Commissioner of Administration Kristy Nichols told worried members of the House and Senate budget committees that the denial won't prompt an adjustment in turning over the LSU hospitals to outside managers, deals that already have taken effect. She said the changes have improved health care.
"We are fully invested in this model. It's working," she said.
Instead, Nichols said the state will appeal the CMS ruling and will negotiate on alternative financing plans to keep the hospital deals in place, in case the appeal is denied.
The state health department submitted a letter Monday seeking to begin those talks, and a Wednesday meeting was set between state and federal officials.
"I cannot emphasize enough the importance of settling on an alternative structure as quickly as possible so that the improvements that are underway in Louisiana as a result of the public-private partnerships can continue," Jindal's health secretary, Kathy Kliebert, wrote.
Nichols said the financial implications of the rejection won't hit Louisiana until August or September 2015 and she's hopeful a resolution can be reached before then. She said if the state was forced to repay federal money already spent on the deals, Louisiana could owe an estimated $200 million.
Lawmakers pushed the Jindal administration to find a quick way to reach consensus with federal officials — and said they want more inclusion in the discussions.
"The committee would like all of your efforts put ... on this issue," House Appropriations Chairman Jim Fannin, R-Jonesboro, told Nichols.
Senate Finance Chairman Jack Donahue, R-Mandeville, said: "This legislative body would like to get this resolved while we're in session."
But Jerry Phillips, a long-time health department official now working with LSU, said the appeal would take a minimum of six months, stretching long after the legislative session must wrap up June 2.
In its rejection letter, CMS said the agreements don't meet federal guidelines governing how Medicaid dollars can be spent.
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.
Rep. Jim Morris, R-Oil City, said he worries that the state and federal health agencies appear far apart on how they view the advance lease payments.
"I think we could be in trouble," Morris said.
Privatization deals have taken effect for eight university hospitals and their clinics, and one more is 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.
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 by federal officials. The deals are costing the state $1.1 billion this budget year, much of it federal money.
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.
House Speaker Chuck Kleckley, R-Lake Charles, said the contract that closed the LSU hospital in his region and shifted its inpatient care to another private hospital has improved access to services. He called it "one of the best things to happen in southwest Louisiana."
"We cannot go back. That's not an option," he said.