State Budget Shortfall Threatens Privatization Plans and Care at LSU Hospital System

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March 1, 2016; Advocate (Baton Rouge, LA)

Cash-strapped state legislatures remain a trending topic across the nation. It’s no surprise that budget shortfalls are having a grave impact on quality of life. In Louisiana, nonprofit hospital administrators are prepared to walk away from prior agreements with the state. If lawmakers withdraw the funding originally outlined in the deal, the state’s healthcare system will be in peril.

The Louisiana legislature has proposed $65 million in cuts to the Louisiana State University hospital system to make up for the over $900 million state funding shortfall projected by the end of the fiscal year.

Under the leadership of former governor Bobby Jindal, the Louisiana State University charity hospital system was privatized to mitigate the damage to the Louisiana healthcare industry due to cuts in federal Medicaid funding received by the state. The initial 2012 agreement approved by LSU’s Board of Supervisors included a ten-year contract with the option to renew. It also included contracts for management and operation of nine of the ten LSU hospitals and the University Medical Center. With cuts looming, the privatized hospitals are threatening to walk away from the agreement.

Turning over management of the 10 public hospitals to nonprofits, it was thought, would reduce the rate of cost increases and promote better system delivery. Early reports indicated that the nonprofits were able to reduce patient waiting times, improve service quality, and implement systems to more effectively measure and track hospital operations.

Is it fair to blame nonprofit hospital administrators for the state’s budget constraints? The language in the contracts, intended to provide care to the poor, including the young, the elderly, and the mentally ill, provides “opt-out” provisions if the state doesn’t deliver its end of the funding bargain. With $370 million in commitments to healthcare and education and no funds to pay it out, hospital administrators have made it clear they will have to terminate these contracts and other agreements in place if funding is decreased. The cuts proposed by the legislature would serve a devastating blow to Louisiana healthcare, especially in light of the struggles of states to establish sound business models in the age of the Affordable Care Act.

Governor John Bel Edwards signed an executive order in January accepting Medicaid expansion.  While expanding Medicaid access will give more state residents access to government-funded healthcare, it’s not clear how it will affect the state’s budget. On the one hand, almost three years ago, NPQ reported on a study by the RAND Corporation on the apparent drawbacks of not expanding Medicaid under the ACA. RAND predicted that the 14 states not expanding Medicaid would be “hit in 2016 with $1 billion more in expenditures for uncompensated healthcare.” On the other hand, other states expanding Medicaid have noticed enrollment much higher than expected, accompanied by higher than expected state budget costs.

With the potential for a $2 billion state deficit and no clear solution in sight, should the nonprofit hospitals be forced to accept reductions to their guaranteed funding, risking their charitable mission to provide quality patient care? Where does this leave sick Louisianans who depend on the charity hospital system for healthcare?—Ar’Sheill Monsanto and Michael Wyland