Charity System Fights Back Against Kennedy, Kennedy Answers

On Thursday of last week, the head bureaucrat at LSU’s Charity Hospital system sent Louisiana state treasurer John Kennedy a five-page letter disputing one facet of Kennedy’s call for budgetary changes within that system. The letter, and Kennedy’s response to it, are instructive as to the difficulty of beating back inertia within an enrenched system like Charity.

Or any other governmental entity, for that matter.

Kennedy opened the Charity system debate some time ago. The treasurer posted an op-ed on his website on Nov. 29 noting that LSU had hired Alvarez & Marsal, the forensic accounting firm, to audit the fiscal practices of LSU’s Charity operation in New Orleans. A&M found some $66 million in annual savings and $6 million in new revenues “Big Charity” could realize by reducing inefficiencies and improving its operations, putting the state of Louisiana $72 million closer to a balanced budget without any new taxes.

Kennedy suggested that the Legislative Auditor’s office be tasked with performing a similar audit to the one A&M did on Big Charity to the rest of the system’s campuses throughout the state. If Louisiana could find $72 million at Big Charity, Kennedy reasoned, then a systemwide audit of the other nine Charity campuses might net hundreds of millions of dollars.

It took a month, but Fred Cerise – whose title is that of Vice President for Health Affairs and Medical Education – fired back at Kennedy with the letter. In it, Cerise isn’t what one would call overly cordial. Here’s the opening paragraph…

Your recent news release on potential cost savings in the operation of Louisiana’s public hospital and clinic system indicates to me that you do not have a full understanding of the scope and impact of operational efficiencies and patient care quality improvements already implemented and ongoing in the LSU Health System.

“In other words, Treasurer, you don’t know what you’re talking about.”

The letter goes on to essentially say, among other things, that (1) a lot of what A&M recommended has already been made moot because Big Charity is getting more patients and some of the employee-to-patient ratios which looked so bad to the accountants aren’t a problem anymore, (2) Big Charity is a different animal than the other campuses because of Katrina, and (3)  the Charity system’s costs are just like all the rest of the public hospitals around the country.

Cerise says that by following some of A&M’s recommendations LSU managed to secure $31 million in savings, plus absorb costs of medical inflation without getting a budget increase from the state’s general fund. He also says that system-wide LSU has saved $87.7 million in the last 18 months by pursuing operational efficiencies.

Cerise then closes by touting the Charity system as a model of operational efficiency and effective care, citing various studies comparing LSU hospitals with other public hospitals across the country. He offers this assessment…

While it is often fashionable to blame the “charity hospital system” for the state’s health care woes, the facts suggest the opposite. Most health care in the United States is delivered in isolated silos – primary care doctors, specialists, hospitals, imaging centers, pharmacies, home health providers, etc. – everyone generally doing a good job but organizationally disconnected from their medical colleagues. Therefore, it is very difficult to manage outcomes and costs, particularly at the population level, when that care necessarily transcends many of these components, and the components have no incentive or explicit expectation to address aggregate outcomes and costs.

LSU is a system. We have the ability to manage most of the components in a continuum of care. We have a capped budget and great demand for services. At the same time, however, we have a built-in incentive to manage all our operations cost-effectively in achieving our mission to deliver medical education and health care on behalf of our citizens. We share your concern that the state’s financial resources must be delivered in the most efficient way possible. If we are to ensure acces to care for the uninsured, it only makes sense to do this in a coordinated fashion in which the state maintains expectations for the operations and retains financial control.

In other words, if we’re to boil Cerise down, he’s saying that the Charity system is a marvelous edifice of public health systems, making any significant alteration to that system will kill patients and the only way you can deliver medical care to the uninsured is to have a massive $2.1 billion brick-and-mortar operation encompassing every possible medical condition.

We asked Kennedy what he thought of all this, and he was stern but diplomatic.

All too often when new ideas and suggestions to save money in government are discussed, the first reflex of the bureaucracy is to say ‘we can’t do that.’  

While I appreciate Fred Cerise’s extensive feedback on my cost-saving proposals regarding the charity hospital system, I still come back to the very simple fact that as a result of the Alvarez and Marsal review, we were able to save $72 million at New Orleans Charity alone.  I don’t believe it is such a radical suggestion that we make the effort to apply those same cost-saving measures to all of our charity hospitals across the state.

Has any effort been made to conduct a similar review of the nine remaining hospitals?  Are there good and valid reasons why it can’t be done?  Are we doing all that can be done to ensure taxpayers’ money is being spent wisely in our charity hospitals?  I think these are important questions to ask, and I’m going to keep asking those questions until taxpayers are given a good answer.

The fact is, one can agree with everything Cerise says in his letter and still side with Kennedy here. Kennedy makes the fundamental point that if you can save $72 million at one of 10 hospitals by following A&M’s recommendations, you will save more by expanding those recommendations to the other nine campuses.

And Kennedy’s correct that it’s not radical to make the effort to find savings elsewhere in the system.

