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NJ Lawmakers Consider New Taxes on Hospitals to Fund Medicaid, Medical Education

Aim is to raise investment in care for low-income residents and pump more money into graduate education

Hospital emergency room
Credit: Creative Commons

State and county officials would have new power to tax New Jersey hospitals to generate additional revenue for low-income patient care and medical education under a pair of bills that emerged as part of a last-minute legislative flurry in Trenton.

The Senate Budget and Appropriations Committee advanced the proposals — introduced Monday — as part of a busy session yesterday in which they also passed a $36.5 billion budget that Democratic lawmakers have introduced as a counterpoint to the spending proposal Gov. Phil Murphy outlined in March.

One health-related bill would establish a five-year pilot project to allow seven highly populated counties to impose a new tax on some hospital procedures that could be applied toward the state’s share of its Medicaid program, increasing the federal match funding available; these dollars would then be reinvested in hospital care for low-income residents in the participating counties. The second measure would allow the state to expand the use of certain hospital fees to raise more money for graduate-medical education. Both bills would take effect in July.

A representative for the state’s largely urban, safety-net hospitals endorsed the county-hospital tax proposal for how it would allow the state to increase the federal Medicaid dollars it collects. But an advocate for suburban facilities raised concerns about the potential impact of the additional costs on hospital finances and the lack of specificity in the measure, which does not spell out how the money would be collected or distributed.

‘It’s well-intended, but…’

“It’s well-intended, but we have no idea what this is going to look like,” said Jennifer Mancuso, who heads the Fair Share Hospital Collaborative. “At the very least, we should slow it down a bit.”

The legislation comes a week after the Murphy administration announced that a revenue crunch required the state to delay the first round of charity-care payments, which are traditionally dispersed in late June to offset what hospitals spend on treating uninsured and under-insured patients. Funding for graduate-medical education is also delayed; together, these programs are slated to provide nearly $470 million in the coming year.

While charity-care payments are expected to be restored in the coming month — after officials reach agreement on the spending plan for next year and revenue streams to fund it — the ongoing budget negotiations and other proposals under consideration could impact hospital funding in the years to come and could leave some facilities searching for new sources of support. (For example, a measure introduced earlier this month by budget committee chairman Sen. Paul Sarlo (D-Bergen), would change how some hospitals are reimbursed for aspects of emergency care for the roughly five percent of Medicaid patients who are not in managed-care plans; this bill also passed the budget committee Tuesday.)

The county tax bill, (S-2758), sponsored by Sen. Joseph Vitale (D-Middlesex), who leads the health committee, and Sen. Theresa Ruiz (D-Essex), would establish a new law — the County Option Hospital Fee Pilot Program — and amend existing statutes regarding how government agencies work together. While it does not name the eligible counties, it limits participation to those with at least 250,000 residents, several populated cities, and a need for economic revitalization, according to scores assigned by the Department of Community Affairs.

The measure empowers freeholder boards in the qualifying counties, if they want to participate, to impose a new tax on certain hospital procedures conducted at facilities in their jurisdiction; the procedures are not spelled out in the bill. This money would be used to benefit low-income patients from that county in need of hospital services; a maximum of 25 percent could be applied to administrative costs and the fees could not be passed on to patients, although it was not clear what funds hospitals could use to cover the new costs.

$10 fee on hospital admissions

The freeholders could choose to sign an intergovernmental agreement with the state Department of Human Services, which oversees Medicaid, and transfer these funds to its care to trigger the federal matching dollars. DHS would then need to invest the total new revenue — both county-generated and federal — in the contributing county, by boosting Medicaid payments to either local hospitals or the insurance plans that administer Medicaid claims for patients who live there.

The bill would also enable freeholders to keep the money in the county, so long as they agreed to contribute the same level of match available from federal sources. They would then be required to invest the full pool in hospital care for low-income residents.

The legislation would also require the DHS to apply for any federal Medicaid waivers needed to implement the program, which would likely be necessary given the strict federal regulations governing the national public insurance program.

The second bill, (S-2759), sponsored by Ruiz, would amend a 1992 law that allowed the state Department of Health to assess a $10 fee on hospital admissions to apply to all long-term care facilities, rehabilitation hospitals, and other care facilities — not just acute-care hospitals. This money would create a new funding pool, known as the Safety Net Graduate Medical Education fund, to supplement current GME funding.

It was not clear how much the expanded fee system is likely to raise or how this new money would be distributed to the 43 hospitals that train medical students. In the current year, the DOH amassed $6 million in fees, which is used for public-health planning and other department efforts.

The bill to create the new GME fund has yet to be introduced in the Assembly, but Assembly Speaker Craig Coughlin (D-Middlesex) has sponsored a companion county tax bill in his house.

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