Revealing New Contract Documents for State-Biomed Deal

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by Elliott Stonecipher

Clock ticks...
Clock ticks…

With only three workdays remaining before the transaction occurs, new contract documents reveal a properly tenuous foundation for the lease of the public’s LSU Medical Center in Shreveport and E. A. Conway Medical Center in Monroe to the Biomedical Research Foundation (BRF).  At issue in the handover are the availability and quality of care for Louisiana’s indigent and other poor, and the success of Governor’s Jindal’s signature and shaky “privatization” gambit for the state’s public hospital system.

Documents the public may never see...
Documents the public may never see…

The related stack of contract documents, when finally signed and sealed, effectively finalize the taxpayers’ lease of the Shreveport and Monroe hospitals and their clinics to the BRF holding company established for the purpose, BRF Hospital Holdings (BRFHH).  The original agreement was infamously approved by the LSU Board of Supervisors with 50 blank pages back in May.  Effective next Tuesday, October 1st, Governor Jindal’s Division of Administration (DOA) and the LSU Board of Supervisors will lease the subject facilities to BRFHH for $38,763,891.38 per year.  Notably, Dr. John George, a Jindal appointee to the LSU Board of Supervisors, is also Vice Chairman of BRF, and, on March 15, 2013, took over the operation of the organization as its new President and Chief Executive Officer.  Dr. George is said to receive no salary.

The Unique Role of BRF, Contract Term and Bail-Out Provisions

good_and_evil_in_the_BACK_Room
Good & Evil in the “Back Room”

Unlike any other such “privatization” deal already in place or underway around the state, BRF takes these North Louisiana facilites while it is almost exclusively supported by taxpayer dollars.  BRF is not now, nor has it ever been, in the hospital or other heathcare business, has little in the way of liquid assets, and is already partnered with the state in multiple arrangements.  In short, this deal is unlike others in the governor’s “privatization” push because this one is “public-public,” not “public-private,” Jindal’s supposed point and purpose in his dictation of a public healthcare makeover.

The controlling agreements – most notably the “Cooperative Endeavor Agreement (CEA),” the “Master Hospital Lease Agreement” and the “Equipment Lease Agreement” – spell out the terms of the deal.  The initial contract period is one (1) year, with an automatic renewal for another five (5) years if neither party bails.  Contract renewals for additional five (5) year periods then follow, for up to 99 years.

LA_bad-deal_Trust_MeThe new documents prominently feature a long list of reasons the parties can dump the deal.  Given that fact, the subsection of the contract including those reasons is erroneously entitled “Early Termination – Limited Circumstances”.  Whatever the circumstances might be called, “limited” does not seem appropriate for this range of fourteen (14) grounds on which to scuttle:  

—  If the closing on execution of all required agreements is not finished by next Monday.
—  Mutual agreement of the parties.
—  A change in laws at issue in the deal.
—  Termination of the Master Hospital Lease.
—  Change of control of BRF or BRFHH.
—  BRF’s loss of its tax-exempt status.
—  The loss or one or more material provider agreements.
—  Material breach by BRF / BRFHH of the “public purpose” of the CEA.
—  BRFHH does not receive the “required” – ? – funding.
—  LSU or the State does not pay a final non-appealable judgment within one year.
—  A public party fails to perform as agreed to in the CEA.
—  A public party breach of “reps and warranties.”
—  BRFHH / BRF fails to perform as agreed to in the CEA.
—  BRFHH / BRF breach of “reps and warranties.”

break(great for any design)Given that a lot of attorneys and other consultants are working on both sides of this maneuver at huge expense to the taxpayers – the BRF side of the deal has already spent almost $9,000,000 for such – few lowly taxpayers may honestly claim to understand much of the contract’s meaning.  It nevertheless strikes me that the list means either side can exit just about any time they choose.  Such a deal – in which the parties are in it only for the short-haul – underscores its foundational weakness, i.e., that it is less about healthcare than specific political objectives of Governor Jindal.  First, Jindal wanted this “privatization” thingy – like his bogus “Ethics Gold Standard” – to add to his list of “accomplishments” as he campaigns for his party’s presidential nomination; and, second, he needed it to supposedly – but not really – help cover Louisiana’s continuing budget deficits.

