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Hospital district chairman: Ochsner is best way forward for Teche Regional

AG's Office will hold hearing on proposed lease at noon Wednesday

Negotiations with Ochsner Health System to take over management of Teche Regional Medical Center were complicated by four years of losses totaling in the millions for outgoing management firm LifePoint Health, the head of the Hospital Service District No. 2 board said in a public letter.

But Ochsner’s performance after taking over other rural hospitals in Louisiana is encouraging, Chairman William Cefalu wrote.

“We were pleased to learn that in many markets Ochsner not only stabilized hospital operations, but had also successfully increased the hospital’s market share, added product lines and recruited medical staff to address gaps in various specialties,” Cefalu said.

The proposed lease agreement between Ochsner and Teche Regional is now awaiting review by the Louisiana Attorney General’s Office.

That office plans a public hearing on the proposed lease at noon Wednesday at the Emergency Operations Center.

Cefalu’s letter, posted on the internet by the district, included a copy of the 10-year-lease.

Ochsner would pay about $151,000 per year to the district and would be required to offer a list of mandatory services, including 24-hour emergency services, lab services, imaging, and primary care and physician clinic services.

Ochsner would also be required to install a $6 million EPIC electronic health records system.

Here’s the text of Cefalu’s letter:

Dear District Residents,
I am William Cefalu, M.D. and have the pleasure of serving as Chairman of the Board of the St. Mary Parish Hospital Service District (District) and as a Past Chief of Staff of Teche Regional Medical Center.
At this time, I am pleased to provide you with an update of the District’s efforts to secure a replacement operator for our Hospital and to provide you with a brief overview of the steps that led to the selection of Ochsner as the new lessee and operator of our essential community hospital asset. I also wanted to remind you that the Attorney General’s office will conduct a public hearing at noon on Wednesday in connection with the proposed lease agreement with Ochsner. For your information, a copy of the proposed lease is attached.
As you may know, last year LifePoint (which has leased the Hospital since 2001) announced its intention to terminate its relationship with the District. Also, LifePoint elected to leave the Louisiana market completely and has now terminated all of its other operations with the exception of our Morgan City facility. LifePoint experienced losses of multiple millions of dollars over the past four years while operating our Morgan City facility which we believe significantly contributed to its decision to leave.
When confronted with LifePoint’s decision, the District’s Board decided to focus its attention on selecting a replacement tenant/operator for the District’s Hospital facilities. A key criteria in that selection process focused on obtaining an operator from Louisiana with a proven track record of successfully operating rural hospitals in Louisiana. This was especially important given the enormous number of closures of rural hospitals throughout the United States over the last ten years. In fact, more than 120 rural hospitals have closed in the US since 2005. After discussing a potential lease of the District’s facilities with other not for profit systems operating in Louisiana, the District selected Ochsner. The decision to select Ochsner was based upon our due diligence which documented Ochsner’s success in public private partnerships, including those for rural hospitals. We were pleased to learn that in many markets Ochsner not only stabilized hospital operations, but had also successfully increased the hospital’s market share, added product lines and recruited medical staff to address gaps in various specialties.
The lease negotiations with Ochsner were protracted and challenging, given the significant financial challenges that LifePoint had experienced in operating Teche Medical Center. After months of negotiations, the District and Ochsner reached an agreement on a long-term lease agreement that the District has concluded provides the best opportunity to ensure the viability of our Hospital including its all-important 24-hour seven day a week emergency department.
The key elements of the lease agreement are as follows:
A. The lease is with a subsidiary of Ochsner and is structured in accordance with Louisiana law governing Hospital Service Districts.
B. It includes a 10-year initial term, with automatic successive 5-year renewal terms and a requirement for 365-day notice of termination.
C. The District’s CPA was engaged to prepare detailed calculations of the rental amount in accordance with Section 1074 of the Hospital Service District Law this process established the rent as $150,557.00/year. This is a substantial increase over the amount which was generated by the lease payments under the current lease with LifePoint which has generated no lease payments over the last four years.
D. Ochsner will make necessary repairs, up to $200,000 per year.
E. Ochsner will install the premier state of the art EPIC electronic health record system at the estimated cost of $6,000,000 and additionally provide an additional capital investment of $250,000 per year.
F. Ochsner will provide insurance as is typical is such transactions.
G. An advisory board which will include four appointees from Ochsner and four appointees from the District will be established and will meet quarterly to provide input to Ochsner. Ochsner will have its own hospital governing body.
H. While the District only serves as Ochsner’s landlord we did secure in our negotiations significant legal obligations on Ochsner’s part with respect to service lines to be offered at the hospital during the term of the lease. The Lease lists Mandatory and Additional Uses:
I. Mandatory Uses are:
—The provision of 24-Hour Emergency Services within an Emergency Department
—Laboratory Services
—Imaging Services
—Primary Care and Physician Clinic Services
J. Additional Uses are:
—Endoscopy and Other Ambulatory/Outpatient Surgical Services
—Surgical Services: Gen-eral; Gynecological; Oph-thalmic; Orthopedic
—Inpatient Behavioral Health
—Inpatient Medi-cine/Surgical Care and Pro-gressive Care Unit
—Obstetrical and Newborn Services
—Pediatric Services
—Rehabilitation Services: Inpatient Physical Therapy; Occupational Therapy; Speech Therapy
If certain Additional Uses cannot be delivered without adequate funding made available to Ochsner to cover its overall financial losses from hospital operations, then the District shall have the right to notify Ochsner that it wishes Ochsner to continue providing particular Additional Uses but the District must subsidize Ochsner’s financial losses from the provision of such Additional Uses. Alternatively, the District, at its sole option, can terminate the lease.
We are convinced that the Lease Agreement best posi-tions the Hospital to remain viable and to enhance access to care for our community. At both St. Anne General Hospital in Raceland and at St. Charles General in Luling, Ochsner’s efforts have resulted in significant growth in both the size of the medical staff and in the service lines. Similarly, we expect the same from Ochsner’s involvement here. I look forward to wel-coming Ochsner into Morgan City and to the growth and stability it will bring. Please join with me in supporting our new partnership with Ochsner.
Sincerely,
William A. Cefalu, Jr., M.D., Chairperson
HOSPITAL SERVICE DISTRICT NO 2 OF THE PARISH OF ST. MARY

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