DALLAS - A revised business plan for a proposed new medical center in New Orleans supports construction of the $1.2 billion facility, but indicates that the Louisiana Legislature will have to provide financial support to the bond-financed project.
The new hospital will require an annual appropriation from Louisiana's general fund estimated at $105 million a year, but that's cheaper than the $184 million a year that would be required by 2016 if an interim medical facility is kept open instead.
A business plan developed in 2007 said the facility, to be operated by Louisiana State University, would generate a generous profit, but the revised report said the hospital would consistently bring in less than its operating expenses. The new facility would be more likely to attract patients with private insurance than either the old hospital or the interim facility, the review said.
The new 424-bed facility will be one of the 10 state hospitals that provide indigent care and serve as centers for medical education in Louisiana. The new hospital in downtown New Orleans would be the primary teaching center for medical students and post-graduate residents at LSU and Tulane University.
The facility, known as the Academic Medical Center, will be built along with an adjacent new 200-bed hospital of the federal Veterans Administration on a 66-acre tract in downtown New Orleans. The hospitals will be operated separately, but they could share some support and laboratory spaces.
Total cost of the LSU-VA complex is expected to top $2 billion in federal and state funds.
The medical complex will replace Charity Hospital, which was operated by LSU as a teaching hospital, and an existing VA hospital. Both facilities have been closed since August 2005 when they suffered extensive flooding and damage from Hurricane Katrina.
Design of the facility is under way, according to Danny Mahaffey, director of facilities planning at LSU. "That will take about 18 months, and then it should take about three and a half years to complete it," he said. "That would mean we could occupy the building in the fall of 2013."
The final financing plan for the LSU hospital has not been completed, but Health and Hospital Secretary Alan Levine said it would include $800 million of hospital revenue bonds. The remaining $400 million will come from payments by the Federal Emergency Management Agency for hurricane damages to New Orleans hospitals, state general obligation bonds through the capital outlay process, and other state sources, Levine said.
The state estimates it is due more than $200 million in FEMA hospital-related reimbursements, but the agency said total reimbursements are approximately $20 million. Negotiations are under way to resolve the difference.
The revised business plan was ordered by Gov. Bobby Jindal, who questioned both the size of the project and the optimistic assumptions of an operating profit in the business plan developed by the administration of his predecessor, Gov. Kathleen Blanco.
The initial plan proposed a 484-bed facility, but the revised plan cuts the size down to 364 acute-care beds and 60 mental health beds. The hospital will be built to allow future expansions.
Bed count was based on a methodology that considered future population growth, rates of utilization, and LSU's projections for the increased number of patients it expects to achieve with the new hospital.
The 2007 plan, developed by Adams Management Services Corp. and Phase 2 Consulting for the Louisiana Office of Facility Planning and Control, said the new hospital would attract nearly double the number of insured patients that Charity Hospital served before Hurricane Katrina. Insured patients help make up for the lower reimbursement costs received by hospitals for uninsured patients.
The new report assumes the number of uninsured patients would drop from the pre-Katrina level of 84% to 73% by 2016, but will not reach the lower level predicted in the earlier plan.
The new facility is expected to generate $379 million in revenues in its first year of operations, along with $501 million in expenses. Revenues should grow to $507 million by 2016, the review said, but expenses will hit $595 million.
Debt service is set at $51 million a year between 2012 and 2016.
The value of the hospital to New Orleans and the state cannot be reduced to a profit-and-loss schedule, Levine said at a news conference for the release of the revised business plan.
"The return on investment in this institution should not be measured exclusively by the finances alone," he said. "There is a significant return on this investment, if executed properly, which is measured more appropriately by making New Orleans a national destination for excellence in medical training and research."
Levine said the state must develop a financing plan that passes muster with the debt rating agencies and the bond market.
"Now that we have agreed among ourselves on bed-count, our next step is to prepare the project for financing in such a way that gives the state of Louisiana reasonable and predictable costs for the project, and maximizing the hospital's appeal to the bond market to secure financing," he said. "The more thorough we can be in this phase of the project, the less likely we are to encounter unexpected delays down the road."
Levine said Jindal ordered the review of the 2007 business plan because the governor is committed to developing a technologically advanced academic and research medical center in New Orleans.
"It is important we create a flagship medical institution that not only meets the needs of our neighbors here in Louisiana, but also becomes one of America's best training facilities for tomorrow's science, physicians, and allied health professionals," he said.
"This opportunity brings with it the responsibility to ensure our plan is realistic and can be properly executed. This is why we took a thoughtful and methodical approach to completing this review."
Fred Cerise, the LSU System's vice president for health affairs and medical education, said the new hospital will provide the best health care and the most advanced medical training available.
"The medical center will also be the cornerstone of the bioscience medical district in downtown New Orleans, contributing to the development of health care advancements that will benefit everyone and attracting to the region the best and the brightest in the health care professions," Cerise said.