Ochsner: Hospital powerhouse forged in the wake of Katrina

Most hospitals don't have their own navy. Ochsner Baptist in New Orleans does, complete with a fleet of rescue boats and staffers who undergo water rescue training—all because of Hurricane Katrina.

Ten years ago, Dr. Glenn Casey and others at the hospital scrambled to find boats, in order to evacuate patients and staff. He said it became clear that they had to act because rescuers would be a long time in coming.

"We realized that the floodwaters had taken over throughout the city, and we realized that we were isolated," recalled Casey, who was an anesthesiologist at the hospital, which at the time was known as Memorial Medical Center.

"The hospital had a couple of outboard motor boats, but we also got very ingenious in that we saw boats in the neighborhood that were just floating," he said.

They cobbled together a small fleet of boats and helped save dozens of patients and staffers that week, after the waters rose, flooding the hospital's cooling systems and its backup generator. More than 40 patients who were too sick to be moved died at the facility.

Casey and others would spend much of the following year trying to save the hospital itself.

"I had practiced there for 30 years. I was born there. I couldn't see that institution going away," he said.

Tenet Healthcare owned Memorial and two other hospitals in the area. But after Hurricane Katrina, the hospital operator was reticent to invest in reopening its facilities. Hospitals in the area were closing.

Nearly half of New Orleans' population had fled after the storm, and the local economy was in rough shape.

"It was a market that … went from over 2,000 hospital beds, to—shortly after Katrina—just 500," said Lisa Goldstein, associate managing director at Moody's and a not-for-profit hospital analyst.

When Tenet chose to sell, Ochsner stepped up to buy all three facilities.

"Over the past 10 years since Katrina, they have grown rapidly … through partnerships, acquisitions and strategic affiliations," said Goldstein. "Ironically, Katrina enabled Ochsner to … hit the reset button."

The board saw an opportunity in the wake of the disaster to play a bigger role in the future of New Orleans and in the region's health-care system, said Ochsner Health System CEO Warner Thomas.

"For a lot of reasons, a lot of people said, 'This is our chance to do something different. This is our chance to be bold,' " he said. "Our board said we've got to bet on New Orleans and take a leadership position in health care."

If not for the storm, Ochsner might have gone on to be acquired by a larger rival, as the hospital industry has undergone a massive wave of consolidation over the last decade. Instead, it has expanded through acquisitions and partnerships, to become Louisiana's largest health system.

It now owns nine hospitals and has partnerships with more than a dozen other facilities.

Memorial was renamed Ochsner Baptist, in honor of its original roots as a Southern Baptist hospital. The building underwent a massive gut renovation, which was completed two years ago.

"We've invested well over $100 million of resources," said Thomas. "And today it's a regional destination for women's care."

A big chunk of resources were invested in moving the building's emergency backup systems well above the highwater mark from Katrina, including a massive generator that is able to run all of the hospital's systems. In addition, water and fuel pipelines have been installed to make sure the generator can keep running.

And then, there's that naval fleet.

"We don't anticipate having to need them," explained Thomas, "but if we did, we're prepared."

But beyond another hurricane, analysts say the next big challenge for Ochsner and other not-for-profit hospitals will be navigating the consolidation wave among the large insurers.

Moody's analysts see the proposed mergers between Aetna and Humana, and Anthem and Cigna as a negative for hospitals. More than half of hospital revenues are now subject to negotiation, with insurers playing a larger role in managing government Medicare and Medicaid programs, in addition to private insurance plans. Moody's expects hospital reimbursement rates could face new headwinds starting in 2017 if the insurance mergers are approved.

The deals could take more than a year to gain regulatory approval, so hospitals need to use the time to get their operating budgets in order, said Moody's Goldstein.

"Many are already getting ready by looking at their cost structure, becoming very efficient in their operations," Goldstein said.

At Baptist, they feel they're prepared, for most anything.

"We were able to become very flexible" after Katrina, said Casey, "which is what you need to be in today's modern health-care field."