university health response to lsu breach letter

July 29, 2015

Via U.S. Mail and email: [email protected]

F. King Alexander Chancellor Louisiana State University Office of the President 3810 West Lakeshore Drive Baton Rouge, LA 70808

Re: LSU/BRFHH Detailed Response to Breach Notice Dear Dr. Alexander: Biomedical Research Foundation of Northwest Louisiana (BRF) and BRF Hospital Holdings, L.L.C. (collectively, BRFHH) have previously acknowledged receipt of LSUs written notice of an alleged Public Purpose Breach of the Amended and Restated Cooperative Endeavor Agreement (the CEA). We received that notice on July 14 and delivered our initial response to you on July 24. While we strongly dispute that any public purpose breach has occurred and without waiving any of the deficiencies raised in our July 24th response, we are eager to work cooperatively with LSU to resolve any disputes and differences that do exist. We have discovered that when LSU, BRFHH, and the State work cooperatively toward fulfilling the public purposes of rendering efficient and effective care to the Medically Indigent, the uninsured, high risk Medicaid, and state inmate populations, tremendous results have been achieved. These results confirm the long-term viability of the privatization business model contemplated by the CEA. Soon after the CEA became operative, LSU established a contract monitoring process as envisioned by Section 1.2 of the CEA. Dr. Frank Opelkas November 11, 2013 letter (Attachment #1) indicates that the reporting tool was developed by working with the Department of Health and Hospitals (DHH) and the Division of Administration (DOA), and the letter then references an attached summary which outlines the measures and definitions for each indicator. The Report Cards (Attachment #2) list the measurable data that the Contract Monitor, an LSU employee, must assess in order to determine the parties compliance with the CEA. The statistics on the reports submitted by BRFHH speak for themselves, as does the following empirical evidence attributable to BRFHHs stewardship of the two hospitals:

- reduced clinic patient referral queues from 12,000 to 1,200;

F. King Alexander July 29, 2015 Page 2

- decrease in overtime and use of agency nurses to almost zero;

- restoration of the LSU Hospital as a certified Level 1 Trauma Center;

- development of an ICU step-down unit and a new stroke center;

- a reduction of labor and benefit costs by 30% despite increasing volume;

- a 43% reduction in patient complaints;

- reduction of the average length of stay at the hospital by 7%;

- reduced wait times for MRIs from 60 days to 2 days;

- reduced wait times for CT-scans from 21 days to 1 day;

- increased admissions by 15%;

- increased clinic visits by 6%;

- improved earnings before interest, taxes, depreciation and amortization by approximately $80 million; and

- reduced expenses to the State of $49 million, as reported by DHH. Since Section 1.2 provides the sole method by which the parties compliance with the CEA is to be measured, LSU cannot unilaterally declare a breach of the Public Purpose, particularly without reliance upon any findings, reports, data, compilations, spreadsheets, memos or other documents, prepared by the Contract Monitor, to support that position. LSUs reliance upon the ECG Consultants Management report is troubling. We have just received the original version of that report, and it differs in material aspects from the edited version that was presented by Willis-Knighton to Treasury Secretary Kennedy and, apparently, to Governor Jindal. For instance, the original report makes it clear that the lack of research funding is due to 2 factors intransigence by the Institution Review Board, and LSUs long history of supporting its clinical mission at the expense of its research mission. Also, various interviewees stated that opportunities existed to improve salary coverage from extramural sources. There is also a draft of a Bridge Funding Program Policy designed to provide research dollars, but apparently never enacted by LSU. In the summary portion of the interview findings, ECG notes that Opportunities exist to improve and enhance the research enterprise through pre-award development, translational research, the IRB, etc. No mention is made of BRFHH, and none of this information made its way into the edited report that Willis-Knighton pitched to the State. The original ECG report also included this statement: Most interviewees remarked that Willis-Knighton owns the majority of the market share in Shreveport and the surrounding areas


and expressed concern regarding the feasibility of direct competition by LSUHCS-S in identified clinical programs. That too was deleted by the time Willis-Knighton presented the ECG report. The Financial Performance section of the original report contains information not found in the final edit, such as reliance on Southern Association of Colleges and Schools (SACS) financial reporting methodologies. Also, in the edited version, ECG stated that in an otherwise steady state LSUHCS-Ss future financial position would be a deficit of nearly $26 million. But in the original, that finding read, the finalization of contracts attendant to the UH affiliation is anticipated to result in break-even performance for LSUHSC-S under SACS reporting conventions, assuming an otherwise steady state for revenues and expenses. In the original, ECG noted that the construct of the current affiliation agreement between LSUHCS-S and UH is not aligned like similar arrangements at other AMCs. A functional and formalized affiliation governance structure must be developed in the near term, with the development of financial program support and financial mission support arrangements codified in the next version of the affiliation agreement. In the edited version, that became The current relationship between LSUHCS-S and UH is untenable Finally, and as recommended by your own consultant, we have suggested third party resolution of all issues, and did so even before we assumed operations on October 1, 2013. Each and every attempt we have made to objectively address outstanding problems has been rejected. Recently, the LSU Health Science Foundation in Shreveport agreed to pay for arbitration of the disputes, which the local LSU leadership rejected as well. Nevertheless, in order to continue to fulfill our obligation of working collaboratively with LSU, we have decided to address each of your alleged concerns in this response, and to propose cures where possible and necessary. These cures are designed solely to address LSUs concerns, and should not be construed to imply that BRFHH agrees that there has been a Public Purpose Breach. A. Detailed Description of Public Purpose Breach

