Privatization Deals Leave Schools Stuck With “Legacy Costs”
BATON ROUGE (AP) — LSU's medical schools in New Orleans and Shreveport are struggling to pay millions of dollars in insurance, retiree and maintenance costs left to them from the privatization of the state's charity hospitals, state senators were told Thursday.
The chancellors of the two medical schools outlined more than $56 million in "legacy costs" they face in the fiscal year that begins July 1. Gov. Bobby Jindal's budget would leave the health sciences centers in New Orleans and Shreveport to cover costs associated with ex-hospital employees, without giving them money to pay for them.
The private managers that took control of the LSU hospitals and clinics didn't take on the liabilities associated with former and retired hospital employees. Millions of dollars in those costs are expected year after year.
Medical school leaders — Larry Hollier from the New Orleans school and Robert Barish from the Shreveport school — told the Senate Finance Committee that they've burned through cash reserves covering the expenses.
"There's no way we can absorb the legacy costs and survive," said Hollier, chancellor of the LSU Health Sciences Center-New Orleans.
The costs slated to fall next year on the New Orleans medical school are $36.6 million and $19.8 million for the Shreveport medical school, LSU officials said.
Barish, chancellor of the LSU Health Sciences Center-Shreveport, described the former hospital employee costs as items such as termination pay and unemployment for laid off workers, health and life insurance for retirees and workers compensation expenses.
Frank Opelka, the university system's health care chief, said the Jindal administration thought it had found a fix to pay for the expenses with federal Medicaid money. But he said the state recently realized it's reached a cap on the federal financing source targeted.
Sen. Sherri Buffington, R-Keithville, asked what happens if the medical schools are forced to absorb those costs.
"The term bankruptcy comes to mind," Hollier replied.
With the medical schools running out of reserves, Buffington asked, "Is there a plan B at this point?"
Opelka said LSU is negotiating with the Jindal administration about a financing plan.
"We're still looking for the magic pill," he said. "Currently, we haven't come to an agreement. But we are talking."
Jindal has privatized nine LSU-run hospitals and their clinics since 2013 through no-bid contracts. In most instances, the management company of a nearby hospital took over operations. Three contracts closed an LSU hospital and shifted its services to private hospitals.
Sen. Ed Murray, D-New Orleans, said lawmakers were never told the legacy costs would become medical school liabilities when the LSU-run hospitals were privatized.
"It's just amazing to me that we're even having these discussions and these things were not taken into account when we went down this road with privatization," Murray said.
As the medical schools struggle with the ex-hospital worker costs, private operators of the state-owned hospitals and clinics say they need $142 million more than what's included in Jindal's budget to provide the same level of services to the uninsured next year. The Jindal administration says it has identified some money to fill that gap, though it hasn't outlined the plans.
– by AP Reporter Melinda Deslatte