Market Focus: New Orleans (October 2006)

Still struggling a year after Katrina



By John Mugford

Shortly after Hurricane Katrina and the subsequent flooding devastated New Orleans in August and September 2005, there were serious concerns that the city might never return to its old self: a festive and mardi gras-like town with plenty of solid industries, including a growing healthcare market.

One of the major concerns was that the city might never recover its population, as people who evacuated would see no reason to return to a place with a lack of housing, jobs and services.

There were also concerns about the New Orleans’ area healthcare system, which saw 13 of the city’s 16 hospitals closed for at least a month or more immediately after the storm. With insurance claims and federal help slow in coming for the damaged hospitals, observers were fearful that the closed facilities, especially the for-profits, would never reopen.

Such a scenario would significantly reduce bed capacity and demand for beds, which in turn would make it nearly impossible to recruit nurses and physicians – even those who were previously in New Orleans.

Today, more than a year after Katrina, many observers and residents in New Orleans still have many of the same fears. While several of the closed hospitals have since reopened, the ones that did are not using all of their beds, in part because of a shortage of healthcare professionals.

As of August, the Louisiana Hospital Association (LHA) reported that nine of the 16 hospitals considered to be in New Orleans – that includes close-in suburbs – were in operation.

The hospitals seeing the most patients were those in areas that saw the least amount of damage, such as in the suburb of Metarie in Jefferson Parish. There, East Jefferson General Hospital and West Jefferson Medical Center in Marrero have remained open ever since Katrina hit. The other hospital that continuously remained open was Ochsner Clinic Foundation in New Orleans.

Charity closed for good

Perhaps most devastating for New Orleans was the loss of Charity and University hospitals, side-by-side acute-care facilities with a total of more than 600 beds in the heart of the city. As part of the Louisiana State University (LSU) Health Services system, the hospitals were instrumental aspects of the university’s teaching system. Both also took care of a large percent of the city’s uninsured patients, many of whom are now being cared for at other facilities, which is hurting the bottom lines at several hospitals.

Even before Katrina, LSU had plans to build a smaller, modern single hospital to replace the two aging, downtown structures.  As of recent months, there were reports that LSU officials were considering embarking on a joint venture to rebuild the hospital in conjunction with the U.S. Department of Veterans Affairs – a Charity/VA facility.

LSU officials have said the future Charity/VA hospital could have 350 beds and cost as much as $630 million. Nearly half that amount would likely come from federal Community Development Block Grant dollars. LSU would also like to replace its Earl K. Long Medical Center in Baton Rouge, an aging facility that’s faced huge increases in demand since Katrina.

Many hospitals in Baton Rouge, observers say, have faced a huge influx of patients since Katrina, as many former New Orleans residents have relocated to the capital city. For example, Baton Rouge General Hospital is in the midst of adding 150 beds.

“Those beds cannot come on line quickly enough,” says Patricia Jeter, director of finance and operations for the Louisiana Hospital Association (LHS).

Some good news

Even with all of the bad news, there are positive signs emerging in New Orleans, including the partial rebounding of the healthcare industry. At virtually every one of the hospitals that reopened, there was some sort of repair work taking place, according to Ms. Jeter of the LHA.

One such hospital is Touro Infirmary in New Orleans, where CEO Les Hirsch took over just a couple of weeks before Katrina. Since the storm, Mr. Hirsch’s life has been extremely hectic as he tries to keep the hospital afloat. Prior to the hurricane, Touro operated about 390 beds. Because of a pared down staff, it was operating about 270 as of late summer.

“I thought we fared pretty well after the storm,” says Mr. Hirsch. “It’s been a struggle and we suffered millions of dollars of property damage and we’ve been working with our insurance company all along. I’d say we’ve finalized about 90 percent of our insurance claims.”

Much of the hospital’s repair work has been on its elevators, as 22 had to be replaced and all 317 of them had to be repaired.

According to a report by the LHA, there were 4,080 staff hospital beds in July 2005 (prior to Katrina) in the parishes of Orleans, Jefferson, Plaquemine and St. Bernard. Immediately after Katrina, in September 2005, that number dipped to 644.

