DALLAS - The New Orleans environs can support a larger downtown teaching hospital than currently proposed, but only if the facility can attract more insured private patients to offset a large number of charity cases.

That's the conclusion from a review commissioned by the Downtown Development District of New Orleans of a 2007 business plan that recommended Louisiana State University build a 484-bed hospital adjacent to a planned federal Veterans Administration facility.

The $1.2 billion teaching hospital in downtown would be built with the proceeds from $800 million of revenue bonds, $300 million of block grant funds from the Louisiana Recovery Authority, and $100 million of federal grants the state is seeking as compensation for damages to Charity Hospital as a result of Hurricane Katrina in August 2005.

LSU operated Charity Hospital and University Hospital as the Medical Center of Louisiana at New Orleans before both were damaged by the hurricane's high winds and extensive flooding. Charity never reopened after the storm. University Hospital was extensively renovated before reopening with limited services in November 2006.

Louisiana relies on a system of 10 state hospitals to provide indigent care as well as medical education training. The new hospital would be the primary teaching center for LSU and Tulane University medical students and post-graduate residents.

The 2007 plan, developed by Adams Management Services Corp. for the Louisiana Office of Facility Planning and Control, found that the new hospital would attract nearly double the number of insured patients that Charity Hospital served before Katrina. Insured patients help make up for the lower reimbursement costs received by hospitals for uninsured patients.

The review of the plan by Health Planning Source Inc. said the financial health of the proposed hospital will depend on LSU's ability to shift its focus from medical services for the indigent to providing more of the types of services that will attract patients with private insurance.

In the past, the review said, LSU faculty physicians would recommend Charity Hospital for indigent patients while sending insured patients to private or community hospitals.

Orleans, Jefferson, St. Bernard, and Plaquemines parishes could support a 358- to 561-bed teaching hospital in New Orleans under Louisiana's existing health care system, the review said. With some changes in state policies and practices, the consultant said, the region could support a teaching hospital of up to 696 beds.

Gov. Bobby Jindal supports the plan to build the teaching hospital next to the planned VA hospital, but the state Department of Health and Hospitals has commissioned a separate review of the 2007 business plan.

Health and Hospital Secretary Alan Levine said he wants to make sure the business plan conforms to reality.

"I wouldn't say I'm concerned, but the primary issue when you're building a hospital of that size and scope and cost is to make sure those assumptions are good," Levine said. "The business plan might be 100% right on target, but I told our consultant that we want them to ask the questions the bond market will be asking."

He said if the assumptions in the business plan are not correct, the state would have trouble issuing the bonds necessary for the project. There is no doubt the facility is needed, he said.

"We're talking about issuing $800 million to $1 billion in bonds for this hospital," Levine said. "I've been in New York at presentations to the rating agencies when I headed a for-profit hospital group, and they were grueling. If we don't have the answers, we are not going to get the bond proceeds until we have some answers."

Levine said he expects the state's review of the hospital business plan will be completed by the end of June.


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