Mark Ballard reported this weekend that the federal government dealt a serious setback to Governor Bobby Jindal’s privatization plan for state-run hospital facilities. 

“The U.S. Centers for Medicare and Medicaid Services, called CMS, questioned the Jindal administration’s use of $260.8 million in advance lease payments to prop up the deals involving six public hospitals, including those in New Orleans, Lafayette and Houma. If the decision stands, the state would have to find another way to cover those payments.

In the letter released late Friday, Marilyn Tavenner, the administrator of the Centers for Medicare and Medicaid Services, wrote that federal authorities had trouble with how “specific financial transactions” are organized. CMS is the federal agency that oversees the Medicaid program, which helps pay healthcare providers for services rendered to the poor and uninsured. The federal government picks up about 60 percent of the tab, while state government pays the rest.”

The organization of “specific financial transactions” in question has to do with how Louisiana is leasing out state-owned facilities to private hospitals. The state has agreed to allow private hospitals to pay a higher proportion of their long-term leases upfront in return for smaller lease payments later. Why is this a problem? According to Tavenner: 

“[T]he arrangement amounted to Louisiana trying to get extra federal Medicaid dollars to repay private managers for those advanced lease payments, which is not allowed under federal rules.” 

This could end up being very costly for Louisiana. Even if you do not use Medicaid or Medicare, you may be affected by budget cuts in other state services. If the CMS determines that this arrangement is not allowed under the law, Louisiana may not receive $307 million in Medicaid reimbursements already billed. If that turns out to be the case, expect just about all state services to feel the pain. Ballard quotes state Rep. Robert Johnson, D-Marksville: “Jindal’s reckless pursuit of using federal Medicaid funds in an ill-conceived scheme to privatize state-run hospitals has backfired and now the people of Louisiana will pay a dear price.” Governor Jindal will be trying very hard to appeal the decision, but this setback is already providing democrats with a lot of material to criticize the governor.