But by August 2006, the number of beds had rebounded to 2,552 – still 37.5 percent fewer beds but a positive sign nonetheless, observers note.

Local healthcare officials also point to Ochsner Health System’s recent acquisition of three New Orleans’ area hospitals from Tenet Healthcare Corp. (NYSE: THC) as a positive step. They say Ochsner’s reputation and financial strength should provide an increase in beds and medical staff in the city and surrounding areas.

Ochsner recently acquired Kenner Regional Medical Center in the close-in suburb of Kenner, Memorial Medical Center in New Orleans, and Meadowcrest Hospital in nearby Gretna from Tenet for an undisclosed price. Ochsner plans to operate Kenner and Meadowcrest as acute-care facilities while converting Memorial, which has been closed since Katrina, to the New Orleans Surgery and Heart Institute.

The two acute-care hospitals have been operating well below bed capacity since Katrina. Kenner Regional, for instance, is licensed for 203 beds but has been using an average of 71 since the hurricane.

Another positive sign was at St. Charles Parish Hospital in Luling, just west of New Orleans. The hospital broke ground in September not on a repair project, but on a 54,000 square foot expansion. Parish officials say the project will allow the publicly owned hospital to continue to attract more patients and doctors.

The plan calls for an expanded, eight-bed ICU, a cardiology department, a 14-bed dialysis unit and a medical office suite. In addition, there will be a 20-bed psychiatric unit and 31 new private inpatient beds.

Since Katrina, St. Charles has seen a heavy increase in patients. That’s because before Katrina, many parish residents drove into New Orleans or Jefferson Parish for healthcare services. But with so many area hospitals closed, they’ve discovered, or rediscovered, the hospital in their own backyard. Even St. Charles’ officials admit that their hospital used to have a bad reputation. But now, it is often jammed to near-capacity, giving it an opportunity to grow in size, quality and reputation.

However, building anything in post-Katrina New Orleans is not only difficult, but expensive. St. Charles officials say the cost of their 54,000 square foot expansion was estimated at $9 million before Katrina. In August, the hospital accepted a bid of $14 million from Landis Construction of New Orleans.

Chicken or egg?

New Orleans observers and insiders say the city’s healthcare dilemma is, in a way, a chicken-and-egg problem. Can hospitals, as one part of the repopulation effort, help bring the city back to its former self by bringing in more health professionals and trigger a rebuilding of the population? Or will residents have to start returning to the area and create more demand before hospitals are in a position to recruit doctors, nurses and others?

“A major problem New Orleans faces is that the doctor situation is not good,” says Mark Wietecha, chairman of consulting firm Kurt Salmon Associates.

“Within a month of the storm, lots of people, including doctors had relocated. And as they were relocating, they were being recruiting by hospitals in other areas. If they were to head back to New Orleans, they would still have had to pay their office staff and expenses, without hardly any cash flow. So they set up practices in other areas. That means if the system is going to grow, hospitals are going to have to start their recruiting efforts from scratch.”

Mr. Wietecha’s observations are backed up by statistics from the LHA, which reports that about 3,000 nurses and 2,000 physicians have left New Orleans since Katrina. In addition, hospitals in Orleans and Jefferson Parish lost a combined $313 million between August 2005 and April 2006. Triggering these losses has been an unprecedented amount of uncompensated care. Back in January and February of 2005, six months before Katrina, New Orleans’ hospitals covered about $12.5 million in uncompensated care. For the two-month period of January and February of 2006, that had increased to $32 million.

“The hospitals that are open are working hard and doing their best to serve patients and to prepare for the future,” says Ms. Jeter of LHA. “They’re making their facilities ready for any future disasters, digging their own wells, adding their own power sources in case of energy problems.

“But then again, there are a lot of long-term issues that won’t be answered for quite some time,” Ms. Jeter adds. “Residents who have not come back wonder whether the levies could fail again under such circumstances. And then there’s issues as to how much rebuilding the levy system to withstand big storms will cost. There’s still no answer as to whether the population will return, and that won’t be answered for quite some time.” q

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