State Freezes Charity Care for Hospitals — Revenue Crunch, Budget Blamed

Seventy acute-care facilities are affected but will continue to treat patients. Funding for graduate-medical education also a casualty of New Jersey’s budgetary woes

charity care
A state revenue crunch that forced Treasury officials earlier this month to announce a spending and hiring freeze is now forcing Gov. Phil Murphy’s administration to hold back aid that New Jersey hospitals receive from the state for services they must provide to uninsured residents and to help train the next generation of healthcare providers.

Payments for what’s known as charity care normally go out to hospitals in mid-June but are being delayed this month as the state tries to keep a positive balance in the budget’s General Fund, state officials said yesterday.

Other funds provided to hospitals to support graduate-medical education are also being held back as legislative leaders have thus far failed to enact the Murphy’s administration plan to ease the revenue squeeze, which is rooted in the underperformance of some of the state’s major revenue streams and in how the budget itself is structured.

With Murphy and legislative leaders in the middle of broad budget negotiations that involve his spending plan for the 2019 fiscal year, it’s unclear when the spending hold could be lifted.

‘Serious structural imbalance’

“We have a serious structural imbalance right now,” Treasury spokeswoman Jennifer Sciortino said yesterday.

In New Jersey, charity care is allocated to hospitals based on uncompensated care, or services hospitals provide to uninsured or underinsured residents, and the number of Medicaid patients they treat. The current state budget calls for about $250 million — half from federal sources — to be distributed throughout the fiscal year, which ends on June 30; another $218 million is included for graduate-medical education (GME).

Cathy Bennett, president and CEO of the New Jersey Hospital Association, which represents the 70 acute-care facilities that collect charity care — 43 of which also depend on GME — said members were “concerned and disappointed” by the news, which they received from Department of Health Commissioner Dr. Shereef Elnahal in a conference call yesterday. But these facilities will continue to treat patients regardless of their ability to pay, as required by law, and train future doctors, she said.

“We will continue to partner with the Administration to focus on the well-being of the most vulnerable New Jerseyans and to improve the health of all residents in our state, but we need to have their follow through on Governor Murphy’s commitment to ‘closing gaps in the access to care,’” said Bennett, who served as DOH commissioner until November.

Trouble paying the bills

The Murphy administration has been warning lawmakers for months the state could face problems covering bills at the end of the fiscal year since revenue from the largest source of tax collections —income tax — cannot be used for any other purpose but providing property-tax relief. The budget crunch comes as other major revenue sources that generally aren’t restricted, like the sales tax and corporate-business tax, have been falling short of the original projections that former Gov. Chris Christie’s administration made around this time last year.

A package of tax cuts enacted by Christie and lawmakers in 2016, including a reduction of the sales tax and a phaseout of the estate tax, have only made things worse, as spending wasn’t cut to offset those tax cuts. The state also decided to dedicate revenue from the state Lottery to address funding problems that plague the public-employee pension system, taking more money away from the General Fund.

Those policy decisions have forced the Murphy administration, which took over from Christie in January, to scramble to pay any bills not eligible to be covered by the income tax — including the funding for hospitals and graduate-medical education. Treasury also ordered departments to freeze all hiring and discretionary spending on June 1, citing the same reason.

Department of Health spokeswoman Dawn Thomas said yesterday the Murphy administration has been raising concerns about the revenue crunch since the governor delivered his fiscal 2019 budget address in mid-March.

“The Treasurer and the Office of Management and Budget have informed the Department of Health that the State will have to delay Charity Care and GME payments normally scheduled for distribution in mid-June,” she said. “It is our hope to make these payments in a timely manner, but the timing for distribution will be dependent on the ongoing annual budget process.”

Reluctant to go for Murphy’s higher taxes

Treasury’s plan to address the problem in the short-term centers on $788.5 million in so-called energy tax receipts that utility companies pay and that are sent directly to municipalities to fund property-tax relief. To give the General Fund some breathing room, those funds would be shifted out of an “off-budget” account and into the General Fund, since the municipal property-tax relief is eligible to be covered with revenue from the income tax, which is booming. The administration’s long-term plan is to reverse the 2016 sales-tax cut, which reduced the rate from 7 percent to 6.625 percent in two phases.

But everything related to the state budget, both for the remainder of the current fiscal year and the one that begins on July 1, is currently tied up in the budget discussions involving legislative leaders and Murphy as lawmakers have so far been reluctant to embrace the governor’s call for higher taxes.

“Until we resolve the issue of bringing Energy Tax Receipts on budget we must examine all spending out of the General Fund for June and prioritize what absolutely needs to be paid,” Sciortino said. “The shifting of these funds is a critically necessary accounting change that should be separate and aside from any budget negotiations.”

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