Even as the final touches are being put on the facilities that will house the new University Medical Center in Mid-City, the structure of the deal to run the hospital is being thrown into doubt.
The state has poured $1.2 billion into the campus between Canal Street and Tulane Avenue, which officials have said will be a highlight of the LSU health care system and a leading example of the privatization of state-owned hospitals. However, all of that could be called into question by a state budget that provides about $88 million less than officials with LCMC, the nonprofit hospital company chosen to run the medical center, say is needed to operate the facility.
At stake at a minimum is whether the complex, the successor to Charity Hospital, will be at full capacity and resources on opening day. At worst, the budget shortfall may be enough to cause LCMC to walk away from the deal, something it can do on short notice.
For now, Gov. Bobby Jindal’s administration and officials with LCMC, which also runs Children’s Hospital and Touro Infirmary, are talking about how to come up with the missing money.
While they have been optimistic that a solution can be found, LCMC officials also have been clear that the money is needed to run the hospitals as intended.
“It would, frankly, be catastrophic and in some ways doesn’t makes sense,” LCMC CEO Greg Feirn told a state Senate committee this past week. “There’s been a $1.2 billion asset built. What this would mean is we would open that facility but at the same time downsize it.”
The fact that the hospital — designed with the triple goals of teaching doctors and medical students, providing health care to the poor and uninsured, and serving as a research center — is coming up short in budget negotiations before it even opens its doors has raised concerns among state lawmakers.
“That we would not be funding them properly in the first year of their partnership must be causing consternation as they’re embarking on this partnership unprecedented in the history of this state,” said state Rep. Walt Leger, D-New Orleans.
While it stands out because of the size of its budget request and because of its new facility, the New Orleans hospital is not alone. Altogether, the private partners that run nearly all of the LSU hospitals asked for about $142 million more to run the hospitals next year than they got this year. None of that money was put into the budget.
Those shortfalls come on top of the $1.6 billion budget gap lawmakers are already struggling to fill just to keep spending at this year’s level. That means fully funding the hospitals will depend both on finding a solution to the state’s larger budget issues and on coming up with the additional dollars needed to run the hospitals — and on both plans making their way through the Legislature and winning the approval of the Jindal administration.
Fewer and fewer beds
That money should have been provided in the budget, critics say.
“This is like going out and buying a Mercedes and then saying, ‘Oops, I don’t have the money to run it,’ ” said state Treasurer John Kennedy, who has been a critic of the costs of building a new medical center and of aspects of the LSU partnerships with private operators.
Without additional money, the medical center, which already will be opening below its designed capacity, could have to trim back further.
The hospital was designed to have about 420 beds, but 250 will be used at first, Feirn said. That will be ramped up to about 280 beds during the first year, with increased capacity down the road, he said.
But cuts could mean an even smaller capacity when the ribbon is cut.
Grilled by senators about the effects of opening without full funding, Feirn said that without the proper resources, the hospital would open with “significantly fewer” beds than the 230 at the Interim LSU Hospital it will replace. That’s despite being on a campus three times the size of the interim facility, he noted.
The Jindal administration has not provided any guidance to the hospital on what services to scale back or eliminate should the funding not be restored, Feirn said. He refused to speculate on what services might be cut.
In a worst-case scenario, LCMC and the private partners for the other LSU hospitals could simply walk away from the deals.
Their agreements allow the companies to give two months’ notice and leave, without having to give any reason or pay a penalty. In fact, under some circumstances, the partners would be able to recoup some of their lease payments to the state.
“We’re both on the same page, and we have to find a resolution,” Feirn said in an interview. “We believe the discussions are moving forward productively. We don’t want to operate on ‘what ifs.’ We believe there will be a solution.”
Similar sentiments have come from the state Division of Administration, which crafts the state’s budget and plays a lead role in negotiations over spending.
Hospitals ‘in jeopardy’
Problems with the opening of the hospital — which would be the only Level 1 Trauma Center in the region, the main hospital to provide care to the uninsured and a main medical education center — would be “horrible,” said state Sen. Ed Murray, D-New Orleans.
“I think until we get a real solution it puts all these hospitals in jeopardy,” he said.
While Feirn said he is optimistic a solution can be found, Kennedy is less certain about that possibility. Kennedy said it would make sense for LCMC to walk away if it does not get the resources it needs.
“They are not going to start a venture that is doomed to fail because of a lack of resources,” he said. “They’re holding all the cards. The hospital is built. They’re our operator. We’ve got to hold up our end of the bargain.”
If LCMC left the partnership, the state would likely seek another private entity to step in and take over the medical center. But whether another company would agree to do so under such conditions is uncertain.
Public Affairs Research Council analyst Don Gregory, a former director of the state’s Medicaid program, said it is likely any current partner would provide the state with enough time to find an alternative company to take its place. And he suggested the issue will be worked out.
“At the end of the day, the partners have to have their costs covered to operate those facilities that they’re responsible for,” Gregory said. “Historically, LSU has been able to do that, and they went through some rather difficult budgets in recent years.”
Were LCMC to leave, LSU could potentially go back to running the hospital itself, though that would likely not be an ideal option for the state. The private partnerships themselves were the response to a previous budget crisis sparked by a change in the formula used to match state spending on Medicaid.
To fill the gap, the administration privatized all but one of the state’s medical centers, picking partners for them from the hospital companies already operating nearby. Those deals were front-loaded with large advance lease payments, which the state was then able to turn around and use to fund health care services that draw down federal matching dollars.
That means another private partner would likely be sought so the state could continue collecting lease payments that could be used to get more federal funds.
Some state officials have speculated that the funding issues have contributed to the delay in the medical center’s opening, which was pushed back from this month until August. Since that delay was announced, though, hospital officials have denied that the funding issue was to blame.
The driving force behind the decision to push back the opening was the need for additional time to train the staff on-site at the new campus, Feirn said. In addition, interns and residents typically start new jobs at the beginning of July, so opening in the spring would have meant spending time getting people up to speed at the new facility, only to have them leave after just a few months, he said.
“We don’t want to open a new facility with new technology without a lot of time to train individuals,” Feirn said.
Neither the state nor LCMC has provided much information about possible ideas for filling the funding gap, other than to say discussions about the issue are ongoing.
One solution attractive to some lawmakers, including at least some Republicans, would involve accepting the Medicaid expansion allowed under the Affordable Care Act, also known as “Obamacare.” That would allow a wide swath of local residents — all those making less than 138 percent of the poverty line — to enroll in a version of Medicaid entirely funded by the federal government for now, which would reduce the amount the state has to pay toward care for the uninsured.
Jindal administration officials have opposed the Medicaid expansion, arguing that it would grow too expensive for the state down the road, though critics have said the governor’s opposition is more a way of positioning himself for the 2016 presidential race.
While the Jindal administration has based its budget plans on a commitment not to raise new revenue, Leger said lawmakers looking to properly fund the hospitals — both in New Orleans and in their own districts — might not bind themselves in the same way.
“The governor and his team have suggested there’s a framework that we should try to work with and that we should use a revenue-neutral approach,” Leger said. “It appears the Legislature is going to try to do that. Whether or not that’s possible, I think, is a difficult question. Certainly we would all like to pass a budget that would be balanced and would not be vetoed, but there are certain priorities that are more important than that framework.”
Follow Jeff Adelson on Twitter, @jadelson.