1. Failure to Work Collaboratively with LSU a. Information Technology

BRFHH Response: We agree that one of the most difficult tasks which faced the former LSU hospitals was transitioning from LSU-owned technology systems to an independent system that was managed and run by the LSU partners. However, at no time was BRFHH an obstacle to this transition. Rather it helped to facilitate this transition through its IT staff more than any other private partner sharing the systems. It is BRFHHs IT staff that maintained and supported that LSU-owned technology systems after the transition without a contract and without compensation for over nine months prior to LSU signing an agreement with BRFHH for such services. During


that nine month period, there was no interruption of any of the systems or services being provided to LSU or any of the other private partners. With regard to the HIPAA Compliance Agreement originally entered into by the other private partners and LSU, BRFHH and its counsel were not involved in its development and was even unaware of its existence until after it took over operations of the hospitals. As with any agreement of this nature, BRFHH would not blindly sign something that its legal counsel thought was legally unnecessary and overly burdensome. As with the CEA and all of the other related agreements, LSU and BRFHH and their counsel worked as reasonable business people do to find common ground and to reach agreement. That was done over a year ago and is in the past.

Despite not having joined in the HIPAA Compliance Agreement originally, BRFHH was engaged during the transition process and spent enormous amounts of time, money and other resources on the IT. Hospital management participated in LSUs CCIS committee meetings and expressed material concerns with the technical requirements of the HIPAA Compliance Agreement, as well as the procedural processes. BRFHH identified material faults with the LSU compliance document and processes. Despite concerns, BRFHH fully complied with the attestations and audit requirements that were outlined by the CCIS committee.

With regard to LSUs claim that BRFHH exposed LSU and the other private partners to

risk of violation of HIPAA, that is just not the case. BRFHH is in compliance with all federal privacy rules. BRFHH is a covered entity, meaning it is required by HIPAA Rules to protect the privacy and security of PHI. It has done that. BRFHH is not aware of a single security breach or HIPAA violation during its tenure. In order to accommodate LSU, BRFHH agreed to its unnecessary, impossibly burdensome HIPAA Compliance Agreement, even though there was no need for one. That agreement is still in place as well as the Business Associate Agreements (BAA) previously executed between LSU and BRFHH. The transition to the BRF EPIC system does not implicate new HIPAA regulatory challenges; BRFHH remains a covered entity and subject to the requirements of HIPAA as well as the terms of the existing HIPAA Compliance Agreement and BAAs.

It is true that the transition required copying all of the data from the old system, including

PHI from the other former LSU hospitals. Again, BRFHH is required to protect the security and privacy of this information, and it has. As a practical matter though, the data from the other hospitals will need to be culled from that of University Health Shreveport and University Health Conway. BRFHH would be happy to enter into an agreement with LSU establishing a specific timeline for that culling process. From the outset of privatization, BRFHH asked if it could purchase or have transferred to it the portion of the EPIC software agreements that was licensed to the State. LSU conditioned the sale on BRFHH subscribing to the LSU Accountable Care Services initiative at a cost of over $7 million per year (BRFHH and state dollars). BRFHH refused to agree to this condition. When BRFHH asked again whether LSU would sell or transfer discounted EPIC licenses without the stipulation of participating in the initiative, the request was dismissed. Because the request to buy the EPIC licenses was denied, BRFHH proceeded at great expense to invest in its own EPIC platform. Contrary to the claim that BRFHH has not invested in technology that


furthers LSUs academic mission, BRFHH has invested millions of dollars in hardware and software licensure to provide the best healthcare delivery technology for its patients, its employees and the faculty and students at the LSU School of Medicine. I am attaching a schedule that shows investments BRFHH has made in software, systems and hardware infrastructure totaling nearly $25 million (Attachment #3). It would have been BRFHHs preference to invest those dollars in other areas, but it was forced to commit these scarce resources in order to operate the hospitals because of LSUs refusal to cooperate in the transfer of its EPIC licenses to BRFHH. LSUs claim that BRFHH has been recalcitrant with regard to HIPAA and IT issues is not supportable. BRFHH staff have managed and operated the IT systems at the remaining LSU hospitals, University Medical Center Management Corporation (UMCMC), and the LSU HSC practice plan used today. BRFHH has granted access to its IT system for over 2,500 LSU School of Medicine employees, students and physicians to its software system. In addition, six LSU School of Medicine employees or consultants have access to the Clarity database, which is a very restricted area of EPIC. BRFHH IT staff has provided thousands of hours of documented support to the hospitals, and all such services were performed at no cost to LSU, and without an agreement in place. BRFHH has maintained both wireless and wired networks for 18 months, as well as backed-up systems, at no cost to the medical school. Perhaps most importantly, BRFHH has maintained a professional billing system used by LSU physicians to generate professional claims. These claims total over $380 million. BRFHH IT staff has created and now support nine (9) new interfaces and three (3) extracts for the HSC-AS and ACS agreement. The interfaces include radiology, pathology, cardiology, and HL7. The extracts include daily charge files, monthly OR logs and constantly updating detailed data needed for clinical documentation on all patients treated in the emergency room. In a June 17, 2015 email, James Kees, the CIO of the LSU Healthcare Services Division, informed Tim Magner, the executive director of IT of HSC-S, that it was in the best interest of the State and LSUs partner hospitals for BRFHH IT to maintain control of the shared systems domain in order to preserve the best possible patient care for the LSU partner hospitals. On June 30 of this year, UMCMC willingly entered into a contract with BRFHH for IT services related to maintaining its patient electronic health records. This belies LSUs alleged concern that it and its other hospital partners being exposed to potential liability. LSU continues to ignore our legal counsels repeated advice that, regardless of Stark and anti-kickback laws, under current IRS regulations, BRFHH cannot provide LSU physicians with free access to EPIC if there is a cost involved in doing so. We are currently trying to determine if there is a cost attendant to the provision of access.