But fundamentally he’s absolutely right that the bureaucrats’ response to suggestions of change is always that it’s impossible. Kennedy fights this battle virtually every time he suggests cuts; the back-and-forth with Commissioner of Administration Paul Rainwater over cutting state jobs by attrition was a perfect example. Kennedy offers a plan to save the state money, he suggests that by following it we can save “X-amount,” then the bureaucrats say nope, X-amount isn’t possible because of A, B and C.

What gets lost, of course, is that saving X-amount is required. Louisiana has to balance its budget. That is a constitutional imperative which takes priority over the bureaucrats’ narrow preferences for keeping the bureaucracy intact. Don’t forget the quote from Rainwater’s spokesman Michael DiResto in which he stated that avoiding layoffs was a top priority.

“You’re trying to avoid as many layoffs as possible, and you’re trying to make sure the departments can still function,” said Michael DiResto, a spokesman for the governor’s budget office, the Division of Administration.

No offense to DiResto, but he shows evidence of an even bigger problem than the question of how much could be saved by this or that initiative. Because Louisiana’s budget problem is a structural one, and it’s only going to get worse as time goes by. State workers have health care costs and pensions, so if you’re looking at a structural budget deficit those workers are fiscal time bombs. When they retire and start draining their underfunded pension plans, the budgetary headache gets bigger.

And of course the bureaucracy is always out for the bureaucracy. So preserving the population of bureaucrats is paramount. DiResto’s statement, in the kind of world we need to be living in, would be “You’re trying to make sure the departments can still function, and you’re trying to do that with as many layoffs as possible.”

Sure, that’s a heartless and cruel way to operate. But guess what? When HP or Caterpillar or Verizon look at a lot of red ink, the first thing they do is to slim down their work forces. There are layoffs and there are entire divisions being cut. And while bad press results and feelings get hurt, the bottom line is that those companies don’t run out of money. Because those companies are beholden to their stockholders – not their employees.

And state government is no different. Taxpayers are the state’s stockholders. Not state employees. It’s incumbent upon the politicians, who serve as management in this analogy, to look out for our interest, not theirs. Louisiana is in this position because Rainwater and Gov. Bobby Jindal are trying to save government jobs when that’s precisely the opposite of what should happen. 

Kennedy gets this, I think. His problem is that he has to run for reelection, too – and if he casts himself as Public Enemy Number One for state employees he’s going to make it more difficult to stick around in that job when every Civil Service employee in the state is walking neighborhoods and writing checks to support his opponent. And so while Kennedy’s recommendations to scrub the budget are the best we’ve seen so far, he’s still nibbling at the edges.

The result, as we’re seeing in the case of Cerise’s letter, is that the bureaucrats are dragging the Treasurer into the weeds. Kennedy suggested that following A&M’s Big Charity recommendations system-wide might save hundreds of millions of dollars, and Cerise takes five pages to say that’s not going to happen. And now we’re going to have a fight over how much could actually be saved, when the whole discussion is stupid. Let’s say Kennedy is wrong, and there are no hundreds of millions to be saved. Let’s say we could only save another $50 million by applying A&M’s recommendations at the other Charity campuses. What’s wrong with saving $50 million?

This is happening across the board – offer up a proposal for incremental change, and it gets cut to ribbons by defenders of the status quo. Those defenders then begin crafting a narrative that the advocates of change “don’t care about” health care, or higher education, or whatever, and then we get the familiar whining that all they really want is to keep the state poor, stupid, etc.

But Louisiana ranks sixth per capita in health care spending to generate a ranking of No. 49 in health care delivery. Cerise, who runs the Charity system, should answer why, if that system is such a model of efficiency and effectiveness, we generate such a poor bang for the buck. The answer, of course, is that no other state is carrying a whole system of hospitals in the first place. In other states the money follows the patient. And while the Charity edifice might be a magnificent example of an integrated health care system, the rest of the country has moved away from such a model because it doesn’t work – as that No. 49 ranking in health care delivery shows.

So here’s a suggestion for Kennedy – stop trying to find efficiencies and small changes in the way Louisiana state government works. Start proposing structural changes. A discussion with Cerise over how many nurses LSU should employ at Lallie Kemp Hospital in Hammond is an unproductive discussion; Cerise should answer why Lallie Kemp isn’t sold off to Oschner or Humana and an entire line in the state budget erased.

Sure, it’s a gamble to suggest big changes like that. But two things are true – first, without a fundamental alteration of the size and scope of state government Louisiana will never escape its near-constant budget woes and become the dynamic magnet for private investment it should be, and second, the people of the state understand this and are ready for structural change, if only someone will present it to them.

The bureaucrats are going to fight for every inch of turf. Suggesting greater efficiency gets you a five-page insulting letter in response, so why not make the bureaucrats fight for their very existence?

UPDATE: There is something of a history between Kennedy and Cerise. WWL caught this in the hallway at the state capitol in May of 2009 after a Health and Welfare Committee hearing on the hospital system at which Kennedy had testified that LSU had no business plan for Big Charity…



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