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Much to the displeasure of private hospitals, Gov. Haley Barbour has introduced an assessment on private hospitals effective Sept. 1 to help cover a Medicaid shortfall necessitated by the federal government's decision to stop Mississippi and other states from using a complex funding formula that has allowed them to receive additional federal money.

Barbour is asking state lawmakers to set aside $45 million to cover half of a $90 million shortfall in state funding for Medicaid, and is using the new hospital assessment — 1.5 percent on the gross revenues of all hospitals — to help cover the remaining $45 million. (Public hospitals would get back the money sent to the state.) The assessment would make hospitals, already operating with slim profit margins, the only business in the state taxed on gross revenue.

"Let me emphasize that the federal government is mandating this change," said Barbour, whose critics are calling the assessment an "unauthorized tax on sick people" at a time when the state ended its 2006 budget year on June 30 with $70 million in the bank, and months after the governor dismissed legislation mandating a cigarette tax, which could have covered any Medicaid shortfall.

Private hospital groups indicate the action may force them to reduce staff, cut back on services and in some cases, turn away patients who lack insurance.

"We're currently in discussions with the governor and Department of Medicaid through the Mississippi Hospital Association concerning the issue," said John Heer, president and CEO of North Mississippi Health Services (NMHS) in Tupelo, one of the nation's largest rural hospitals. "While the proposal presented by the governor is roughly half of the original proposal, the cost to NMHS is approximately $4.5 million per year. This is a cost we cannot bear without making significant changes to our operations."

The Mississippi Hospital Association (MHA) published a position paper on July 6 stating the Medicaid plan by Barbour involves "taxation without representation, pure and simple."

"The hospital gross revenue tax levied by the Division of Medicaid is in violation of the Mississippi Constitution," said Sam Cameron, president and CEO of MHA. "The statutory authority claimed by the division to levy this tax is an unconstitutional delegation to (Division of Medicaid) of the legislature's taxing power. The tax will result in significant financial losses to many of our state's hospitals and may result in the reduction of needed hospital services in our communities."

Changes through the intergovernmental transfer (IGT) program that Mississippi used for 14 years prompted the shortfall. Mississippi received the nation's most generous match, a roughly 3-to-1 federal match, for Medicaid services through the IGT program. Qualified public providers moved state or local funds to Medicaid to be matched with federal funds. That money, plus extra funds, was transferred back to those providers. Nonpublic hospitals also benefited from the program because Medicaid had money to fund the program.

For example, a public hospital that contributed $360,000 to the program last year received $500,000 in return as a disproportionate share hospital payment. Additionally, Mississippi recognized $1 million earmarked for the Medicaid program.

Last June, the federal government determined that the method of financing the program to maximize federal matching was unacceptable. State lawmakers knew about this problem during the regular legislative session that ended this spring, but postponed taking action while alternative solutions were being considered.

Shortly after the announcement last summer, the Division of Medicaid asked the MHA to contract with the Covington & Burling law firm to identify alternates to the IGT funding mechanism. The law firm worked on developing a funding mechanism using certified public expenditures (CPEs), an alternate means of securing federal matching funds that the Centers for Medicare & Medicaid Services (CMS) had approved in other states.

When Cameron met with Mississippi Medicaid director Robert Robinson on May 9, Robinson informed Cameron the CPE program was not the best alternative.

"Instead, they presented their proposal to increase the hospital gross revenue tax by 1 percent while keeping hospital reimbursement unchanged," explained Cameron. "Medicaid planned to implement this increased tax on July 1, 2006, and Medicaid asked for MHA's support of this proposal."

In late May, MHA told Medicaid the statewide hospital group would not support the increased provider tax but would consider pursuing other options to fund the shortfall, and asked Barbour to delay levying the new tax until Sept. 1.

In a July 6 memorandum to "interested parties," Barbour explained his decision: "To solve this $90 million problem, the best alternative program will require private hospitals to pay approximately $27.5 million a year for the redistribution of gross revenue assessments. The private hospitals will begin to receive an estimated $20 million in DSH (Disproportionate Share Hospital) payments, and all Medicaid hospital providers will receive higher reimbursement rates on medical service claims beginning in January 2007.

"As a result of these adjustments, the gross revenue assessment redistribution will not have a negative impact on private hospitals as a whole, although each individual private hospital's situation will be different. Public hospitals will pay approximately $17.5 million a year for the redistribution of gross revenue assessments compared to the $90 million they paid under the previous system. This proposal will provide significant financial relief to almost all of our small, county-owned public hospitals and to the University Medical Center (UMC)."

UMC vice chancellor for health affairs Dan Jones told legislators the medical center faces nearly $80 million in losses for caring for the uninsured. Nearly 750,000 of the state's 2.8 million population are enrolled in Medicaid.

After initially sending notices to hospitals with a July 1 effective date to begin collecting the assessment, Barbour agreed to delay the so-called hospital tax until Sept. 1.

"Though appreciated, that still does not change MHA's position that the gross revenue tax is in violation of the Mississippi Constitution and the statutory authority claimed by the division to levy this tax is an unconstitutional delegation to (Division of Medicaid) of the Legislature's taxing power," said Cameron. "Frighteningly, state officials have also made it clear that they believe they have the authority to raise the tax up to 6 percent without any legislative involvement."

Tim Thomas, administrator for Newton Regional Hospital in Newton, said he's partially relieved from the proposed reduction of funding required from my facility.

"However, the memo doesn't provide specific details on the impact to Newton Regional Hospital," he explained. "I haven't been given a revised gross revenue assessment rate and implementing parts of the proposal in September and other parts in January make it difficult to estimate."

Thomas expressed concern about the misunderstanding that government-owned hospitals have been treated inequitably under the IGT program.

"While these hospitals have been contributing a higher proportion of assessments, they've also been receiving a higher proportion of distributions," he explained. "I'm not aware of any concerns being voiced by these hospitals over the assessment formula prior to this issue."

Thomas also voiced concern about the potential misunderstanding relating to this issue.

"Before this issue, I hadn't heard of government-owned hospitals being differentiated as 'high DSH public hospitals,'" he said. "I'm not aware of any discernable differences between a government-owned hospital and a community nonprofit hospital in the degree of services provided to underserved populations.

"Most small rural hospitals in Mississippi were originally county-owned facilities constructed under the Hill-Burton construction program. After the advent of the Medicare DRG payment system in the early 1980s, many of these county-owned facilities could not be supported by the county governments and were closed or converted to community nonprofits. The land and buildings of most of these non-profit hospitals continue to be county-owned."

Even though state lawmakers could retroactively approve deficit funding for state programs when the next regular session begins in January, there have been rumblings about a special session being called to address this issue. Attorney General Jim Hood is expected to weigh in on the legality of Barbour's action.

"In the past, we've worked in conjunction with the legislature and Medicaid to shore the program up," said Cameron. "Hospitals last year agreed to an additional bed tax so the state would not cut the benefits of Medicaid beneficiaries. But the state cannot continue to balance the Medicaid budget on the backs of hospitals. If this continues, we'll all see access to care seriously threatened in our state."

Barbour said he would continue to remain open-minded to other viable alternatives.

"I've informed the Mississippi Hospital Association that if they wish to pursue CPEs as a part of the solution, the Division of Medicaid will submit such a plan to CMS for their consideration," he said.

In the meantime, 36 hospitals have prepared a lawsuit regarding the constitutionality of the assessment and plan to file it if implemented.

"The governor has submitted a new proposal to CMS," said gubernatorial spokesperson Pete Johnson. "If it's accepted, we'll go forward. If it's rejected, we'll continue with collections on Sept. 1."

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