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Changes in State Funding Might Give Hospitals Extra Money — and Take Some Away

Proposals, which have raced through the Legislature, envision new county-based taxes on procedures and acute care

Sen. Teresa Ruiz
State Sen. Teresa Ruiz, one of the sponsors of the bill

New Jersey’s teaching hospitals and other acute-care facilities in select, more urbanized counties across the state could soon have access to tens of millions of additional dollars to help cover the cost of caring for Medicaid patients and training the next generation of healthcare providers.

But any windfall from those proposals — which would require new county-based taxes on certain undetermined hospital procedures and expand state fees on acute-care admissions — would be somewhat offset by the impact of a third measure, which would change what Medicaid pays for certain emergency procedures and could cost hospitals nearly $60 million annually.

These proposals on hospital funding are outlined in a trio of bills that raced through New Jersey’s Democratic-led Legislature after their surprise introduction early last week, despite the limited detail available publicly on some aspects of the plans. The three bills passed the Senate and one measure cleared the Assembly on Thursday; the Assembly approved the remaining two proposals Monday, with no debate but votes divided largely along party lines.

While movement on the three bills has coincided with the Legislature’s scramble to pass a $36.5 billion budget — an alternative to Gov. Phil Murphy’s $37.4 billion proposal for fiscal year 2019 — in advance of the July 1 deadline, the changes would not have a major impact on the overall fiscal plan. While the bills are designed to be implemented starting in July, it is not clear if Murphy will sign them into law.

Generating revenue

One measure would tap hospitals to generate new revenue, which would then be returned to these same facilities to help them cover the cost of Medicaid patients; a second was amended last week to dip into the state’s general fund for $24.3 million to help fund graduate medical programs, dollars that would be replaced by revenue generated through expanding a state fee on patient admissions. The third bill, which would reduce to $140 the Medicaid fee-for-service reimbursement for “low-intensity” emergency room visits, could save taxpayers around $29 million, according to state officials.

A revenue shortfall has already led Murphy’s administration to suspend distribution of the first round of payments for charity care and graduate medical education, funds that benefit all but two of the state’s acute-care facilities and are a critical revenue stream for many safety-net facilities. Murphy’s budget calls for a total of $250 million in charity care to be allocated among 70 hospitals; another 43 teaching hospitals stand to benefit from $218 million in graduate medical education.

Hospital leaders appear to be divided on the proposals. A coalition of suburban hospitals raised questions about the lack of detail and the potential negative impact the new taxes could have on some facilities. But representatives of largely urban, safety-net hospitals that serve a high proportion of Medicaid patients, note that all acute-care facilities will benefit to some degree.

“New Jersey has a unique opportunity with this pilot program to enhance Medicaid provider reimbursements without any negative impact to the state budget,” said Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, which represents safety-net facilities. “These local provider fee programs are not new. These programs exist in Pennsylvania as well as dozens of other states throughout the U.S.”

Sponsored by Sens. Joseph Vitale (D-Middlesex) and Theresa Ruiz (D-Essex), and Assembly Chairman Craig Coughlin (D-Middlesex), the measure (S2758/A-4212) — which cleared its final legislative hurdle in the Assembly Monday — would establish a five-year pilot program in which counties that meet certain criteria for density and economic needs could chose to impose a new tax on undefined hospital procedures. A maximum of seven qualifying counties could participate and freeholders could allow some hospitals to opt out. Participating facilities could not pass any new costs on to their patients.

Looking for a federal match

The bill calls for the money collected from facilities within the participating county to be turned over to the state Department of Human Services, which would use it to attract a federal Medicaid match. Counties could also keep it in their own coffers if they generated a match of their own, at the same level. At least 75 cents of every dollar would then be returned to hospitals in the county, with the remainder used to cover the cost of administering the program.

"While Medicaid is the safety net that prevents low-income New Jerseyans from falling through the cracks, county hospitals need to be well-funded and supported to properly deliver expert care to the community they serve," Vitale, the longtime health committee chairman, said when the Senate passed the measure last week. "This pilot program will expand the resources for Medicaid and funnel funds into those facilities that ensure the disadvantaged continue to receive the quality care they need."

Medicaid now insures some 1.7 million Garden State residents, roughly one in five, at a cost of nearly $15 billion annually, two-thirds of which is funded by federal dollars. But Medicaid reimbursements cover about $7 out of $10 in cost, hospitals note, and charity-care funds are based on just a portion of each facility’s Medicaid claims.

“Medicaid is essential to the health of our disadvantaged communities, and this will help ensure they have access to the resources and care they need,” Ruiz said.

Eliana Pintor Marin
Assemblywoman Eliana Pintor Marin (D-Essex)

Another measure, (S-2759/A4249), sponsored by Ruiz, Vitale, Assemblyman Benjie Wimberly (D-Passaic) and Assemblywoman Eliana Pintor Marin (D-Essex), the budget committee chair, would allow the state to expand the use of a $10 fee on hospital admissions to generate revenue to supplement the existing fund for physician training. The bill, which received final approval in the Assembly Monday, would allow the state Health Department to tap the general fund for $24.3 million that could be distributed as additional graduate medical education aid to qualifying hospitals, based on a detailed formula added with amendments made Thursday.

Some gain, some loss

The third bill, (S-2657/A-4207), sponsored by Senate budget chairman Paul Sarlo (D-Bergen) and Assemblyman Louis Greenwald (D-Camden), the Democratic leader, cleared both houses Thursday, just four days after its debut. It would set at $140 the reimbursement for “non-urgent” emergency room assessments that could be handled more efficiently in other care settings, like urgent-care facilities; it would apply only to the roughly five percent of Medicaid patients who are still covered by a fee-for-service policy, as opposed to a managed care plan.

A fiscal review of the bill by the nonpartisan Office of Legislative Services, included in the Senate statement, features some general data about outpatient Medicaid claims: In 2017, the state spent nearly $206 million on outpatient emergency room claims — of all kinds — for fee-for-service patients, and more than $392 million for these type of bills for managed-care members. OLS estimates that the change envisioned by the bill would save between $29 million and $75 million annually, but noted that, without more information from the Murphy administration, a detailed analysis of the bill was not possible.

Officials with the Department of Human Services, which administers Medicaid, said that the change would shave just $29 million off the state’s tab for these services. But, since these payments also generate a federal match, the total impact on hospitals would be a loss of more than $58 million in revenue.

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