b. CMS Report BRFHH Response BRFHHs August 2014 report to CMS was sent on the advice of counsel, and as the result of findings by two separate independent consultants, which identified serious inefficiencies in the LSU Clinics operations, scheduling and wait times. BRFHHs counsels professional opinion was that these operational issues did not satisfy certain aspects of Medicare provider-based entity rules. There was no charge of discriminatory care, nor are we aware of any actual damage to the faculty or LSU as a result of the necessary report to CMS. Also, the scheduling system at the Clinics did in fact remain in the control of LSU at the time the report to CMS was made. Nevertheless, we would be willing to apologize to those who read our comments as reflecting discriminatory care by LSU physicians.

c. Refusal to Complete Documents and Pay Debts Owed LSU BRFHH Response Again LSU is referring to things that happened over a year ago and that were resolved at that time. At some point, it is our hope that the past would be the past and we can move forward. Until then, we feel obligated to set the record straight.

With regard to the allegations made by LSU in its August 18, 2014 demand letter, I attach BRFHHs response which specifically addressed those allegations (Attachment #4). The allegation regarding $18 million owed to LSU fails to mention a couple of important factors. First, LSUs demand letter appeared in the Baton Rouge newspaper, without LSU first conferring with BRFHH. Our response did not. Second, BRFHH stood ready and willing to pay the money owed to LSU, but only once the necessary agreements were signed. As soon as they were, the money was paid. This does not constitute a Public Purpose Breach of the CEA, just compliance with sound business and legal practices. We attach (#5) a list of the referenced debts and the dates they were paid.

As LSU will recall, from October 1, 2013 thought April 2014, BRFHH and its counsel were not even sure who was or would be representing LSU and HCS-S. Counsel for BRFHH repeatedly reached out to current counsel for LSU without response. Finally in April 2014 current counsel for LSU agreed he would be taking over the task of completing the outstanding documents related to the transition. From that point forward, BRFHH and its counsel worked diligently with LSU and its counsel to complete the outstanding documents. As with any transaction of this nature, there were disagreements regarding the agreements and their terms that resulted in protracted negotiations. However, the parties worked through those differences and did eventually sign the outstanding documents in the fall of last year.

Despite BRFHHs request to resolve a couple of remaining outstanding issues last fall,

LSU refused to do so. Those issues were the parking lots, the reciprocal space rental and the


Master Affiliation Agreement (MAA). Now LSU is claiming that BRFHHs failure to resolve these issues is a Public Purpose Breach even though LSU had the opportunity to resolve these issues last fall and chose not to do so. At most these are unresolved business issues, not a Public Purpose Breach.

Parking Lots

With regard to the parking lot issue, BRFHH used the Carl Walker Parking Study that had been offered by LSU during the transition to prepare a proposal for allocation of the parking lots. From that study, representatives of the medical school and BRFHH agreed on certain lots to be used/transferred between LSU and BRFHH and, after much back and forth, they also agreed on access to the Q and L lots for all employees, after 3 pm.

At some point after the proposal was agreed to by the representatives, BRFHH received access to the LSU parking system and some lists of who parked where. It became apparent at this time that the P lot, which is listed in the study as used by employees, was actually used by residents. Since residents are not BRFHH employees, they were not included in the information BRFHH needed to make its parking proposal. At this point BRFHH suggested to the medical school that the residents would be moved to Lot M and we received an email back from the medical school saying this was a bad idea. We also suggested to the medical school that we did not have good information on who parks where and that the parking database seemed corrupted.

Because BRFHH does not have all of the information related to who parks where in the various parking lots, BRFHH would need, at a minimum, to have the R lot added to the list of parking lots being transferred to it. This should be easy for the medical school and BRFHH to resolve. The attached revised allocation of parking lots (Attachment #6) is acceptable to BRFHH and reflects the transfer of the R lot.

BRFHH has never agreed to pay a true up amount on Lot J. LSU agreed in the Master Hospital Lease Agreement to provide BRFHH with the parking lots needed to operate the Hospital for the rental amount contained in the agreement. It did not do so and that has resulted in the need for re-allocation of the existing parking lots. BRFHH did not choose where its employees were instructed to park. This was done by LSU. BRFHH did not agree as part of the Master Hospital Lease Agreement to assume the LSU lease for Lot J. In fact, BRFHH has always refused the assumption of the Lot J lease until recently when, as a sign of good faith, we assumed the Lot J lease of nearly $16,000 per month and contracted for our own shuttle expenses. BRFHH was generous and supportive of LSU by accepting LSUs interpretation of the ACGME guidelines on parking. Space Rental

Using a spreadsheet generated by representatives of BRFHH, the medical school and BRFHH came to an agreement on space being used by each entity as of January of this year. They finally agreed on $13.50 per foot for office space and less for air conditioned storage space and non-air conditioned storage space. BRFHH was generous and supportive of LSU by taking


