CMS rejects financing for privatizing Louisiana's safety net hospitals

The Centers for Medicare & Medicaid Services rejected Louisiana Gov. Bobby Jindal's (R) plan to finance the privatization of its public hospital system, claiming it does not follow federal regulations.

Jindal's plan to obtain nearly $261 million in advance lease payments from the new private operators in order to help leverage matching Medicaid dollars that the state would then return to the hospitals represents a "hold harmless" arrangement that is not permitted under federal rules, according to CMS Administrator Marilyn Tavenner. CMS considers the lease payments a form of donation and not part of a public-private partnership, the Shreveport Times reported.

Jindal moved forward with the privatization and lease arrangements--eight hospitals and a clinic owned by the Louisiana State University system and now operated by private companies--despite the fact CMS had held up $307 million in payments earlier this year over concerns about the program, the New Orleans Advocate reported.

Altogether, the CMS denial could cost Louisiana as much as $882 million in Medicaid payments it had expected and budgeted for during the current fiscal year, according to the Times. The lost funds may wreak havoc with the state's entire budget, according to the Advocate.

The lease and leverage arrangement had its detractors in Louisiana, including the state treasurer, who wrote in an op-ed article last year that although it was an "undeniably clever accounting maneuver," he doubted it was legal, and that the privatization plan was unlikely to save the state any money.

Jindal's office issued a statement that the CMS had no legal basis for its decision and it would appeal, the Advocate reported. "We are confident that public-private partnerships are the way forward, and we will be working with CMS on alternative funding mechanisms," Jindal said.

To learn more:
- read the Shreveport Times article
- read the New Orleans Advocate article
- read the CMS letter (.pdf)