Federal officials on Friday rejected Louisiana Gov. Bobby Jindal's
financing plans for the privatization of six state-owned hospitals that care for the poor and uninsured, dealing a potentially significant blow to the state's healthcare operations.
The decision threatens deals that already have been used to turn over hospital management and could create upheaval in the state's operating budget. The Jindal administration downplayed the significance of the decision, however, saying it will appeal.
The CMS notified the state health department that it refused to sign off on the plans. The agency said the agreements don't meet federal guidelines governing how Medicaid
dollars can be spent.
"To maintain the fiscal integrity of the Medicaid program, CMS is unable to approve the state plan amendment request made by Louisiana," the federal agency said in a statement. "We look forward to continuing to work with the state to ensure Louisianans receive high quality Medicaid coverage."
Jindal said he will challenge the ruling, which involves hospitals that care for thousands of people and serve as the main teaching facilities for Louisiana
's medical students.
"CMS has no legal basis for this decision," the Republican governor said in a statement late Friday. He added: "We are confident that public-private partnerships are the way forward, and we will be working with CMS on alternative funding mechanisms."
Jindal didn't wait for federal approval before he shifted the hospital management, so the hospitals are now operating under financing plans that have been rejected — after being used to balance Louisiana's budget.
House Appropriations Committee Chairman Jim Fannin, R-Jonesboro, said he hadn't combed through the decision yet or its implications, "except that I know that it's not good."
However, the governor said there would be no short-term impact on the budget because of the state's appeal. State health officials said such appeals can take more than a year to be decided and federal financing will not be disrupted during the challenge.
"In our conversations with CMS officials, they indicated that they want to start early next week discussing a financially viable alternative for the partnerships. The state does have other options to fund the partnerships," said Jindal's health secretary, Kathy Kliebert.
The rejections involved plans for LSU-run hospitals in New Orleans, Lafayette, Houma, Lake Charles, Shreveport and Monroe.
Privatization deals for the New Orleans, Lafayette and Houma hospitals took effect in June, and the Shreveport and Monroe facilities have been under outside management since October. The Lake Charles hospital was closed, its services shifted to a nearby private hospital.
The federal health agency took issue with $266 million in "advance lease payments" that the hospital managers paid upfront as part of the no-bid contracts with the state.
It said those payments appeared linked to higher Medicaid payments that the private hospital operators were receiving, reimbursement rates that are larger than what other private hospitals in the state get for uninsured and Medicaid patient care.
But CMS also said the disapproval was about the specific financial details of the contracts, "not about how Louisiana manages its charity care system." The Jindal administration pointed to that language as proof the privatization deals could ultimately stand even if the payment plans had to be restructured.
Lawmakers have worried about the possibility of rejection since the transfers began, but the Jindal administration refused to slow the efforts, expressing repeated confidence that the agreements would win federal support.
Kliebert reasserted her confidence last week in a meeting with lawmakers.
Privatization deals have taken effect for eight university hospitals and their clinics, with one more pending. They were pushed by Jindal as a way to cut state costs, improve care for the poor and uninsured, and bolster medical training programs.
The deals are costing the state $1.1 billion this budget year, much of it relying on the expected federal health care dollars. The six hospital deals denied Friday were estimated to cost $882 million in the current budget year, most of that assumed to be covered through federal funds.
But only one contractual arrangement has received federal approval: a deal that shuttered LSU's Earl K. Long Medical Center in Baton Rouge and transferred most of its inpatient services to a private hospital, Our Lady of the Lake Regional Medical Center.