The state is working to privatize five LSU hospitals by end of June.
When the LSU health system turns over state public hospitals to various private operators this summer, the employees will be owed $29 million in "termination pay," while the system could have to pay out another $13 million in unemployment costs, a new report by the Louisiana Legislative Auditor found.
LSU officials told the auditor's office they are aware of this $42 million expense and are working with Gov. Bobby Jindal's administration to find funding.
Over the long term, the LSU Health Care Services Division, which currently operates the seven public hospitals in south Louisiana, estimates it will have to pay about $26 million annually in retiree health insurance and life insurance premiums. The system anticipates that many eligible employees will take early retirement when the hospitals are turned over to private operators.
The auditor's report was intended as an overview for Louisiana lawmakers as the privatization agreements near finalization. So far, only the deal to shift public hospital care in Baton Rouge to Our Lady of the Lake Regional Medical Center has taken place. In that arrangement, LSU closed Earl K. Long hospital, which is not anticipated to happen in any of the other deals.
Cost savings for the state will come from lease payments that private operators will make. That money can be used to tap into federal Medicaid funds. The state is also counting on the private hospital companies being able to find various administrative efficiencies, state officials have said.
In New Orleans, the non-profit hospital company that runs Children's Hospital and Touro Infirmary is slated to take over operation initially of the downtown interim hospital and, when it opens, the new $1.2 billion facility currently under construction along Canal Street.
The LSU Board of Supervisors has approved cooperative endeavor agreements for the New Orleans hospitals, as well as to allow Lafayette General Medical Center to run the public hospital in that city. But they are still working on deals for three other hospitals in Houma, Lake Charles and Bogalusa. LSU officials have still not announced what private operator is expected to take over operation of the Bogalusa hospital.
Still, the auditor report said LSU negotiators hope to complete these deals this month and present them to the board. A meeting has been scheduled for May 28.
Timing of the deals is critical because the handover must take place by the end of June in order for the state to realize the cost savings in next year's budget. The state budget year begins July 1.
More than 5,000 people will be laid off as part of the privatizations. They can apply for jobs with the private operators.
The auditor's report noted that these workers currently participate in the state employees' retirement system, which will be left without these contributors.
"This will have an effect on the premium contributions the retirement systems use to pay benefits of active retirees," the report noted. The LSU health system and its employees contributed about $90 million to the retirement system in 2012.