DALLAS — The proposed $1.2 billion University Medical Center hospital in New Orleans will require an annual subsidy from Louisiana of $100 million, according to a new financial analysis of the 424-bed facility.
The study presented Thursday by Kaufman Hall to the hospital’s governing board assumes the UMC board will issue $406 million of revenue bonds to complete the financing for the new hospital.
The financing plan shows $893 million of funds currently available for the project, $307 million short of what is needed. The analysts said $406 million of debt must be issued to provide a debt-service reserve fund, capitalized interest until the facility begins generating revenue, and financing fees.
The state is seeking federal enhancement for the bonds through a loan guarantee from the U.S. Department of Housing and Urban Development, but the new financial plan is based on unenhanced debt. U.S. Sen. David Vitter, R-La., has asked HUD to not provide the enhancement due to the hospital’s need for continued financial support.
The analysis is based on 30-year bonds, with a final maturity in 2041, at an average interest rate of 7.25%.
Current plans call for construction to begin soon and to be completed by 2015.
A small interim hospital in New Orleans operated by Louisiana State University requires a state subsidy of about $30 million a year. The analysis of the new facility expects an annual subsidy of $73 million in fiscal 2015, the new hospital’s first year of operations, and $99.1 million in fiscal 2019.
The financial plan must be approved by the Joint Legislative Committee on the Budget before construction can begin. State Rep. Cameron Henry, R-Jefferson, has introduced a resolution that would require approval by the Legislature before bonds could be issued or financial agreements signed.
The facility would replace Charity Hospital, which was devastated by Hurricane Katrina in 2005. It would be part of the LSU system, and serve as a training hospital for LSU, Tulane University, and other New Orleans-area medical schools.
The hospital will be financed and operated by the UMC Management Corp. The corporation was established to issue debt for the facility so the bonds would not count against the state constitutional cap on annual debt service.
The report updates the firm’s April preliminary analysis of the UMC financial plan.
The earlier study said flatly that the proposal for 424 beds was too large for the New Orleans medical market.
The final update backs off from that determination, but said the demand in 2020 will range from 330 beds using conservative expectations of patient load to 400 beds under an optimistic projection.
Fred Cerise, LSU’s vice president for health affairs, told the New Orleans City Council on Thursday that a 424-bed hospital is the smallest that would be feasible. The council agreed to close streets at the site to accommodate a hospital of that size.
Dean Steve Nelson of the LSU medical school told the UMC board that a large hospital is needed to provide beds needed for the medical specialties taught at an academic hospital.
The 2006 Legislature approved $225.5 million of general obligation bonds for the New Orleans hospital as part of a $381.6 million state capital outlay appropriation. The state has also received $474.8 million in insurance payments and reimbursements from the Federal Emergency Management Agency for flood and storm damage to the old Charity Hospital’s structure, and expects another $130 million from FEMA for the replacement of damaged equipment.