Some New Details About the Money

The new contract reveals that the initial plan to give BRF these hospitals’ accounts receivable is gone.  As I explained in an article last month, and thanks to a Public Records Request by online journalist Tom Aswell, that money pot of some $35,000,000 at the end of last June waved big and bright red flags.  In this agreement, BRF takes neither accounts receivable nor accounts payable, i.e., a usual and customary approach in such deals.

Bad_Deal_Formula_OpportunityEven more meaningful is the matter of what portion of BRF’s Medicare costs of patient care will be reimbursed by the state, via the federal government.  Unless and until some specific change is made, BRF is set to receive reimbursement for all such expenses normally associated with payments by the federal government’s Centers for Medicare and Medicaid Services (CMS).  Many hospitals in Louisiana have reimbursement rates far lower than BRF’s effective rate of 100%.

Supported by its expense and revenue sharing of various kinds via the LSU Medical School, and its Medicare / Medicaid cost reimbursement rate, and its existing and highly favorable lease-back agreements with the state for office space it controls, BRF / BRFHH cannot fairly complain about its initial financial footing.  If that statement were not true, Biomed would simply never agree to the terms of this deal.  With an estimated $650,000,000 now running through these hospitals and clinics, and with unknown favors certainly extended to it by the state to make this Jindal bet pay off, the view from the outside is that BRF now has the deal it wants, at least until it decides otherwise.  

As the Smoke Clears … and Before It Billows Again

Back room issues?
Back room issues?

All tea-leaf reading and other analysis aside, the broader efficacy of this deal is far more about the Jindal Administration than it is about BRF.  For those of us who have seen this arrangement emerge since about the summer of 2012, there remains a sense that the Shreveport and Monroe chapter of the governor’s story should have been postponed.  As reported recently by Marsha Shuler at The Advocate, the independent Legislative Fiscal Office finds that Jindal’s stated purpose for these “privatizations” is not proving true.  By the LFO’s calculation, the Jindal budget numbers will be $39,000,000 short given the actual accounting of these deals.  Team Jindal says the LFO is full of beans, but if state budgeting in the Jindal era teaches nothing else, it certainly teaches who is eating way too many beans for the comfort of those who pay for them.

The subject agreement has about it a kind of contractual antsiness; more than a hint that neither party would bet their own money on its chances of success.  As I wrote in the above-linked article last month, that may be because Jindal’s intended partner for these “privatizations” disappeared from the scene along the way.  Undaunted, Jindal, as is his political wont, adopted a ready-or-not-we-are-doing-this-now strategy.  Ironically and hypocritically, he loudly condemns President Obama and his Affordable Care Act for precisely the same gross riskiness.

All we will catch is the small local rats.
All we will catch is the small local rats.

It is ours, now, to hope the Biomedical Research Foundation’s very close relationship to Governor Jindal, and its bulletproof influence within the governing LSU Board of Supervisors, wins the day.  The losers, after all, are none other than the Louisiana indigent and other poor.  They are the same Louisianans, we know, who were taken care of by the old system for 272 years before Governor Jindal was elected.    

Elliott Stonecipher

Since the late 1970s, Elliott Stonecipher, through his company Evets Management Services, Inc., has provided professional research and consulting to more than a dozen hospital management companies, individual hospitals, and other healthcare companies.  Two such companies are Shreveport’s Christus Schumpert Medical Center and Willis-Knighton Health System.  A current client of Mr. Stonecipher’s company, Willis-Knighton, withdrew from consideration as a partner in the subject “privatization” push by Governor Jindal in May 2013.  No client has either foreknowledge of any subjects about which Mr. Stonecipher writes, or participation of any kind in their conception, preparation or timing.  

Elliott Stonecipher’s reports and commentaries are written strictly in the public interest, with no compensation of any kind solicited or accepted.  Appropriate credit to Mr. Stonecipher in the unedited sharing of his work is requested and appreciated.

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