Today, the State of Louisiana announced that the Louisiana Department of Health (LDH) and the federal Centers for Medicare and Medicaid Services (CMS) have settled a dispute about certain transactions between the state and private providers currently operating the former public hospitals after the hospitals were privatized under the administration of former Gov. Bobby Jindal.

The dispute involved a financing plan in which CMS contended that lease payments paid by the private providers, especially pre-paid lease payments, were provider-related donations that are prohibited by federal regulations. The state argued the lease payments correctly set the value of state assets at fair market value regardless of the timing of payments.

Although CMS approved the applicable State Plan Amendments needed for the privatization plan, it rejected the financing component of more than $189 million that had already been collected. Rather than repaying the money in dispute, the state appealed.

In the settlement, LDH acknowledged a flaw in the formula for crediting the prepaid rents to ongoing lease payments for hospitals in Bogalusa, Lafayette, Lake Charles and New Orleans and determined the impact was around $8.8 million. Of this amount, 5.4 million represents the federal funding share. This is the amount that LDH has agreed to repay by adjusting future claims.

In addition to making this smaller repayment, the Division of Administration has agreed to modify the pre-paid lease agreement between LSU and University Medical Center in New Orleans to provide additional lease credits to rectify the calculation going forward.  Because LDH is not a party to the leases or the Cooperative Endeavor Agreement, LSU and the Division of Administration will make the necessary modifications to the lease agreements.

Gov. John Bel Edwards said his administration, along with the LDH, worked with our federal partners to ensure the prior administration’s lease agreements between LSU and the Public Private Partnerships comply with federal regulations.

“This settlement to correct the prior administration’s mistake is being done with minimal impact to the State of Louisiana. The Department of Health has agreed to adjust the amount of money it will draw down from the federal government by $5.4 million in the next quarter,” said Gov. Edwards. “Additionally, the state will make minor amendments to lease agreements in the future adjusting by approximately $1.1 million annually. All parties agree this will resolve any issues related to the fair market value leases related to the public private partnerships.”