The federal health agency has once again rejected use of advance lease payment financing on LSU hospital privatization deals.

The Centers for Medicare and Medicaid Services, called CMS, denied a state appeal in a letter issued Tuesday, but released by Jindal administration officials late Thursday.

The state health agency had asked CMS to reconsider its disallowance of $189.9 million in federal financial participation for the hospital deals which used the lease payments as the state share. The disallowance covered Jan. 1, 2013 to May 23, 2014.

The disallowance means the state would eventually have to repay the Medicaid expense.

State officials immediately said they would take an appeal to the next level — an administrative hearing — and if unsuccessful they are prepared to fight it out in federal court.

Department of Health and Hospitals Secretary Kathy Kliebert said there is no impact on the budget anytime soon. “It could take years to get through the court system,” she said.

Kliebert said the state won’t likely get a favorable ruling out of the administrative hearing. “We anticipate when we get to court we will be able to present our case and win it.”

In all, the state used $260.8 million in advance lease payments to prop up the deals involving public hospitals, including those in New Orleans and Lafayette.

CMS officials warned the state in April 2014 that the lease payments were questionable, then in May came the official rejection. The state appealed the decision in June.

“After careful consideration, CMS cannot accept the arguments advanced by the State in its request for reconsideration,” wrote CMS acting director Vikki Wachino.

Private hospital companies leasing the state’s charity hospitals agreed to pay up-front a larger proportion of their long-term leases, which would result in lesser amounts toward the end of the contracts. CMS said the arrangement amounted to Louisiana trying to get extra federal Medicaid dollars to repay private managers for those advance lease payments.

“These advance lease payments were not usual and customary industry payment arrangements and were linked to the increased Medicaid payments (to private hospital partners),” Wachino wrote. “As a result, CMS determined that these payments were not reasonable and necessary lease payments, but were provider related donations in conjunction with a hold harmless arrangement.” That’s not allowed under federal rules, she said.

DHH Undersecretary Jeff Reynolds said CMS is saying that the state did not put up its fair share of Medicaid funding. He said the state will be able to prove that the lease payments were at fair market value and no donations by private entities involved.

In its request for reconsideration, DHH argued that the advance lease payments were not improper donations, but merely prepayments by the hospitals for the fair market value of leased facilities.

In addition, state officials said the hold harmless arrangement issue exists no more because the partnership agreements no longer tie the supplemental Medicaid payments to the advance lease payments.

Follow Marsha Shuler on Twitter @MarshaShulerCNB. For more coverage of the state capitol, follow Louisiana Politics at http://blogs.theadvocate.com/politicsblog/.