In a piece of excellent news for New Orleans’ struggling medical-research sector, a federal arbitration panel voted unanimously today to award Louisiana $475 million to replace the Charity Hospital facility destroyed by Hurricane Katrina storm surge floodwaters in 2005.

Gov. Bobby Jindal and New Orleans mayor Ray Nagin were understandably fired up.

“This is a great week in Louisiana!” Jindal said. “First, the Saints’ victory and now we finally get the funds we need to replace Charity Hospital after five years of fighting with FEMA. It’s going to be a huge boost to our economy. It’s going to be a huge magnet to bring those high paying jobs we need.”

Nagin was even more ebullient. “This is probably going to go down in history as one of the biggest economic development deals ever in the city’s history.”

The issue of what to do with Charity Hospital is one which bedevils the state to a large extent, as Louisiana’s legacy Charity system is increasingly an outmoded model of health care delivery. Jindal himself has favored changing the state’s system to one in which state dollars for indigent care follow the patient rather than going toward a public hospital infrastructure, and the new approach has manifested itself in a deal whereby instead of training doctors at the decrepit, ramshackle Earl K. Long facility in Baton Rouge, those physicians will now serve internships and residencies at Our Lady of the Lake’s facilities in town.

But while the overall Charity system, which used to include facilities all over the state, is melting away, the public-owned facilities in Shreveport and New Orleans, administered by LSU, were always going to stay open as teaching facilities – even though pundits like LSU-Shreveport professor and public-policy blogger Jeff Sadow have been screaming for Jindal to move toward a full divestiture by the state in running hospitals.

And the plan put forth by LSU, with support from Jindal’s predecessor Kathleen Blanco and, to a lesser extent, Jindal himself, has been to construct a large, palatial facility next to the old Charity Hospital building and in so doing create a medical research complex between LSU, Tulane and the Veterans Administration which would treat patients (obviously) and compete for the research grant dollars now being reeled in by similar clusters in Houston and Birmingham.

So with FEMA getting slaughtered by the arbitration board – the Washington Examiner reports that the federal agency so reviled for its incompetence by New Orleanians in the aftermath of Katrina was grossly incapable of making the case for why it should only pay Louisiana $150 million to replace the Charity facility – the larger-scale plans are back on the board. Jindal now plans a $1.2 billion, 424-bed facility as the anchor of a revamped medical district, with construction to begin by the end of 2010 and the new facility to open by 2013. A big chunk of that budget will come from the FEMA award, with the rest coming from a bond issue supported by hospital revenues.

Preservationists and others had made the case for renovating the old Charity Hospital facility in an effort to preserve it and save money – but Jindal has had the construction of a medical research complex to chase grant dollars on his brain going all the way back to his 2003 gubernatorial platform, and the $475 million Louisiana choked out of FEMA via the arbitrators, he says, will allow that idea to bear fruit.

Meanwhile, Jindal said the state has funded a $40 million study to figure out what to do with the old Charity facility; some have posited it as a site for a new City Hall, which would be a neat idea but for the fact that it’s far bigger than the City of New Orleans would need (the City needs about 375,000 square feet of space and Big Charity has over 1 million) and the last thing anybody should want to see is for that government to grow into that building. Offices and/or a hotel facility for visitors of hospital patients are other ideas which have been bandied about; it’s even somewhat possible to consider that as New Orleans’ post-Katrina economy continues to improve that the property might be used by the private sector at some point (naw, that’s crazy, right?).

In any event, while the overall structure of the Charity system and LSU’s role in it will undoubtedly continue to be an item of debate the arbitrators’ decision today will fuel a major initiative to create high-paying jobs and a shot in the arm to a sluggish construction sector. Assuming Jindal’s idea to put New Orleans in the race for medical grants Houston and Birmingham are currently profiting from, and assuming there are still such grants to be had in the midst of a rotten economy, today’s events offer the promise to create a new growth industry in the state’s principal market.

And that’s news everyone can be happy about.