Growth Amid Adversity

When asked to describe the healthcare climate in New Orleans, Les Hirsch offers a deceptively simple characterization: “It is not a normal situation.” Two years after Hurricane Katrina plowed ashore, Hirsch, president and chief executive officer of Touro Infirmary, and the rest of New Orleans’ hospital leaders continue to face myriad challenges in their struggle to repair a crippled healthcare infrastructure and help their city recover from a disaster unique in American history.

Yet amid the flood of uninsured patients and escalating costs, New Orleans-area providers have begun to look past immediate operational hurdles and take steps to prepare their facilities for the community’s shifting needs in the years ahead. From departmental expansion projects to buying entire hospitals, many organizations are embracing a strategy of growth despite the shaky financial underpinnings of a region in recovery. “We’ve had significant demands placed on us in terms of playing a safety-net role, while at the same time trying to plan for future expansion,” Hirsch says. “The conflict is the fact that we’re in a marketplace in which the economic fundamentals are broken.”

Touro is only one of several New Orleans metro hospitals that have launched growth projects to address the drastically altered south Louisiana healthcare market. Some examples:

• Ochsner Health System recently finished the purchase of three Tenet hospitals that had been shuttered by Katrina but are now open: Memorial Medical Center in New Orleans (now called Ochsner Baptist Medical Center), Kenner Regional Medical Center in suburban Kenner (Ochsner Medical Center-Kenner), and Meadowcrest Hospital across the Mississippi River in Gretna (Ochsner Medical Center-Westbank). Ochsner CEO Patrick Quinlan, MD, says his system, which is also expanding its obstetrics department and planning a new six-story cancer center across from its main campus just outside of New Orleans, decided to acquire the facilities after recognizing “an ongoing need for inpatient facilities and that those hospitals’ recovery was in jeopardy.” Ochsner’s future strategy? “Cautious but ambitious,” says Quinlan. “We want to play a vital role in the recovery of this region, which requires us to step out of our comfort zone and look at what the community needs, not just what is safe for us.”
• Touro modernized a former nursing unit to create a joint replacement center and transformed another unit to allow for an obstetrics expansion; the hospital expects roughly 2,500 births this year, compared to 1,500 in 2006. “The way we’re sustaining ourselves is we’re eating into our cash reserves,” says Hirsch. “We’re trying to make investments that will have return on investment in the near future.”
• Children’s Hospital purchased the nearby 12-acre campus of the former DePaul psychiatric hospital earlier this year and is leasing one of the buildings to Louisiana State University for a 33-staffed-bed psychiatric facility. The remainder of the campus will be set aside for “future growth,” says Cathleen Randon, director of public affairs. Children’s is also in the middle of an intensive care unit expansion that will give the hospital 20 cardiac ICU beds and 18 pediatric ICU beds by 2009.
• St. Tammany Parish Hospital, across Lake Pontchartrain from New Orleans in the town of Covington, is spending $60 million to convert the hospital’s fourth floor into additional bed space, add a new fifth and sixth floor, and add support staff space on the first floor. STPH’s expansion illustrates how Katrina has changed the healthcare landscape throughout southeast Louisiana. St. Tammany Parish, which was already growing before the hurricane, has seen its annual growth rate climb to 14 percent after the hurricane forced residents of other parishes to find new homes, says Patti Ellish, president and CEO. The hospital’s expansion will add 98 beds by the time it is completed at the end of 2009, says Ellish.

Even as many providers adopt an overarching strategy of growth, hospitals continue to face an uphill battle for profitability in an environment of economic uncertainty. The surviving hospitals encountered an uncompensated care nightmare in Katrina’s immediate aftermath when LSU’s Charity Hospital and University Hospital, part of the university’s charity hospital system that cares for the poor, were shuttered, leaving the area’s private hospitals to shoulder the uninsured burden. University’s reopening and increased state uncompensated care funding have lessened the uninsured pressure; LSU’s proposed $1.2 billion teaching hospital to replace Charity would relieve still more of the burden. But such a facility is years down the road, and Hirsch contends the help hospitals have received is still not enough. “Collectively in Jefferson and Orleans parishes, hospitals are still losing money,” he says.

Rising operational costs are a problem, as well. Touro’s property and casualty insurance rates, for instance, jumped from less than $500,000 a year before Katrina to $2.2 million in 2006 and $2 million in 2007 with less coverage than before Katrina, says Hirsch. Additionally, increased utility and labor rates continue to plague hospitals. Ellish says compensating for such cost increases is problematic at best. “If you’re an electrical company, you can simply go up on your rates. In healthcare, going up on your rates doesn’t mean a thing, because the government—our largest payer —is capitated,” she says. “You can’t just pass those costs on to the consumer.”

Despite providers’ persistent fiscal challenges, Ellish, who serves as vice chair of the Metropolitan Hospital Council of New Orleans, an arm of the Louisiana Hospital Association, adds that the overall mood of the southeast Louisiana healthcare community has improved in the past year to one of “cautious optimism.” Ochsner’s Quinlan agrees—but stresses that New Orleans hospitals’ struggles are far from over.

“The mood is better. We’ve had a delayed but positive response from the state for uncompensated care,” he says. “But we’re still dealing with the rapidly escalating cost of operating a healthcare facility in this state and the inability of payments to keep pace.”

Jay Moore is managing editor of HealthLeaders magazine. He may be reached at jmoore@healthleadersmedia.com.