[StBernard] After grim audit report, St. Bernard Parish Hospital nearing deal for Ochsner to take over

[Westley Annis]

After grim audit report, St. Bernard Parish Hospital nearing deal for
Ochsner to take over
BY RICHARD THOMPSON | RTHOMPSON at THEADVOCATE.COM  JAN 30, 2017 - 6:00 AM  (2)
  
After years of rapidly expanding in and beyond the New Orleans region,
Ochsner Health System is nearing a long-term deal to take over operations at
the troubled St. Bernard Parish Hospital, further staking out its position
as the dominant health care provider in southeast Louisiana.

Problems with billings and collections have beset the publicly owned
Chalmette hospital since it opened in 2012, helping it rack up tens of
millions of dollars in losses along the way.

An outside auditing firm recently offered a grim assessment of the 40-bed
facility's finances that caught even some veteran political observers in St.
Bernard unawares.

"I knew they had some problems, but even I was surprised at the magnitude of
them," said Ray Lauga Jr., a former Parish Council member who joined the
hospital's board last year.

Now, as it continues to lose money, St. Bernard officials have signaled that
they're close to a deal for Ochsner to take over, linking up the hospital
with an outside management partner and allowing Ochsner to extend its reach.

Already the state's largest nonprofit health care system, Ochsner has
expanded significantly since Hurricane Katrina, acquiring or signing
contracts to operate hospital facilities in New Orleans, Kenner, Gretna,
Covington, Slidell, Baton Rouge, Raceland and Bay St. Louis, Mississippi.

The company is also spending $360 million to expand its main campus on
Jefferson Highway.

For St. Bernard Parish, the Ochsner deal may come just in time. The audit
report, which was completed in November and released this month by the state
Legislative Auditor's Office, raised questions about whether the hospital
can continue operating without taking several key steps, including securing
a cash infusion, cutting operating costs and hiring an outside management
company to take over.

The report found that the hospital had a $19.5 million operating loss in
2015, a staggering amount that auditors blamed largely on the hospital's
billing and collection procedures. Some parish officials have pegged the
hospital's four-year losses at nearly $33 million.

As it grappled with billing issues in recent years, hospital officials hired
several different firms to try to correct the problem but had limited
success, leaving millions uncollected.

In one example, auditors noted that the hospital was owed nearly $10.8
million by late 2013 but managed to collect only 48 percent of that amount
in 2014.

Mary Hand, the chairwoman of the St. Bernard Parish Hospital Service
District, which oversees the facility, said the hospital is moving on many
of the report's recommendations.

Already, she said, it has adopted several measures aimed at cutting costs
and increasing revenue, including better assigning staff during off-hours
and trying to boost its emergency room capacity. The moves are expected to
save nearly $5 million annually, she said.

"They've (Ochsner) identified a lot of areas where we have room for
improvement," she said. "We hope to get some type of long-term agreement
with them."

In recent months, patient volumes at the hospital have flagged. In November,
it had 26 percent fewer patient days than the hospital had budgeted for.

For the first 11 months of the year, the hospital had a nearly $7.2 million
operating loss.

The 113,000-square-foot facility, which features an adjacent building that
was built for medical offices in 2013, had about $59 million in long-term
debt by late 2015.

Kathleen Zuniga, an auditor at the Metairie firm Carr, Riggs & Ingram LLC,
which prepared the audit report, told board members in November that the
billing issues were "nothing new" and had "a long history" at the hospital,
according to minutes of the meeting.

The hospital's finances have drawn close scrutiny by state and local
officials in recent months.

Legislative Auditor Daryl Purpera's office issued an investigative audit
last year that detailed questionable spending habits by the hospital's
five-member board and an affiliated foundation. The report said nearly
$100,000 was spent, possibly illegally, on parties, events and gifts for
doctors and employees, and it noted a lack of receipts for more than 20
percent of purchases over a four-year span starting in 2012.

The report blamed Wayne Landry, a former Parish Council member who helped
spearhead the hospital's development, for not handing over records, an
allegation that Landry blasted as "baseless."

In late 2012, Landry took over as the facility's interim CEO after the
nonprofit Franciscan Missionaries of Our Lady Health System withdrew from
managing it, citing philosophical differences.

Until 2014, Landry also served on the hospital's board, but he resigned his
seat after the state Ethics Board said he was prohibited from maintaining
both posts.

Reached by phone, Landry declined comment about the latest audit report,
citing advice from his lawyer.

Purpera's investigation wasn't the only one that the hospital has dealt
with.

Last year, parish District Attorney Perry Nicosia convened a grand jury to
investigate the hospital's operations. In November, the group ran out of
time without handing up an indictment.

Instead, jurors issued an unusual report accusing Landry and a former board
member, Jim DiFatta, of conspiring to take control of the hospital from the
Parish Council while presiding over a "grossly mismanaged" operation that
racked up significant losses.

Though it didn't lead to criminal charges, some political observers said the
probe achieved its main goal: clearing the deck. By the time the report was
issued, three of the board's five members had stepped down, including
DiFatta, who criticized Nicosia's involvement as politically motivated.

Two board members resigned as part of an agreement reached with prosecutors
to avoid potential criminal charges, The Advocate reported.

In September, the newly assembled hospital board reached a deal with Ochsner
to take a look at the hospital and, as some parish leaders had long hoped,
consider taking it over.

But even Ochsner executives were "surprised and deeply concerned by the
audit's findings," according to Brad Goodson, CEO of Ochsner's north shore
region.

"Overcoming a $20 million loss will be extremely challenging, and we have
committed dozens of our health care experts to work around the clock to
develop solutions and bring stability to the hospital," Goodson said in a
statement after this month's audit was released.

Apparently the two sides have been able to work through the problems. On
Jan. 17, the hospital board voted to issue a public notice that it plans to
enter a long-term lease with Ochsner to manage the hospital.

In a separate statement last week, Goodson said Ochsner was "honored and
excited to move forward ... in the process of establishing a long-term
lease."

"The citizens of St. Bernard Parish deserve a proven partner to better serve
patients locally," he said. "Working together, we can achieve our collective
goal of improving financial operations, expanding access and continuing to
provide high-quality care to the community."

Throughout the health care industry, rural hospitals or those in sparsely
populated areas like St. Bernard are facing shrinking revenue and higher
operating costs, experts say.

"If you try to run operating rooms and offer (other specialized) services
and you don't fill them up, then you've got lots of capital costs that drag
you down," said Walter Lane, an associate professor at the University of New
Orleans who studies health care economics.

St. Bernard President Guy McInnis, who beat Landry in a 2015 election for
parish president, said he's confident that having Ochsner involved is in the
parish's best interest.

"It's difficult, financially, to run a hospital, so you need deep pockets,"
he said.