how much of a guarantee the hospital company is providing to back up its lease. Nemzoff charged that LCMC is changing its terms, agreeing to put up only $40 million even though its presentations to the council many months ago had stressed the $1 billion in assets held by Children’s Hospital, the flagship of the LCMC system.
Feirn said the whole LCMC system’s assets would still be backing the deal, and he termed Nemzoff’s description “inaccurate.” But he said that with all the lease payments coming up front, there is little need for LCMC to back its proposal with substantial sums.
The parish’s efforts to lease West Jefferson Medical Center and its east bank counterpart, East Jefferson General Hospital, have been fraught with controversy since mid-2013. Initially, that involved disagreements between the two hospitals’ boards over which company should be chosen to lease and operate the facilities. The dispute then spilled over onto the Parish Council, which eventually opted to lease West Jefferson to LCMC.
HCA, a national for-profit hospital chain, had been seen as the likely partner for East Jefferson, but it withdrew its offer. Last week, WWL-TV reported that HCA has resumed private talks to run East Jefferson.
The most recent set of issues is reminiscent of a similar dust-up that followed the first round of negotiations earlier this year. Nemzoff told council members then that LCMC had started off the negotiations with a “significantly different” proposal that substantially changed the terms of the proposed deal. LCMC officials publicly denied that claim and threatened to break off the talks if the council did not address the “dysfunction” in the negotiating process.
By early fall, sources close to the negotiations said the major issues had been sorted out and things seemed to be on track for a relatively smooth end to the negotiations.
Follow Jeff Adelson on Twitter, @jadelson.