LSU hospital deals may face financial woes

MELINDA DESLATTE, Associated Press

BATON ROUGE, La. (AP) — The current financing structure for Gov. Bobby Jindal's privatization deals for the LSU network of hospitals and clinics is risky and may run into shortfalls within five years, according to a nonpartisan report released Friday.
The Public Affairs Research Council of Louisiana, a policy research organization known as PAR, reviewed the contracts that are turning over university-run hospitals, clinics and services around the state to private managers. The deals cost the state $1.1 billion this year.
The new hospital managers, most of which are companies that run other private hospitals, pay to lease LSU facilities and get reimbursement from the state for the care they provide. Seven of nine privatization deals have taken effect so far.
Jindal describes the privatization as a cost-cutting move that will save the state more than $100 million in its operating budget this year alone while improving services for the uninsured and medical training programs.
But PAR says the contractual arrangements may not be feasible after Jindal has left office because a sizable portion of the contracts is paid with federal uninsured care funding slated to shrink nationwide, starting in 2018 — two years after the Republican governor's term ends.
The report says cuts to federal health care money flowing to Louisiana would create shortfalls in the payments currently made to the hospital operators, requiring the state to come up with millions of dollars more of its own cash to fill in the gap.
"The financial model for the partnerships appears sound for this fiscal year, but there are serious questions about how workable the revenue and reimbursement model will be in the future," says the report, whose primary author was Don Gregory, a former Louisiana Medicaid director.
Jerry Phillips, undersecretary of the state Department of Health and Hospitals, said the privatization deals are offering more and better services to the uninsured, and he said the contracts have built-in safeguards.
"We're very confident in the way the partnerships were designed and that the funding mechanisms are sustainable," Phillips said Friday.
The federal health overhaul law requires gradually increasing cuts in uninsured care funding. The law envisioned that states would have less need for the money because they would have fewer uninsured people when they expanded their Medicaid programs to offer insurance coverage to the working poor.
Many states, including Louisiana, have refused to expand Medicaid. Jindal has said the privatized LSU hospitals will offer safety net care for the poor and uninsured instead.
Jindal administration officials have said they don't expect large cuts in the federal uninsured financing, since the state hasn't used the full amounts currently available to Louisiana.
But PAR says that under one model of how the federal cuts will be divvied up, Louisiana would need to pay $350 million more in state money from 2018 through 2020 to cover the uninsured care provided at hospitals around the state today. That includes the financial support for the LSU privatization deals.
The report also said the state's true obligation to cover the expenses of the contracts isn't yet known.
Phillips replied that most of the deals have caps on spending and include growth factors used to ensure the contract costs were workable for the state in later years.
"Those deals are as certain as anything we've got in the state or the nation at this point. They're built with safeguards in," he said.
PAR recommended in 2007 that Louisiana move away from its charity hospital model, but it suggested a different approach than what was enacted by Jindal. It sought an insurance-based model, locally-governed and focused on primary and preventive care services.
"Looking ahead and considering the potential risks of the current federal funding streams, the state must evaluate the comparative costs of moving to an insurance model for those adults without coverage rather than a safety-net reimbursement model based heavily on urgent care," Gregory writes in the report.

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