the medical schools interpretation of the ACGME guidelines on space into account. A new spreadsheet on space being used by each party as of June of this year is attached (Attachment #7). The majority of the space rental that is used by BRFHH is space in the MOB Building (Building 9) located on the Shreveport campus. Although BRFHH repeatedly requested that LSU provide it with a lease for that space beginning in January of this year, it never did. As a result, counsel for BRFHH prepared a draft of a lease that was given to the medical school representatives in February of this year. No response from LSU was forthcoming until April of this year. The lease was finally signed by you in June of this year. Now that the lease has been signed, we are processing payment to LSU for amounts due under the lease. The remaining space rental between the parties is in fluctuation. It is BRFHHs position that documentation of such space should not occur by amendment of the Master Hospital Lease Agreement, but rather by a separate lease agreement. Counsel for BRFHH is willing to prepare such lease. Here is a summary of space costs and allocations through June 30, 2015 and going forward: MOB Building A- Lease was signed June 3, 2015. BRFHH owes $26,265.37 per month from 10-1-2013. As of June 30, 2015, this would $551,572.80 Office and Storage Space True Up excluding MOB- 10-1-2013 through 1-31-2015 (Attachment #8): LSU owes BRFHH $525,098.38 BRFHH owes LSU $524,948.47 LSU owes BRFHH $149.91 Office and Storage Space each Month from 2-1-2015 to 6-30-2015 (includes Deli) (Attachment #9): LSUH owes BRFHH $151,087.17 BRFHH owes LSU $140,771.57 LSU owes BRFHH $10,315.60 Office and Storage Space July 1 2015- Forward LSU owes BRFHH $26,174.25 BRFHH owes LSU $20,599.15 LSU owes BRFHH $5,575.10


Based on the foregoing, assuming BRFHH owes LSU $551,572.80 under the MOB lease and LSU owes BRFHH $10,465.51 for the other space rentals, BRFHH owes LSU $541,107.29 as of June 30, 2015 and is prepared to make such payment to LSU. Of course there are other ongoing business transactions between LSUHSC-S and BRFHH that are constantly taking place that involve the provision of services and payment of money. That is part of the nature of the relationship of the parties. For example, last year when we did the agreement, BRFHH was going to employ the lab sales folks and bill and collect for the labs tests. BRFHH was going to pay Dr. Herrera and other physician medical director fees. Immediately after the agreement was signed, Dr. Herrera decided he didnt want BRFHH billing; rather he wanted to pay for BRFHH to process the test, pay it for the sales people and he would bill and collect. Counsel for LSUHSC-S is drafting an addendum which is still not done. The total owed to BRFHH for these services is about $700,000. However, BRFHH has not made demand on LSU for these amounts as we trust they will be paid in due course once the addendum is done.

2. Failure to Support and Promote HSC-Ss Academic Mission and Reputation

a. Failure to Support LSUs Teaching Mission

BRFHH Response BRFHH strongly supports LSUs teaching mission, and has done so since the inception of the CEA. LSU receives millions of dollars in payments by BRFHH, as well as public funding, which can be used to support its teaching mission. This more than makes up for the loss of $30 million in annual State funding made under the old, failed model. To date, BRFHH payments to LSU, less than two years after privatization, already total over $160 million. (Attachment #10) Contrary to the allegations in the breach notice, LSU residents are not forced by BRFHH to do anything, nor are they denied proper access to data and other resources. The residents have not been denied the opportunity to participate in quality improvement or safety programs, nor are they denied supplies. According to the ACGME Clinical Learning Environment Review Site Visit Report (Attachment #11), issued on April 7, 2015:

The hospital has recently initiated several efforts to enhance resident/fellow engagement in improving healthcare quality and patient safety. GME leadership and residents/fellows reported that residents/fellows actively participate in a wide variety of hospital level committees. In addition, patient safety and healthcare quality leadership reported that residents/fellows participate in the individual clinical departmental quality committees and residents and fellows from some programs reported participating in tele-medicine services to improve access for rural patients. The residents/fellow interviewed were consistently positive when speaking about the clinical and the educational culture at the hospital.


We are unaware of any complaint regarding the nursing staffs dealings with the residents. BRFHH is concerned that LSU risks accreditation by depleting the number of residents present at the Hospital, and this concern has actually been echoed by some of LSUs own hospital departments (Attachment #12). Why is BRFHHs failure to sign an MAA a sign of lack of support of LSUs teaching mission when to our knowledge, LSU has not required any of the other private partners to sign an MAA, including UMCMC for the New Orleans Medical School? LSU knows that an MAA is not necessary to document BRFHHs support of LSUs teaching mission and is not legally required for compliance with ACGME standards. LSU is now saying that BRFHHs decision to address legal concerns raised by its counsel with the MAA constitutes bad faith negotiation. BRFHH has legitimate legal concerns about the amount of control LSU insists on maintaining over Hospital actions and policies. Those concerns were discussed in detail in September of 2013 during conference calls between the parties and their counsel. In response to those concerns, BRFHH proposed such an agreement back in September of 2013 to then counsel for LSUHSC-S. No response was ever forthcoming. Unfortunately virtually no one involved with LSUHSC-S at that time is still involved and LSUs current counsel was not involved in those discussions either. Once current counsel for LSU became involved, counsel for BRFHH again raised the need to complete the MAA and forwarded drafts of an MAA to counsel for LSU. No response was ever received to the draft. When he asked about it, counsel for BRFHH was told that this document was one of the documents that could be completed later. The claim that the lack of an MAA is a sign of lack of support of LSUs teaching mission is simply wrong. BRFHH has always been willing to enter into an MAA with LSU that contained fair and reasonable business terms and that gave control of Hospital operations to BRFHH and control of ACGME compliance to the medical school. Counsel for BRFHH is willing to work with counsel for LSU to finalize an MAA acceptable to both parties and that address BRFHHs concerns. Up to this point, counsel for BRFHH has never been told what specifically is problematic with the MAA draft submitted to counsel for LSU last year. LSUs reliance on the ECG Management Consulting Report is misplaced for any number of reasons. The report was issued without the benefit of the first year financials, which resulted in an unqualified audit opinion by Postlethwaite & Netterville. That opinion in itself conclusively shows that the CEA business model is in fact sustainable. Also, contrary to the consultants opinion, BRFHHs willingness to fund the Hospital without detailed faculty productivity and compensation analyses is indicative of willingness to support LSUs academic mission. Finally, ECG did not identify any breach of the CEA, contributing to the (incorrect) conclusion of an unsustainable business model. Instead, your consultant has concluded that the private-public model, in effect at all LSU hospitals, is intrinsically unsound. We dont believe thats true, and in fact UH-Shreveport and UH-Conway are succeeding financially by any objective measure.


