University Medical Center operator might leave hospital over Louisiana budget impasse

LCMC Health informed Gov. John Bel Edwards‘ administration Monday (March 12) that it will walk away from running University Medical Center in New Orleans on July 1 if the state doesn’t drastically change its budget situation.

If LCMC pulls out, it could cost the state hundreds of millions of dollars and the University Medical Center’s billion-dollar facility would suddenly become the state’s responsibility to maintain. More than 2,000 people who work for the hospital would have their jobs put in jeopardy, and it would be unclear how 1,000 medical residents and 2,400 other health care students would receive training next year. Both LSU and Tulane’s medical schools would be affected. 

Hospital operators in Baton Rouge, Lafayette and Lake Charles have sent Dardenne similar letters indicating that they will walk away from their own hospital deals if the budget crisis isn’t resolved.

Gregory Feirn, head of LCMC Health, and William Masterton, head of University Medical Center, sent a letter to Commissioner of Administration Jay Dardenne, Edwards’ budget chief, giving official notice that they are considering a “potential withdrawal event” regarding their contract with the state to run the hospital.

“The fundamental reason necessitating action is the current budget impasse and the State’s failure to provide any funding for UMC in State Fiscal Year 2019,” write Feirn and Masterton in their letter. “While this process unfolds, LCMC Health will continue to provide care for patients who count on us for critical, life-saving healthcare services. We look forward to further discussing.” 

Read the full LCMC letter about UMC here

University Medical Center received $388 million in state and federal funding for the current budget cycle, according to Feirn and Masterton. There is no budget for the state fiscal year starting July 1 yet, but the hospital is not slated for state funding in Edwards’ current draft budget. It assumes the state will have to make $994 million in cuts. If Louisiana doesn’t have state money available for the hospital, it can’t draw down federal funds for the facility. 

Edwards and the Legislature are talking about trying to raise taxes in a second special session in mid-May, after failing to bring forward a revenue package in an initial special session last week. The state could also recognize more revenue in mid-May as well that could help with the budget crisis. Until then though, LCMC Health will have no assurances that it will receive the money it says it needs to run University Medical Center. 

Even if the Legislature and governor manage to raise taxes or shift budget cuts around to find the money the hospital needs, it may be after the hospital’s 2,400 staff members are notified they might be losing their jobs. If LCMC intends to walk away from its contract July 1, it’s required by law to notify their staff 60 days in advance — no later than May 1. 

“Many may immediately go over and apply to the VA hospital for jobs there,” said House Speaker Pro Tempore Walt Leger, D-New Orleans. “Certainly that is something we should expect to happen. It’s just unfortunate. We can’t get around that now.”

Additionally, the state would lose out on $94 million in lease payments LCMC is expected to make for use of University Medical Center. LCMC also pays a special health care tax to help the state draw down federal funding that it wouldn’t have to pay anymore, according to Masterton. 

If LCMC isn’t operating the hospital, it would no longer provide about $160 million in funding for medical education through LSU Health Sciences Center and Tulane University either. This money mostly comes in the form of faculty and medical resident salaries. It’s unclear where medical and nursing students would train after July if LCMC walked away because there would be no funding for professors, other supervisors and residents at the hospital. 

It’s a bad week for uncertainty about Louisiana’s medical training institutions. Friday is national “match day,” when medical students find out where they will be doing their medical residencies. Those who end up “matching” with University Medical Center might be uncertain about whether the program will be funded next year, Masterton said. 

LCMC and Louisiana would likely be locked in a battle over advance lease payments made to the state if the operator pulls out of running University Medical Center. In their letter to Dardenne, Feirn and Masterton said LCMC would be owed $570 million. The money would have to be paid by either a new private operator or the state, their letter said. 

At Tuesday’s House Appropriations Committee hearing, Dardenne disputed whether the state would be obligated to pay all of the $570 million back, though he conceded that LCMC would be entitled to some “liquidated damages” if the contract came to an end in July. 

There’s also a question of what Louisiana will do with a $302 million boost in state income taxes next year as a result of federal tax changes. The money will reduce Louisiana’s budget deficit from $994 million to $692 million, but neither the governor nor the Legislature will say where the money might be used to avoid budget cuts. 

Hospitals face competition for that money from the TOPS college scholarship program, sheriffs, district attorneys and health care programs for the disabled — which are also facing cuts.