Data continue to prove wisdom of hospital privatization

The Gov. Bobby Jindal Administration looks like it may heave a sigh of relief on the budget front with the news that its plan to privatize operations at all but one of the state’s charity hospitals looks to come in well under budget – and aggravate the critics of the deal to no end.

As part of a busy day getting information about privatization initiatives in state government, the Louisiana Legislature’s Joint Legislative Committee on the Budget in the middle of the month was told that the deals to involving eight of these hospitals – a ninth just got turned over to private operators and the tenth will stay under state operation – collectively looked to save the state $52 million more than estimated for last year’s budget. While much of this appears attributable to greater efficiency in operations, including the expansion of services in some areas, some also is due to stopping some service provision in the transition period that both lowered costs or shifted them elsewhere. The amount could change prior to the state budget computation due Oct. 1 for the previous fiscal year.

The Administration hopes that it doesn’t, if not a greater surplus is achieved. This dividend certainly would take pressure off the state as far as the contracting goes, for three reasons, the first two specific to the contracts. For one, some of the contracts were front-loaded (which gave the federal government the excuse to throw a wrench into the process, likely for political reasons), meaning that lease payments for this year actually were paid last year, so in essence the state was looking at $55 million fewer from the operators. But with that about wiped away by this year’s projected surplus, the state wouldn’t have to scramble to scrape up those dollars and if it did could use them elsewhere.

Note also how this means that if for the past fiscal year operations came in $52 million under budget that there’s a reasonable expectation that this can happen again this year, somewhere around that figure. Thus, savings compared to the budget could release in total over $100 million for the state to use. Or, the savings already about to be realized could be used to pay off shortfalls by the late arrival of some revenues of the bonus variety, some of which is sufficiently unpredictable that it shouldn’t have been used by Jindal and the Legislature to fund continuing operations. Yet with the surplus available, the state can afford to wait on these revenues and then have that amount ready for use for FY 2016.

Which leads to the last reason for hope – budget bombs potentially may go off, as identified by the Legislative Fiscal Office. In particular, compared to the FY 2015 budget just underway, $266.3 million came from funds sweeps and proceeds from a pharmaceutical legal settlement, $233.7 came from the Medicaid Trust Fund for the Elderly that probably will not have a balance to cover that by then, $156.5 million came from ongoing tax amnesty efforts that may not collect that much for FY 2016, and $210 million came from paying off early bonds, which came from previous year surpluses, rescinded capital outlay projects, and other bonuses, where there is no certainty the combination of these will produce that amount of money again to perform something similar. Throw in a few dozen million dollars of smaller items and altogether the amount approaches $1 billion if everything disappeared.

That’s not likely, but unless this entire amount reappears, to keep programs at current levels the remainder must manifest, by state revenue collections being higher than forecast (the recent trend), or cuts would have to be made. Thus, more than $100 million might come in handy.

Politically, this could not have come at a better time. A wannabe successor to Jindal, state Rep. John Bel Edwards, flapped his gums last week about how the state in his estimation was in the hole for FY 2015 – without seeming to acknowledge, if not ignorant of, this surplus. The fact of its existence is unlikely to change the rhetoric of the demagogic Edwards in his play for higher office, but it does inject a dose of reality into the budget discussion.

However, the most significant impact of the surplus is that it provides yet more documentation that the strategy is succeeding in lowering indigent care costs to the state even as some services expand. Anecdotally this was noted months ago, but the empirical verification here provides the strongest demonstration yet. Which will annoy opponents of the whole privatization strategy, driven by ideology and fealty to special interests, who continue to fight a rearguard action against it. Fortunately for both hospital clients and taxpayers, they lost that battle of ideas.