Bolstered by a new law that frees it to operate more like a business, Louisiana's public hospital system has reached a deal to take over the operations of 64-bed Bogalusa (La.) Community Medical Center. Although the transaction is relatively small, it could have a huge impact on the future of the nation's only statewide public hospital system.
Some aspects of the transaction are expected to be replicated in future acquisitions and construction projects in at least three other markets where the state owns hospitals, said officials of the Louisiana State University Health Sciences Center, which assumed control of the state hospitals in 1997. LSU operates nine of Louisiana's 10 state-owned hospitals.
LSU will pay about $1.4 million per year to lease the private not-for-profit Bogalusa General. LSU plans to end acute-care services at the state-owned 34-bed Washington-St. Tammany Regional Medical Center, the only other hospital in Bogalusa, a town of about 15,000 people on the eastern edge of the state.
The transaction is expected to close by May 1.
LSU Health Sciences Center President and Chief Executive Officer James Brexler said a deal probably wouldn't have happened without a law passed by the state Legislature in June, which allows state hospitals to retain earnings and lifts spending caps that previously discouraged them from treating Medicare and private-pay patients.
In a key aspect of the deal, Bogalusa General will be transferred to a charitable foundation, which will have the ability to sell bonds without state approval. The state government has been notorious for building hospitals and allowing them to fall into disrepair and obsolescence because of a lack of capital.
Brexler said the system plans to use the foundation-lease model if it decides to build a new hospital and medical complex in Baton Rouge, where it wants to replace its outdated 204-bed Earl K. Long Medical Center. Last fall, LSU's $45 million bid to buy Baton Rouge (La.) General Medical Center, a private not-for-profit, was rejected.
A foundation lease also could be used in Pineville, La., where LSU wants to replace the state's 70-bed Huey P. Long Medical Center, and in New Orleans, where it plans to consolidate acute-care services that are now provided at two campuses, Brexler said.
But LSU has had an uphill battle to convince the state's healthcare community that change is under way. "After operating the same way for so many years, it's hard for people to visualize that we can operate differently," Brexler said.
Bogalusa Community has been losing money for about four years. It expects to post an operating loss of about $750,000 on net revenue of about $13 million for the fiscal year ending Feb. 28, said CEO William Hatton. "We've got a relatively small town that has been declining in population. One of the real issues is, does the town need two hospitals with different missions that are struggling to survive?" he said. Given lower expenses and expanded services, the combined operations are expected to break even in the first year, Brexler said.
Despite the financial advantages, a deal didn't come easy. It took nearly two years of negotiations before an agreement was approved in December by the Bogalusa Community board. Brexler said it took a long time for the hospital's board to be comfortable with the state running what would be the town's only hospital.
Treating patients as if they were customers is "a corner that hasn't fully been turned" by the state hospital system, even under LSU, Hatton said. Still, Hatton said he believes the new business model will change the way patients are treated at state-run hospitals.
Swift changes will be critical. The legislation that freed the state's public hospitals from financial constraints and cleared the way for such public-private partnerships will sunset in 2005, when the state Legislature will consider whether to renew it.