How health care—not LSU football—turned the tide in Louisiana’s budget debate

10.19.2016

From The Advocate

With Louisiana staring down a $940 million budget shortfall, Gov. John Bel Edwards made headlines in February by saying LSU football could be at risk if lawmakers didn’t take action in a special legislative session to raise money. Talk about an attention-grabber.

But as the session played out over the next three weeks, it was hospital operators and doctors, not offensive coordinators and defensive backs, that seemed to change minds. The epiphany came when officials with the state’s new privatized safety net hospital system explained how they could walk away from contracts and end lease payments if lawmakers chose to make deep cuts.

The revelation produced a sudden change in how cuts were viewed.

It was quite the turnabout from last year’s $1.6 billion budget deficit when LSU faced the possibility of financial exigency (the college version of bankruptcy) if legislators didn’t bow to Gov. Bobby Jindal’s demands for a budget that would allow him to claim the state avoided tax increases. In response, LSU President King Alexander and other higher education leaders lobbied legislators to pass Jindal’s SAVE legislation, widely acknowledged as a “fiction” — a budget trick — that was repealed this session.

Alexander said in an interview hours before the session ended that this year the fate of health care in Louisiana seemed to overtake the long-running concerns about the repercussions of reducing funding to higher education. It still felt as though higher education was being “held hostage,” Alexander said, but it was testimony about the state’s partnerships with the safety net hospitals that ultimately proved a turning point for legislators.

By the time legislators left Baton Rouge on Wednesday (March 9), they were still short of funding to meet this year’s needs — and it’s still not clear that the private hospitals won’t lose funding. But the taxes approved during the special session make clear that the depth of the threatened cuts — University Medical Center in New Orleans could have lost as much as $44 million in funding — won’t occur as deeply as once thought.

Alexander pointed to the testimony before the Legislature’s Senate Finance committee by one of his colleagues, LSU Health Sciences Center Chancellor Larry Hollier, as the moment that grabbed lawmakers by the hearts and minds. Hollier’s comments followed warnings from the Department of Health and Hospitals and hospital CEOs about the consequences.

“I’m going to have to get rid of 100-plus residents because I don’t have the funds to do that,” Hollier said, referencing the proposed cuts to the partnership hospitals that contract with LSU’s two medical schools for their residency programs. “I’m concerned it’s going to be doctor’s workforce that we’re going to lose, and that’s particularly appalling to me.”

Hollier went on to describe how tangled Louisiana’s privatized safety net hospitals are in areas of the budget that remain public — particularly how the state trains the next generation of doctors. Both higher education and health care rely heavily on federal dollars, and Hollier was able to articulate better than anyone how cutting state funding would put additional federal dollars at risk, as well as the fragile contracts of the new safety net hospitals that replaced the state’s former charity system under Jindal.

Senate Finance Chairman Eric LaFleur, R-Ville Platte, found Hollier’s testimony so compelling, he brought Hollier back a second day along with the chancellor of Shreveport’s medical school, Dr. G.E. Ghali. It was designed to put an exclamation point on the earlier testimony, but also to telegraph to members of the House of Representatives how serious the situation was.

“I don’t think the way that the House conducted their Appropriations meetings — it wasn’t as thorough as our meetings,” LaFleur said. “I just needed to drive the message home.”

After the meetings, LaFleur said he had House members come to him and ask, “‘wait a minute — what are we talking about?’ And ‘how did you do this?’ And ‘we didn’t know this.'”

There was also an educational aspect to Senate Finance’s hearings that was aimed at new members and reminding more seasoned legislators of the complicated nature of the partnerships the state has with private hospitals that treat the poor. Those hospitals receive state and federal dollars (of every $3 spent on the partnerships, the state contributes a little over $1), but they can also walk away from their contracts by giving a 60-day notice.

Most of the nine hospitals that agreed to take over the decades-old charity system did so with reluctance, persuaded more by the fact that treating the poor is part of their mission than the dollars the state was offering. Cutting funding, many hospital CEOs testified, broke a promise the state made to keep a stable stream of funding flowing.

In the end, no private hospital was willing to risk its balance sheet because the state couldn’t meet its obligations.

Some legislators also weren’t aware that public property was tied up in the deal with the hospitals. During one meeting, after CEOs threatened to walk away from their contracts, Senate Finance members were told that as much as $300 million in lease payments that hospitals pay to operate in state-owned buildings could end — and that those lease payments are made a year in advance.

Advance lease payments for real estate are unusual, and such a structure blows a hole in the state’s budget early in the year if they stop. The payments, when they first began, were needed to close past budgets under Jindal’s administration, and Legislators agreed to them.

When told of the deal, freshman legislator Sen. Sharon Hewitt’s face turned ashen. The consequences were now clear.

“I have no words,” Hewitt, R-Slidell, said at the time.

In an interview, Hewitt said that those Senate Finance meetings were indeed a turning point in thinking about how the state spends its money. She realized that much of what had been done before she was elected was far more complex than many people in the state can imagine.

“It became pretty clear through some of the questions that it was a $1 billion hit to us financially if we didn’t find $52 million for DHH to keep the hospitals open,” Hewitt said in an interview. “In the end, it’s all about solving problems. No one wants to raise taxes and we all want to cut unnecessary expenses. But in the end, you have to choose the best solutions available and that’s what you’re seeing.”

Hewitt’s interview happened as the Legislature was voting on hundreds of millions of dollars in taxes. That was uncomfortable, Hewitt said, but it was also alarming to know that before the testimony from health care leaders, the state was poised to make cuts that would have devastated both health care for the poor and the next generation of doctors.

“What seemed like a straightforward cut had consequences that we almost overlooked,” Hewitt said. “Part of that is understanding what’s the line, what’s cut to the bone and what you just can’t cut anymore.”