b. Failure to Support LSUs Research Mission BRFHH Response Since its formation in 1986, BRF has been one of the most ardent supporters of the LSU Shreveport Hospital and particularly its research mission. From the beginning, this has been explicitly included in our mission statement. It is in there today. The renewal of the lease was handled by the same LSU outside counsel who negotiated prior amendments to the lease and who know or should have known that the subject funding under the related agreement would terminate. The additional space for the LSU Hospital was added to the lease at the request of LSU, not BRF, but BRF was glad to honor the request. In hindsight, we are not so sure it was the right thing for us to do, and we will be happy to revisit that issue. Since 1994, HCS-S has also benefited from a lease rate for the building substantially below market value. Our support for LSUs research activities, since 1994 has averaged closer to $1 million a year, not $650,000. From 1994 to 2006, it helped HCS-S grow its external research revenue from approximately $6 million to $16 million. It remained at that level until 2010 when it began a precipitous fall to about $7 million, only slightly more than the 1999 levels. Our estimates were that the continuation of this poor performance would have cost the local economy about $160 million of outside revenue by 2020 when compared to a continuation of the earlier trend. Our continued support of this failing model would clearly have been a violation of our fiduciary duty to the community and to the public purpose. As a result, we notified Dr. Barish on December 10, 2014 that our continued support depended on a clear and plausible plan to address our concerns and rebuild the program. In that same letter, we outlined specific additional information which we felt would provide a starting point for developing such a program. We believe these were reasonable requests that any large donor would submit to evaluate the effectiveness of its donation. We have yet to receive a satisfactory response. In short, we were then and are still willing to continue our support for research at HCS-S as long as it is part of a complete research plan with performance measures based on aggressive but reasonable benchmarks. We are not willing to continue it as an entitlement program. Again, to say that we have reneged on our commitment to LSUs research mission is both untrue and an insult to one of its greatest benefactors. The Clinical Research Agreement was neither well written nor complete, as it failed to address in any way the need for BRF to have access to research protocols and other documents necessary to evaluate the risk of participation and meet its compliance and billing obligations. When we requested these additions, we were accused of wanting them so that we could steal research from HCS-S. The redline version referred to in your letter added those documents. It did not reverse rolls, but made it clear that BRF would continue its own research program as we have always done. It also added language that was intended to provide comfort and protection from poaching of HCS-S research. The latter caused such uproar that we removed the anti-poaching language, returning to the original version, with the addition of the documents needed for compliance and billing. We have been told by officials at LSU that they


have accepted the latest version and sent it to Baton Rouge for signature on May 18. It has not been returned to us. The agreement between BRF and LSU concerning research funding is separate from and does not form part of the CEA.. As for how the mission can be improved, ECG has recommended the following:

Securing grant funding;

Enhance monitoring of coverage and productivity expectation metrics, a more defined and rigorous bridging policy and post-tenure review process, and a focused strategic plan that defines areas for further development and investment;

Finalize the search for a vice chancellor for research in order to provide focused leadership and expertise for LSU.

Assuming that LSU is willing to follow the recommendations of its consultant, BRFHH will assist in any way that is reasonably possible. LSU simply needs to suggest how we can do so.

c. Damage to HSC-Ss Reputation BRFHH Response There has been no damage to the Shreveport Hospitals reputation. In fact, due to BRFHHs innovative management and leadership, both the Hospital and medical school are held in high esteem by all the applicable players the State, DHH, the physicians, the Contract Monitor, the students and, most of all, the patients. One need only reflect on the incredible, historical accomplishments listed on page 2 of this letter to know that is true.

3. Failure to Establish a Sustainable and Competitive Business Model

a. Lack of Capital Investment and Financial Resources

BRFHH Response Prior to the signing of the CEA, LSU Shreveport Hospital could not segregate expenses related to the LSU medical school from the hospitals. In fact, LSU was combining costs on the hospital side, even when those costs were actually shared by the hospitals and the medical school. We assume that this was done out of convenience by LSU as the sole owner of all, or in order to enhance reimbursement, but the commingling of medical school and hospital finances made a reliable analysis of allowable and non-allowable costs impossible. As a result, when LSUs privatization consultant, Robert Heacox, made financial projections, BRFHH had no alternative but to rely on them. As it turned out, many if not most of the projections were wrong. Indeed, Mr. Heacox was insisting that the privatized hospital could be a nominal charge


