On paper, the federal rejection of financing plans for Gov. Bobby Jindal's LSU hospital privatization deals looks like it has all the makings of a fiscal calamity for the state.
But the Jindal administration is downplaying the problem, suggesting it can be solved through appeals or continuing negotiations with federal officials.
If the Republican governor's interpretation of the problem is wrong, the state's long-term budget could face sizable gaps and healthcare services could be threatened for thousands of poor and uninsured residents around Louisiana.
If Jindal's wrong and lucky, he'd leave the mess for his successor to clean up in 2016.
For now, with no real idea what the scope of the problem might be, lawmakers are going along with Jindal's push to stay the course on the hospital privatizations, with fingers crossed that it all works out.
That's not to say even supporters of the hospital deals weren't shaken by the federal rejection.
Rep. Lance Harris, R-Alexandria, chairman of the House Republican Delegation, told his colleagues in a recent hearing that when he heard the news, "My wife couldn't get out of the way fast enough for me to get a glass of wine."
A week ago, the U.S. Centers for Medicare and Medicaid Services, or CMS, notified the state health department that it refused to sign off on financing plans for the privatization of six LSU hospitals.
The agency said the agreements don't meet federal guidelines governing how Medicaid dollars can be spent. CMS took issue with "advance lease payments" that the hospital managers paid upfront as part of the no-bid contracts with the state.
It said those payments appeared linked to higher Medicaid payments that the private hospital operators were receiving, reimbursement rates that are larger than what other private hospitals in the state get for similar patient care.
But Jindal — who went ahead with privatization as a way to help the state cut costs — didn't wait for federal backing, so the hospitals are now operating under financing plans that have been rejected.
Privatization deals already have taken effect for eight university hospitals and their clinics, and one more is pending. One arrangement has received federal approval: a deal that closed LSU's hospital in Baton Rouge and moved its inpatient services to a private hospital.
The deals are costing the state $1.1 billion this budget year, and the state is using federal money to pay for much of that, having assumed it would get backing from CMS for its plans.
"The governor is 100 percent committed to these partnerships. We have no intention of turning around," Commissioner of Administration Kristy Nichols told the Senate Finance Committee.
Nichols said the state will appeal the CMS ruling and work on alternative financing plans to keep the hospital deals in place. Talks began last week.
"Our hope is we will have a resolution with CMS in the very near future," said state Department of Health and Hospitals Secretary Kathy Kliebert.
CMS hasn't confirmed any deal is imminent, however, declining to comment on the ongoing talks. Lawmakers note that Kliebert gave them repeated assurances that she was confident the prior deals would be approved.
That leaves lawmakers budgeting for next year with no clear idea what, if anything, the state might have to repay the federal government and whether significant changes will need to be made to the financial structure of the privatization deals at some point in the future.
Nichols said the financial implications of the rejection won't hit Louisiana until September 2015 and she's hopeful a resolution can be reached before then. She said if the state has to repay any money, Louisiana could owe about $200 million.
But lawmakers said they've heard figures topping $500 million or more.
"Obviously, we have to appeal and pray and hope for a negotiated resolution that we don't have to pay everything back," said Rep. John Bel Edwards, D-Amite, leader of the House Democratic Caucus who is running for governor in 2015.
Lawmakers pushed the Jindal administration to find a quick way to reach consensus with federal officials, but the state has little ability to pressure a conclusion in a process controlled by federal officials.