The Jindal administration on Friday sought reconsideration of the federal health agency’s initial rejection of LSU hospital privatization financing plans.

The federal Centers for Medicare and Medicaid Services disapproved the plans because of advance lease payments included in hospital takeover agreements. CMS deemed the private operator payments “provider-related donations,” which are not allowed under federal law.

A letter from Louisiana’s Medicaid director offers a defense of appropriateness of advance lease payments — and challenges the notion that the payments are donations.

“They are normal business practices in leasing transactions and are consistent with fair market value as determined by independent third party professionals,” wrote Medicaid director Ruth Kennedy. She said CMS earlier approved a financing plan involving a Baton Rouge privatization that included an advance lease payment.

Kennedy also said federal laws and regulations do not give CMS the authority to disapprove a plan “just because there are questions regarding the funding of payments to be made. ...”

State Department of Health and Hospitals Undersecretary Jeff Reynolds said the state wants to preserve its legal options should the federal CMS reject a new state submission which is under review. “We are still optimistic they (new submissions) are going to be approved. This basically just keeps the state’s appeal rights,” Reynolds said.

CMS rejected the state’s initial financing plans in early May. An altered version , submitted in late May, deleted any reference to cooperative endeavor agreements that include the lease payments.

Under the revised plan, the state creates the new classification of “Louisiana Low-Income Academic Hospitals,” which would get special higher levels of Medicaid reimbursement. The state is unlinking the up-front payments from the state’s request to reimburse hospitals at a higher rate.

CMS questioned the administration’s use of $260.8 million in advance lease payments to prop up the deals involving six public hospitals, including those in New Orleans, Lafayette and Houma.

The private hospital companies leasing New Orleans and Lafayette charity hospitals agreed to pay up-front a larger proportion of their long-term leases, which would result in paying lesser amounts toward the end of the contracts. But CMS said the arrangement amounted to Louisiana trying to get extra federal Medicaid dollars to repay private managers for those advanced lease payments. That constitutes a “hold harmless arrangement” that is not allowed under the federal rules.

The state could get in trouble later if CMS continues to question as a means of financing the $260 million in advance lease payments already received, DHH Secretary Kathy Kliebert said earlier.

Follow Marsha Shuler on Twitter @MarshaShulerCNB.