provider, even though applicable CMS regulations specifically state that a non-governmental entity cannot hold that status. Mr. Heacoxs projections also decreased expenditures without a corresponding adjustment to revenue, which simply cannot be done for cost-based providers. The primary purpose of the privatization of LSU hospitals was to allow the monetization of state owned assets by charging rent to a private party which is utilized as federal matching funds. Because the CMS provider agreements for Shreveport and Monroe have been transferred to BRFHH subsidiaries, and because of the leases in place, as well as the Physician Services Agreements, millions and millions of dollars that were not otherwise available have been realized by the State and LSU. This includes approximately $86 million in rent payments to the State, $140 million paid to LSU for physician services, and $21 million for shared services since the inception of privatization to date. There is no commitment of a financial long-term investment, as your breach notice indicates, nor does the CEA require one. Also, the CEA is silent as to any capital commitments other than as is stated in Article V. That provision states that it is the DOA, not BRFHH, which commits to fund and complete certain projects at the hospitals. The CEA is also silent as to operating capital, so issuing a Public Purpose Breach notice based on alleged lack of capital investment is a non-sequitur, because it is the State that provides the funding, not BRFHH. In fact, the central thesis of privatization was that the hospital operations were to be revenue neutral to the private partner. No funding was required of the partners; the State, as is its obligation, absorbs the cost of indigent care, and in exchange reaps the financial benefits of privatization. According to DHH reports, BRFHH saved the State $42 million while enhancing healthcare delivery, as demonstrated by the Report Cards. There were 10 key terms in the Term Sheet that we used to summarize the CEA. There were no funding requirements imposed on BRFHH, as BRFHH would receive its funding from DHH. The terms of hospital funding are not and cannot be subject to LSU approval. There are no requisite funding levels or expectations of capital contribution or investment imposed on BRFHH in the CEA, term sheet, power point presentations, or MOUs. The term sheet does have a section described as Facilities and Equipment, which calls for renewable 5 years lease terms, but does not make any mention of the alleged need for capital, private sector resources, or capital needed to address deferred maintenance as described in the breach notice. All private partners to the transactions which resulted in the transition of the LSU hospitals understood that those transactions were to be balance sheet neutral, in contrast to the assertion in the breach notice that the purpose was to attract private sector resources. The sustainable business model described in Section 1.1 of the CEA is actually a business model that is achieved through adequate funding levels provided by the State, not private sector capital. Moreover, all parties to the CEA were aware of the working capital contribution from BRFHH. At the onset of negotiations in March 2013, unlike other private partners, BRF agreed to contribute $20 million. The $20 million was provided and has remained constant as a voluntary obligation that has been fulfilled by BRFHH. Unfortunately, LSU did not fulfill its commitment to contribute working capital of $50 million. This contribution was described in early drafts of Section 3.3 of the CEA. Also, there were numerous witnesses present at the


meeting with Dr. Mighty, at which he actually stood up and wrote in large letters on a dry erase board $50 million from LSU and confirmed that LSU was making that commitment. Weeks later, citing regulatory concerns that could have been overcome, this $50 million in cash was converted into the prospect of $38.5 million for the period July 1-September 30, 2013. That $38.5 million was expected to be received around October 15, 2013, but BRFHH was then notified that due to additional LSU financial woes prior to privatization (which were not made known to BRFHH), the money was needed by LSU so it could continue operations through September 30, 2013. With no other options remaining for the north Louisiana safety net and medical education, BRFHH proceeded with the CEA with the promise by LSU to support BRFHH in obtaining future grants. The breach notice also improperly characterizes grant funding by portraying BRFHH negotiations with the State for public funding as somehow indicating a financial collapse. The funding model was developed in conjunction with LSU, and made known to all of the parties, including DOA, the LSU Board of Supervisors, and DHH. Dr. Mightys own business model recognized that grant funding was necessary for reimbursement of non-allowable costs. Grants however, while welcome, are no longer necessary because those non-allowable costs are now covered by Medicaid Managed Care, Full Medicaid Pricing. The CEA Recitals recognize that LSU, BRFHH, and the State would need to work collaboratively in order to secure funding from the State for the cost of providing services to uninsured patients and to develop and maintain nationally recognized GME programs. BRFHH has met every single one of its financial obligations, and has provided LSU with the additional funding opportunities inherent in the privatization model.

b. Failure to Provide Management Expertise LSUs complaints about management expertise focus primarily on Rod Huebbers, the former CEO. We agree that that appointment was a misstep, but it was quickly corrected. It can hardly be said to now provide a basis for a Public Purpose Breach. Our management experience should not be judged by a former CEOs performance, but rather in the improvements listed on the second page of this letter, and as reflected in the data on the Report Cards. And again, while LSU continues to allege that our partnership has not resulted in a sustainable business model, the facts say otherwise. As noted, it would appear to be the case that the ECG consultant has concluded that all privatization models throughout the State are unsustainable. If that is the case, then LSUs complaint lies with the funding sources, not with BRFHH. We do not agree with the ECG conclusions, as our own performance clearly indicates that our business model is both sustainable and improving. B. LSUs Requirements to Remedy Public Purpose Breach As stated in our July 24 letter, we do not agree with your claim that a Public Purpose Breach has occurred. Regardless, in the spirit of cooperation and in an effort to address some of your concerns, we have provided below a response to LSUs proposed Corrective Plan. It should be understood that these recommendations are contingent upon a comprehensive, final


agreement which resolves all these disputes and, where appropriate, following a neutral third-party dispute resolution process.

A detailed plan, including specific processes, to assure consultation and collaboration with LSU on all significant decisions or actions that affect or may affect HSC-S operations or GME.

RESPONSE: This request goes far beyond the requirements of the CEA, which already

commits the parties to consultation and collaboration. However, if LSU needs a detailed plan to specify dates, times, personnel, etc., we are willing to work with you in confecting one. We therefore propose an initial meeting among representatives of the interested parties to begin that process. That meeting can occur as soon as possible.

A detailed plan for how BRF will share technology with, and make such technology

accessible to, HSC-S faculty, staff, residents and fellows, as well as support LSU health information technology initiatives and the health information technology initiatives of other LSU partners, in full compliance with HIPAA and all other applicable laws and regulations, and any costs to HSC-S or any LSU partner related to health information technology.

