Jefferson Parish could be on the hook for more than $28 million in unanticipated expenses discovered after last year’s deal to lease the parish-owned West Jefferson Medical Center to a private operator closed, parish officials were warned this week.
The amount is a small fraction of the $200 million in rental fees, $340 million in capital improvements and between $31 million and $51 million in other payments that the parish stands to receive from leasing West Jefferson to LCMC Health for a minimum of 45 years.
But the new expenses apparently would reduce by more than half the $50 million or so in cash from the lease deal that officials could spend on general community health care.
This would mark the second time that the overall value to the parish of leasing West Jefferson has turned out to be less than anticipated.
At one point, LCMC was supposed to pay the parish $225 million in rental fees, but that figure was cut by $25 million when updated financial data showed the financially ailing hospital was in worse fiscal shape than originally thought.
Similarly, the newly discovered expenses center around unaudited financial statements that overstated the Marrero hospital’s net assets while understating various fiscal obligations, a memo from Pennsylvania-based consultant Joshua Nemzoff said.
Nemzoff, who was rehired recently by the Parish Council, sent a memo to officials Thursday outlining the additional expenses.
Parish Councilwoman Cynthia Lee-Sheng and LCMC said the expenses were identified as part of a mandatory review period during which all of the deal’s financial figures are subject to adjustment.
“LCMC Health and West Jefferson Medical Center are working with the parish to complete this process and look forward to our continued partnership and providing exceptional health care to Jefferson Parish residents,” the institutions said in a statement.
Lee-Sheng said the need to analyze such expenses was the reason she and her colleagues ratified a new consulting contract this week for Nemzoff, who helped Jefferson close the hospital deal before his prior agreement with the parish expired.
Of the expenses identified since the closing, more than $12 million could be owed to LCMC, Nemzoff explained in the memo. That is because LCMC believes the net amount of assets and liabilities reflected in unaudited financial data at closing time was “overstated by an amount in excess of $12 million,” Nemzoff wrote.
Nemzoff said neither he nor Parish Finance Director Tim Palmatier has determined whether LCMC is correct or whether the hospital’s audit firm, Postlethwaite & Netterville, “thinks they are.”
“However, based on the data we currently have and the conversations we have had with LCMC, it appears very likely that the financial statements of the hospital (at closing) are in fact not correct and they appear to be off by an enormous amount of money,” Nemzoff’s memo said.
The memo said Nemzoff and Palmatier will provide an update when the facts become clearer. But Nemzoff added, “You should keep in mind that we are in a very odd situation here. All, and I mean all, of the journal entries … that add up to more than $12 million of unknown liabilities are coming from the hospital. They are not coming from me or Tim (Palmatier) or the auditor.
“This is the hospital saying that the financial statements that they prepared in the past are wrong and they may be wrong by a very large amount.”
In addition, parish Risk Management Department Director Bill Fortenberry informed Nemzoff that the hospital’s malpractice, auto, general and workers compensation insurance liability was understated by between $3 million and $5 million.
Citing information from the employee benefits consulting firm Sigma, Fortenberry indicated that the liability was approximately $8 million, not $3 million to $5 million, as it was said to be in unaudited data around closing time, according to the memo.
“I do not know why this firm was able to tell (Fortenberry) immediately after closing that the insurance liability was significantly greater than what was on the financial statements and yet the number was apparently wrong on the financial statements,” the Nemzoff memo said. “There is also a question as to whether the liability was properly accounted for in (past) audited financial statements.”
Also adding to the post-closing expenses is a $6.5 million understatement of the hospital’s pension plan liability. That is because the hospital’s pension plan contains a provision that could allow employees to collect their benefits three years early if the closing of the lease deal was interpreted as a firing, the memo said.
Although none of the hospital’s employees were fired after the deal, Nemzoff said he has asked the parish’s attorneys and its pension consulting firm, Aon Hewitt, to explore fixing the plan’s technical error.
Additionally, Nemzoff said, the pension plan’s liabilities exceed its assets by about $57 million, and the hospital must make a $5 million payment this year to keep that gap from growing.
Similar payments could be necessary in future years, Nemzoff said, but he has asked Aon Hewitt to submit a proposal to the parish with options for reducing that liability.
“I do not think the cost of looking at options will amount to much,” the memo said.