Leaders of East Jefferson General Hospital and New Orleans-based LCMC Health have entered talks about a possible LCMC takeover of Jefferson Parish's lone remaining publicly operated hospital, according to a hospital official and several sources.
No specific terms of a deal have been discussed, said Gerald Parton, EJGH's president and CEO. But the talks have been “productive,” he said.
Sources briefed on the talks have said that one option is a possible sale of the hospital. Such a deal would be more complicated than the type of lease that the parish and LCMC executed for West Jefferson Medical Center in 2015.
The talks have proceeded in secret, but after several inquiries from The New Orleans Advocate Tuesday, Parton issued the following statement: "East Jefferson General Hospital is exploring all options regarding possible partnerships, including discussions with LCMC Health, which has been a great supporter of Jefferson Parish hospitals through the years. These discussions have been productive, but to this point they have not included any specific transaction."
Any deal would require the approval of the Parish Council, as happened with the West Jefferson lease in 2015. A sale would also require the approval of voters on the east bank of Jefferson Parish. Such a deal has never been previously floated in the protracted and involved negotiations over Jefferson Parish’s hospitals.
It's unclear what the terms of any potential deal would be. LCMC leased West Jefferson Medical Center in a deal estimated to be worth more than $500 million including cash payments and capital improvements.
This isn't the first time that EJGH has had a serious suitor. Months of talks between hospital leaders and health care giant HCA broke off last summer, disappointing many who believed that a deal with HCA could help save the struggling Metairie facility. Speculation immediately turned to LCMC and Ochsner Health System, but the latter said it was not involved at that time.
The hospital is believed to be in dire financial straits. Its cash reserves have been dwindling, credit rating agencies have downgraded its bond rating, and it has gone into technical default on about $140 million in bonds issued in 2011. While technical default is not the same as actual default, it does give bondholders the right to demand immediate repayment.
When lease negotiations between a Tulane University-HCA consortium and publicly owned East Jefferson General Hospital collapsed this month, it…
Hospital officials have countered by saying the hospital's cash flow is still good, it is current on its debt payments and none of its bondholders are demanding repayment. But they have admitted that the hospital's outlook isn't great and that the best solution is a private operator.
"It's important that EJ find a partner," said Jennifer Van Vrancken, the parish councilwoman in whose district the hospital lies.
The hospital has a board of directors, but Van Vrancken and her six colleagues on the council are the governing board for the hospital service district. Any deal would require their approval.
Councilman Dominick Impastato, who also represents an east bank district, said it was time the parish got out of the hospital business, regardless of the structure of the deal.
"As for the possible sale rather than lease, I don't see that as an obstruction," he said. "Whether it's a sale or a lease, it's just semantics."
Either type of deal would have its benefits and drawbacks, sources said. A sale could make a deal more attractive to a potential buyer, but a lease could give the lessor, in this case the parish, greater leverage in enforcing contract provisions.
East Jefferson was originally supposed to be part of a package lease deal with its west bank counterpart in 2014. But after a protracted and fraught bid process with several firms, the Parish Council concluded a deal with LCMC to lease only West Jefferson Medical Center. That left EJGH operating as a standalone hospital in a competitive market surrounded by other, more networked medical facilities.
In 2017, S&P Global Ratings bumped the hospital's bond rating down from "BB" to "B+," a rating that equates to "highly speculative." S&P and others have cited the competitive market as a key obstacle to a healthy future for EJGH.
"The downgrade and negative outlook is the result of EJGH's mounting operational challenges and multi-year operating losses," the rating agency said at the time.
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