RESPONSE:

BRFHH is appropriately providing access to IT data and is in full compliance

with HIPAA and all other applicable laws and regulations. We will shortly provide a definitive response to whether there is a cost involved in providing access. Further, we are willing to undertake the negotiation of an agreement that sets forth specific time tables for culling the PHI and other data unrelated to the BRFHH hospitals.

Immediate and public retraction of the CMS report alleging disparate and discriminatory

practices by HSC-S and its physicians in the delivery of patient care. RESPONSE:

The report was made upon advice of counsel, and to retract it would imply that BRFHH had made a false report. Our report did not allege discriminatory practices. Also, this is unrelated to the alleged Public Purpose Breach. We do agree to closer consultation with LSU, as set forth below. In addition, BRFHH will issue a public statement that neither it nor LSU engages in discriminatory healthcare practices.

A detailed plan, including specific programs and processes, describing how BRF will

support and promote HCS-Ss academic mission and reputation, including, without limitation:


o The specific terms of a comprehensive Master Affiliation Agreement that BRF will be willing to execute and that gives meaningful effect to LSUs academic mission and its ACGME obligations at the Hospitals;

RESPONSE: We are willing to execute a compliant MAA. Since it appears necessary at

this point to involve a neutral arbitrator, we suggest that we begin that process as soon as possible. The arbitrator should have expertise and/or a working knowledge of the related party rule.

o A specific plan for how BRF will fulfill its obligations to assist HCS-S in maintaining ACGME accreditation at all times;

RESPONSE: We will continue to support the resident program. We have given raises

both years, and have approved and funded mid-year additional residents, additional faculty, additional fellows, and recruitment efforts for faculty. We have also increased and expanded call pay. A hospital executive attends the Graduate Medical Education Committee meetings, and will continue to do so.

o A specific plan outlining how BRF will support HSC-S in recruiting and retaining

faculty; RESPONSE: We are not aware of any problems in these areas. ECG indicated that

several interviewees expressed concern about recruiting residents for the then-upcoming fiscal year. That concern turned out to be baseless. There was also a concern expressed regarding the need for LSU to develop a plan for department chairs. We do not think that that has been done. As for the alleged need for funding to increase faculty compensation and hire new faculty, we will work with you on obtaining that funding from the State.

o A specific plan for how BRF will assist HSC-S in addressing the issues raised in

the ECG consultants report; and RESPONSE:

The ECG consultants report is filled with errors, each of which we can addressed in detail at a separate time. One of the most baseless allegations is that the BRFHH does not have a sustainable business model. It should be noted that the report, which included this allegation, was published three months prior to the release of BRFHHs audited financial statements. BRFHHs auditors, Postlethwaite & Netterville, a Louisiana-based CPA firm and the auditors for


Willis-Knighton, gave an unqualified/clean opinion on the Hospitals financial statements for the year ended September 30, 2014. The fact that their opinion did not include a going concern qualification confirms the Hospitals sustainability. This is a certain indication that the financial model is secure and ECGs conclusion of an unsustainable business model is simply wrong. It is our opinion that ECG never would have drawn their conclusion if they had the audited financial statements in hand at the time of their report. It should also be noted that the BRFHH internal financial statements for the nine-month period ended June 30, 2015 continue to show a positive bottom line. Nevertheless, we agree to work closely with LSU to address each legitimate point in the report. BRFHH supports the teaching mission by ensuring that all teaching faculty are paid at AAMC rates, as well as by covering the costs of all residents and fellows well above the ACGME cap. This funding commitment above what BRFHH receives through GME funding is estimated to cost BRFHH approximately $11 million per year.

BRFHH management is unaware of any faculty members who cited recent disagreements as a specific reason for not joining the faculty, and was never contacted to help address such issues with any potential recruits. However, if LSU will provide this information, we will work with LSU to address this problem. Further, for the majority of time during the period March 2015 to date, BRFHH leadership has been conducting weekly or bi-weekly physician needs discussions with Dean Marymont to address these issues, and we will continue to do so.

BRFHH stands prepared to provide resources to ensure future sustainability and programmatic success, but we have not seen any reports or analyses which point to specific needs. We are eager to meet with LSU leadership to quantify those needs and work on those opportunities.

As for ECGs allegation that LSU facultys RVU production is near median levels, we have never received a report indicating this, but we do agree that there is significant opportunity to increase productivity. An increase in productivity by all faculty would benefit both LSU and BRFHH. One of the factors that impacts productivity is physician access and throughput. We have repeatedly asked for meetings with chairs and faculty to discuss increasing access, productivity standards and physician throughput, and these requests have only recently been agreed to, even though no meetings have been scheduled by the school to date.

Regarding ECGs concern with the percentage of free care and self-pay patients, these are paid at Medicaid rates, ensuring a guaranteed payor for all of these patients. Regional benchmarks should be attainable with proper marketing efforts and an efficient faculty practice revenue cycle. We will work with LSU to achieve those goals. However, as of June, the LSU revenue cycle function remained with LSU, despite indications that it performs below industry standards.


BRFHH is prepared to engage in discussions of mission support, as long as LSU meets its obligations to achieve efficiencies.

BRFHH is paying FMV for all items identified in purchased services, but has not been invited to attend meetings with key clinical programs. We are making approximately $100 million in annual payments to LSU, including payments which had not been made historically, of which a portion is meant for mission support. AMCs around the country are increasingly moving to transparent funds flow agreements to ensure that the hospitals are maximizing the value being received from the medical schools. Our willingness to fund without detailed faculty productivity and compensation analyses is indicative of our willingness to support the academic mission. We will continue to support the medical school by the remission of approximately $100 million yearly to LSU.

