[StBernard] Report pegs cost of redeveloping Methodist Hospital at $170 million

[Westley Annis]

Report pegs cost of redeveloping Methodist Hospital at $170 million
by Kate Moran, The Times-Picayune 
Wednesday December 24, 2008, 3:19 PM
The New Orleans health department has spent more than two years developing
plans to buy and renovate Methodist Hospital in eastern New Orleans, but it
has said little until now about how it might finance such a deal. 

The city recently released a business plan prepared by the consulting firm
PricewaterhouseCoopers that pegs the cost of relaunching the hospital, which
has sat empty since Hurricane Katrina, at $170 million. The report also
contains new details about what services the hospital might offer and what
mix of insured and uninsured patients it might draw -- an important factor
in the hospital's viability. 

Kevin Stephens, the city health director, argued that the expense of
reviving Methodist should not be the primary consideration. He said
residents of eastern New Orleans must travel at least a half-hour to the
nearest emergency room, a potentially deadly window of time for patients
suffering a heart attack or stroke. 

"The first question you have to ask: Is there need? If you have a medical
emergency in Michoud, you will not have a positive outcome because of the
logistics of traffic over the high-rise," Stephens said, referring to the
bridge over the Industrial Canal. 

All the same, the hospital will require a significant commitment from
taxpayers. Stephens said the mayor's office plans to ask the state for $40
million in startup capital for the hospital during the next legislative
session. The city could also spend $30 million or more from its pool of
federal recovery money to purchase Methodist and two sister facilities,
Lakeland Medical Center and Lake Forest Surgery Center. 

Although the hospital would require an initial cash infusion from the city
and state, it would not operate as an arm of city government over the long
run. Methodist would become a parish service district hospital, similar to
East and West Jefferson hospitals, governed by a board of directors and
responsible for its own obligations and debts. The mayor and City Council
would appoint eight of the board's 12 members. 

Starting smaller 

Community hospitals across the region have struggled since Katrina with
soaring labor costs and a swell of uninsured patients who have sought care
in their emergency rooms since Charity Hospital closed. Despite the
formidable challenges confronting local hospitals, the city thinks it can
make the Methodist project work by limiting its size. 

The report by PricewaterhouseCoopers recommends that the hospital open with
only 80 beds, far smaller than its pre-storm size of 300 beds. Fred Young,
president of the Methodist Health System Foundation, a nonprofit that paid
for the report, said the hospital will offer emergency services, labor and
delivery, cardiology and general surgery, but not high-level procedures such
as neurosurgery. 

"We plan to start small based on the population that seems to be driving it
and build from there," Young said. "We will offer basic bread-and-butter
services." 

As the city and the foundation see it, the hospital will serve as a nucleus
to draw displaced physicians back to eastern New Orleans and as a safety net
for patients in the throes of a medical emergency. Stephens and Young do not
envision a refurbished Methodist competing with major tertiary care
hospitals, including the new academic medical center Louisiana State
University plans to build downtown. 

The state law that established the hospital service district in New Orleans
in fact requires that the chancellor of LSU's medical school sit on the
board. Other members include Patrick Breaux, an Ochsner cardiologist
representing the Orleans Parish Medical Society; Alice Craft-Kerney, a nurse
who runs a community clinic in the Lower 9th Ward; Janet Barnes, a
pediatrician; Julia Hughes; Sheri LaBranche-Jackson; Richard Henault; Ramona
Baudy; Alicia Plummer; Felton Winfield Jr. and the Rev. Vien Nguyen. 

"We are not trying to compete with other providers," said Stephens, who also
serves as the board president. "If you need a bypass, you can get your
workup done at Methodist and then get transferred to a tertiary care
facility." 

Financing may be tricky 

The Pricewaterhouse study assumes that resurrecting the hospital would cost
about $170 million, including a $70 million equity investment and $100
million in tax-exempt debt. Stephens would not discuss potential sources of
debt financing during a recent interview, but an executive from a private
hospital system said such financing could prove difficult to secure while
the credit markets remain locked. 

"Any new project like that would be very challenging in the current
environment, not only from the perspective of finding an operator for the
hospital, but also financing the project in the current economic crisis,"
said Lawrence Van Hoose, a senior vice president at Ochsner Health System.
"I'm sure there would have to be bonds involved, and it's not a great time
to be going to bond market." 

Stephens thinks the $40 million investment from the state would go a long
way toward clinching the future of the hospital. Sen. Ann Duplessis, a
Democrat from eastern New Orleans and a supporter of the hospital, said the
financing could prove an "uphill battle" because of the state's widening
budget deficit. To ensure the request gets attention, she has asked the
mayor's office to list the hospital among its top three funding priorities
to the Legislature. 

Duplessis said lawmakers would look to see that the city is putting up money
for the hospital to ensure the equity investment would not come entirely
from the state. The city made a $30 million bid this fall for Methodist and
two sister facilities, Lakeland Medical Center and Lake Forest Surgery
Center, but their current owner, Universal Health Services of Pennsylvania,
asked the city to bid more. Negotiations continue. 

"It may be an uphill battle or a challenge, but I do not think it is an
impossible task," Duplessis said of securing the state capital outlay.
"Everyone's excited about the city and the state working together. We are
working to try to get this hospital open as soon as possible." 

St. Bernard project 

The state has already pledged $17 million to help build a new 40-bed
hospital in St. Bernard Parish, a project that could overlap with a
renovated Methodist. The Pricewaterhouse study projects that most of the
patient base for Methodist Hospital will come from eastern New Orleans,
Gentilly and the 9th Ward, but it will also draw a secondary patient base
from Arabi, Chalmette and Violet. 

Among other details about the proposed hospital, the Pricewaterhouse report
estimates that 50 percent of its patient base would have commercial
insurance, 15 percent would carry Medicare, 13 percent would have Medicaid
and 22 percent would be uninsured. The hospital would require 20 to 30
primary care physicians and 35 to 45 specialty care physicians, and it would
open about two years after the purchase was completed. 

Kate Moran can be reached at kmoran at timespicayune.com or 504.826.3491.