Auditor: Revenues up, costs down after privatizing charity hospitals

$271 million in savings, $3 billion in revenue forecast

In an analysis that a Lafayette hospital had overcharged some patients, the Louisiana legislative auditor calculated the privatization of most of the state’s charity hospital system saves taxpayers $271.2 million in salaries and could create revenues of $3.4 billion.

“We provided some informational data in our management letter about the LSU Health Sciences Center,” said Ernie Summerville, assistant director for financial audit services. “With the state-run hospitals going away, there had been a lot interest in the impact of that process.”

After Congress reduced the share the federal government would pay toward Medicaid in 2012, Gov. Bobby Jindal pushed to privatize the LSU-run charity hospital system that provided health care primarily to the poor and uninsured.

He argued the charity hospital system is outdated. By June, public hospitals in Baton Rouge, New Orleans, Lafayette and elsewhere had transferred management to private organizations.

Summerville said the audit counted 6,547 positions having been eliminated over the past three years when the management of eight LSU hospitals was taken over by private organizations. Some of those employees were hired by the private firms, but the taxpayers saved $271 million in salary expenses.

The contracts require the private organizations to lease the buildings and equipment from LSU, with the exception of the LSU Earl K. Long Medical Center in Baton Rouge, which was closed and its operations transferred to Our Lady of the Lake Regional Medical Center. The projected revenue into the state’s coffers from the lease payments, advances and services calculate to $403.5 million this fiscal year and $3.4 billion over the 40-year life of the contract, the audit reports stated.

Taxpayers still contribute to Medicaid and other government programs that pay for services provided. But instead of paying the charity hospital directly, Medicaid pays the private administrators who are covering the costs to provide services.

Jindal’s Commissioner of Administration Kristy H. Nichols said in a prepared statement that the Legislative Auditor’s numbers support the administration’s argument for privatization.

Jindal said in a prepared statement that the privatization policy provides higher-quality services. “These partnerships are working because they are saving taxpayers hundreds of millions of dollars and are moving these hospitals from an unstable financial model to a more stable model,” the governor stated.

The unstable environment pending the private takeover of University Medical Center contributed to lack of earlier detection of an emergency room nurse misappropriating drugs from October 2012 to March 2013, according to Lanette Buie, the deputy chief executive officer at LSU Health Care Services Division. The legislative auditor found that because of the nurse, the hospital inappropriately charged $25,978 to patients, insurance companies and the federal government.

Even prior to the auditor’s findings, University Medical Center had taken corrective actions “so that no payer was held responsible for payment of medication that was not actually administered to a patient,” Buie said.

Lafayette General — the private, not-for-profit organization that took control of University Medical Center in June — is now responsible for the new procedures.

Buie referred all questions to Lafayette General Health. Daryl J. Cetnar, Lafayette General Health’s spokesman, referred all questions to LSU.

Neither Buie nor Cetnar would identify the nurse involved, whether the nurse was still employed or relate any specifics about the incidents.

Buie said the information has been turned over to the Louisiana State Board of Nursing, and LSU is asking the nurse to pay restitution.

The audit report also found that the University Medical Center overcharged patients by $394,983 for services that were not actually provided from May 2012 through June, according to the audit. “As a result, the hospital inflated the uncompensated care cost for uninsured patients which may cause the hospital to inappropriately receive federal payments through Medicaid,” the audit stated.

The real issue is that the hospital did not have procedures in place to identify information that was inaccurately entered into the billing system. Seventeen of the 20 excess charges were errors made in the pharmacy system that were transferred into the billing system.

Buie said a couple of the pharmacists, one of whom was hired by Lafayette General, didn’t understand the implication of double printing labels for chemotherapy medications. New billing procedures and training for employees were initiated and the overcharged accounts were credited, she said.