ECG is incorrect regarding delayed PSA payments. All payments have been made on time. This has been acknowledged by the medical schools Finance Department.

As to the lack of joint faculty recruitment, as noted earlier, BRFHH meets with Dean Marymont to review any requests for joint faculty recruitment. We have several recruitment efforts in progress including: Chair of Medicine, Pediatric Pulmonology, Radiation Oncology, Urology, Pediatric Neurology, Dermatology, and Pediatric Allergy/Immunology. In addition, over the last few months we have been successful in recruiting an Epilepsy Neurosurgeon and GYN Oncologist. We maintain postings on 2 websites and have funded ads in appropriate journals. Your letter also fails to acknowledge the weekly meeting held at UH-Conway regarding faculty recruitment. We have identified over 35 candidates through that process.

BRFHH is committed to providing any support to grow current programs and increase access to the community. To date, we have not been approached with plans regarding affiliations with other hospital partners, developing additional sub-specialty programs, or exploring further GME training opportunities. We remain committed to supporting any reasonable plan.

ECG states that the Shreveport hospital may achieve break-even financial performance under the privatized model, and in fact this was always the level of performance that was envisioned. Further, LSU has significant opportunities to resolve the unfunded research issue that could generate over $5 million in cash. LSU should take the necessary steps to achieve the identified targets of 6% in revenue and 3% in cost enumerated in the ECG report.

o A specific plan outlining how BRF will support HSC-S research initiatives,

including financial and operational support.


RESPONSE:

See BRFHH Response above.

The immediate resignation of Dr. John George from the BRF Board of Directors and any other position he may hold with BRF, and a prohibition against any future participation by Dr. George in BRF or any of its affiliates, or any other activity through which Dr. George could be associated with HSC-S or LSU.

RESPONSE:

BRF and University Health dispute LSUs characterization of remarks at a community meeting by Dr. George as blatantly racist and damaging to LSUs reputation. Those remarks were made during the context of a political millage campaign in a discussion of property values and Dr. George apologized for what was simply a poor choice of words. That apology was accepted by African-American leaders like former Mayor Cedric Glover and the NAACP. Dr. George heads up BRF, an organization whose volunteer community board is nearly 45% African-American. In his leadership role at BRF, Dr. George helped recruit and hire the first African American hospital CEO in Shreveports history for University Health. Four African-American interns were in BRFs first entrepreneurial development program and the BRF Angel Fund just invested in two minority-owned companies, one of which is moving its headquarters from Alabama to Shreveport. University Health was a corporate sponsor for the NAACP annual banquet. Most importantly, since BRFHH has taken over from LSU to run the regions primary indigent care hospital, which serves a predominantly African-American constituency, clinic wait times are down, patient volumes are up, and patient satisfaction has dramatically improved. Dr. George has a distinguished record of community service, including on the LSU Board of Supervisors, and the totality of his service to the public purpose and sensitivity to his community proves LSUs characterization to be unfounded. As an independent private hospital, BRFHH is not permitted to allow LSU to control its actions or policies. Dr. George has agreed to have his involvement in hospital affairs be determined by third party resolution, as we request on all outstanding issues raised in your letter. Pending third party resolution on whether compliance with LSUs demand violates the related party rule, Dr. George will remain on the Board.

BRFs agreement to consult with LSU prior to releasing any public statement or otherwise interacting with the media, and to obtain LSUs approval before making any public statement that refers in any manner to HSC-S or LSU.


RESPONSE:

We agree to consult with LSU prior to releasing any public statement or otherwise interacting with the media. We would expect the same commitment from LSU.

A detailed plan for immediately addressing the Hospitals capital needs, including long-term capital investment and operating capital.

RESPONSE:

Although this is not a requirement of the CEA, consistent with the changes in healthcare delivery occurring throughout the United States, BRFHH is exploring innovative affiliations. In that regard, we have initiated discussions with Ochsner Health System. For unexplained reasons, LSU has actively interfered with our efforts to further our exploratory discussions with Ochsner. We continue to suggest that such a partnership, or one with another health system, would immediately enhance opportunities for long-term capital investment and operating capital. When Rich Cascio, our CEO, and I suggested this to Dr. Frank Opelka and Dan Lyzell in our meeting of July 9, it was summarily rejected. We believe that all parties could benefit from such a discussion, and are willing to set up a meeting with Ochsner, the State, LSU and BRFHH as soon as you consent.

A detailed plan for recruiting and retaining a permanent management team for the Hospitals, including the role HSC-S will play in BRFs recruitment and retention plan.

RESPONSE:

The management currently provided by Alvarez and Marsal has delivered impressive results in less than two years of operation. We are engaged with Alvarez and Marsals help in a search for permanent, experienced management, and would welcome LSUs suggestions. In addition, our discussions with Ochsner and other systems will necessarily include management. Again, we suggest LSU participate in discussions when we meet with Ochsner or other high quality health systems.

Any other plan BRF will implement to achieve the Public Purpose. RESPONSE:

Without question, the Public Purpose as contemplated by the CEA being met as is evidenced by the Report Cards, and the significant achievements we have outlined above. We will work with LSU in any way possible to advance our common mission.


Sincerely,

Stephen F. Skrivanos Chairman, BRF Chairman, University Health cc: Ms. Kristy Nichols, Commissioner of Administration, State of Louisiana (via U.S. Mail and email: [email protected]) Mr. Patrick D. Seiter, Esq. (via U.S. Mail and email: [email protected])

university health response to lsu breach letter

Documents

lsu hospital

lsu employee

alleged public purpose

state work

days reduced wait times

public purposes

reduced expenses

contract monitor