After more than two years of twists and turns and difficult negotiations, Jefferson Parish has approved a 45-year lease agreement authorizing LCMC Health to operate publicly owned West Jefferson Medical Center in return for up to $245 million in payments to the parish and $340 million in capital improvements.
The deal, which also requires LCMC to pay $3.15 million in “community benefit funds” for public health initiatives to Jefferson Parish Hospital District No. 1, was unanimously approved by the Jefferson Parish Council at a special meeting Monday.
The contract, $20 million of which is contingent upon the financial performance of the hospital during the first three years, allows for two 15-year renewals after the initial 45-year period ends.
LCMC can withdraw from the deal after 30 years with one year’s notice, though it would not get any of its money back.
The cost for each of the 15-year renewal options would be set by a fair-market-value assessment of the land and real estate assets.
The parish will get the land and any improvements back at the end of the lease.
As for the capital expenditures, LCMC will have to do $95 million of work within the first five years, $210 million within the first 10 years and the full $340 million within 15 years, with any shortfall to be paid to the parish in cash at that point.
The deal still has a few more obstacles to clear before it’s final. The parish and LCMC have to sign the two agreements necessary to cement the deal — a cooperative endeavor agreement and the master lease — but parish and hospital officials said they expect these to go smoothly.
Those agreements, which are available for public review on the parish’s website, could be signed in the next couple of days. That will set a closing date for the transaction within 90 days, after which LCMC will take control of the Marrero hospital.
One variable that could affect the $225 million payment due to the parish at closing is an adjustment based on the difference between the hospital’s net working capital and a preset target, which could be worth several million dollars more for the parish.
It is not yet clear how much money the parish will have at its disposal after it retires the hospital’s debt and its estimated $33 million pension shortfall. The law requires the money to be spent on health care-related expenditures, though there is little consensus on what those options might be.
The vote marked a major milestone for an effort that began in 2012, when the parish was shopping control of West Jefferson and its sister hospital, East Jefferson General Hospital, as a package deal. With three potential suitors — HCA, LCMC and Oschner Health Systems — in the running, the parish was looking at getting as much as $749 million for both at one point.
Like their counterparts across the country, the parish’s public hospitals were struggling financially, and the best solution seemed to be to bring in a private operator who could make them part of a larger network.
But as negotiations dragged on and the council and the two hospitals’ boards argued over which company was best suited for each hospital, the two facilities were split up, and HCA and Oschner both walked away from negotiations, citing the many months of delays.
HCA reportedly has since come back to the table, and a deal for East Jefferson is still in the works, though considerably behind the one approved Monday.
“I know that this has been a long time coming,” council Chairman Chris Roberts said. “None of us knew when we set off on this journey the amount of time … and the amount of due diligence it would take.”
Councilman Ricky Templet agreed, saying the process felt at times like “trying to nail Jell-O to the wall.”
West Jefferson Medical Center has 427 beds and serves a community of more than 180,000 people with a staff of more than 400 physicians and 1,900 employees.
LCMC said patients should not see any disruption in care during the hospital’s transition into the LCMC Health system and that current physicians and employees will remain in place.
Nancy Cassagne, chief executive officer of West Jefferson, said the hospital and its staff are looking forward to joining LCMC’s network of hospitals, which includes Touro Infirmary, New Orleans East Hospital, Interim LSU Hospital and the new University Medical Center.
She introduced a video of smiling hospital workers thanking the parish for its hard work.
West Jefferson hospital board Chairman Harry “Chip” Cahill, who took part in the negotiations, said he thinks the deal will be good for the employees, while Gregory Feirn, chief executive officer of LCMC, called the agreement a “fantastic end” to a long process, leaving the hospital operator “excited about the future.”
Roberts said he thinks some of the lessons learned from leasing West Jefferson will inform the process for the East Jefferson hospital and help speed things up.
“We are diligently working with their board and their executive staff at that hospital to bring about a similar outcome,” he said. “Things are going well, and we’ll be back here at some point to take similar action.”
Follow Chad Calder on Twitter, @Chad_Calder.