DALLAS - Louisiana State University System's governing board on Monday rejected a proposed management agreement for a new academic and charity hospital in New Orleans to avoid sharing power with Tulane University.
Board of Supervisors members and LSU officials said they were concerned that revenue from the proposed University Medical Center would not be sufficient to support some $400 million of revenue bonds for the facility without financial support from Tulane.
Because LSU is putting up most of the money, the board said, the school should control the nonprofit corporation that will run the new medical center. The $1.2 billion complex is to be built adjacent to a new federal Veterans Affairs hospital.
The financing plan, developed by Gov. Bobby Jindal's administration last year, includes $300 million of state grants, $498 million in federal reimbursements for Old Charity Hospital, and approximately $400 million of revenue bonds.
The business plan calls for LSU to own the facility but lease it to the nonprofit corporation that would issue the revenue bonds, and govern the 424-bed hospital.
LSU attorney Ray Lamonica said the system would not have a legal obligation to support the bonds, but would have moral and practical reasons to do so.
"If the bonds fail, technically it is the responsibility of the nonprofit entity, but I am virtually certain that the bond industry would take position that it is LSU's moral obligation to repay the bonds," he said. "It needs to be regarded as a practical obligation as well, if LSU ever intends to issue bonds again."
LSU president John Lombardi said the business plan can succeed only if a significant portion of the patients treated at the hospital are privately insured rather than charity cases. Without the private insurance payments, he said, revenues likely would not be sufficient to support the planned debt.
Tulane refused to guarantee that a minimum of 20% of its insured patients would be treated at the medical center, Lombardi said, because the private school is affiliated with a for-profit hospital near its campus.
The university owns 17.5% of the for-profit Tulane Medical Center, with the rest controlled by a publicly traded hospital corporation. Tulane would receive 200 medical residency slots at the new hospital, and LSU would receive 373.
"We have no other financial commitment from anybody but the state and LSU," Lombardi told the board. "When we borrow this money - if we are able to borrow this money - the bondholders will also have a commitment to contribute financing."
He said the Jindal administration suggested the financing plan to avoid having the bonds count against the state constitutional cap. Annual state debt service is limited to 6% of annual general fund revenue.
The board approved an amended agreement that reduces the size of the governing board to 11 from 12 and increases LSU's representation to five members from four. In both versions, an LSU appointee must chair the board.
Tulane's board approved the original management proposal earlier in the day, and said the disapproval of it by LSU revealed "fundamental and philosophical differences" between the two schools.
