Advocate photo by Marsha Shuler -- State Reps. Patrick Connick, R-Marrero, and Patricia Smith, D-Baton Rouge, heard the Jindal administration would appeal federal rejection of financing plans for privatizing charity hospitals during a Monday meeting of the House Appropriations Committee.

The state is aggressively challenging federal rejection of financing plans for LSU hospitals, Commissioner of Administration Kristy Nichols told anxious legislators Monday.

The federal Centers for Medicare and Medicaid Services rejected the Jindal administration’s plans late Friday for financing the privatization of most of the state’s charity hospitals.

The impact could leave Louisiana taxpayers, instead of the federal government, paying at least $200 million — and maybe up to $400 million — for services provided at the facilities for the state’s poor and uninsured.

Nichols said an immediate appeal will be filed with CMS and discussions will begin Wednesday with CMS officials on potential acceptable alternatives.

She indicated an amended state plan could be filed in the next couple of weeks.

“We expect to be successful in the appeals process,” said Nichols, who said the state is on sound legal footing.

The CMS decision is “unprecedented and seems completely out of the norm,” Nichols said.

Nichols gave the testimony in separate appearances before the House Appropriations and Senate Finance committees, where she briefed legislators key to the budget process on developments.

In a worse-case scenario, Nichols said the state would have to start repaying $200 million in September 2015. That is if all appeals fail and there’s no resolution with CMS, she said.

The money would not have to be repaid all at once, said Jerry Phillips, a former state health agency executive who now advises LSU.

CMS allows payment plans to be worked out, he said. It has happened in the past with nursing home and LSU Medicaid disallowances, he said.

CMS advised the state Department of Health and Hospitals on Friday that it was denying the financing plans that cover six privatization deals, including those involving New Orleans, Lafayette and Houma. The issue involves at least $265.8 million in advance lease payments provided through the contracts. CMS cited private hospitals that paid significantly more than the required annual lease payment.

CMS specifically cited Children’s Medical Corp., which paid $250 million ahead on a $2 billion long-term lease.

Phillips told the Finance Committee that the first time CMS indicated there could be a problem with lease arrangements came back in late November-early December.

“Why weren’t we told?” asked state Sen. Ed Murray, D-New Orleans. He said the administration kept telling legislators all was well.

Nichols said legislators were apprised that CMS had questions about how to value the state’s assets. Nichols apparently referenced the fair market value established for the hospital leases.

In early April, CMS advised the state it was deferring payment of $307 million in federal funds for Medicaid claims submitted until a decision was reached on the hospital financing plans.

It suggested state officials take appropriate action.

Over the weekend, former state Medicaid director Don Gregory said the state eventually could be facing a $440 million budget hole. On Monday, Gregory clarified that the figure takes into account all lease payments — not just the advance payments the administration is zeroing in on. The CMS letter is not clear, he said.

In Senate Finance Committee, Chairman Jack Donahue recalled that former LSU hospital chief executive Fred Cerise had warned that the lease payments would not be approved.

“I have heard problems for two years that CMS was probably not going to allow this,” said Donahue, R-Mandeville.

“This legislative body would like to get this resolved in session,” he said. “It should have been resolved a long time ago.”

Phillips said the state could not get prior approval from CMS. It had to submit a state plan amendment and let CMS react to it, he said.

“How do we proceed so people will know the health care is going to be there?” asked Murray.

Nichols said the state will appeal first, and within the next two weeks file an amendment financing plan that hopefully will be acceptable to CMS.

DHH Secretary Kathy Kliebert said the state’s plan could be resubmitted absent the lease payment provision that CMS finds objectionable.

That opens up questions of how the funding gap would be met.

In the House committee, House Speaker Chuck Kleckley and others urged a quick state response.

“Let’s get this resolved. Let’s get this resolved ASAP. It is something we need to answer especially for our uninsured,” said Kleckley, R-Lake Charles.

State Rep. Patricia Smith, D-Baton Rouge, and others said they are concerned about potential budget impact.

“I believe there is going to be something that effects us in health care access in Louisiana,” Smith said.

On Monday, Kliebert sent a letter to CMS administrators seeking immediate discussions to determine “alternative structures acceptable to CMS for reimbursing our private partner hospitals for critical services …”

“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,” Kliebert wrote.