The governor and the Legislature will have a challenging 2013 session.

Along with writing a budget in uncertain times, another issue will confront legislators. Georgia’s Hospital Provider Payment Program (also known as the “hospital provider fee,” “hospital tax,” or “bed tax”) will be up for renewal and its passage or defeat will have implications on the fiscal year 2014 budget. This fee has served as a critical funding source for Georgia’s Medicaid program since its inception in FY11. This week we will examine the fee and its impact on the state budget.

History and overview of the hospital provider fee
When the hospital provider tax was initially proposed in the 2010 legislative session, Georgia was facing a Medicaid shortfall of nearly $600 million for FY11. As possible solutions to this shortfall, Governor Perdue offered the following choices:

• Cut Medicaid provider reimbursements by 10.5 percent and remove the sales tax exemption for non-profit hospitals.
• Cut Medicaid provider reimbursements by 16.5 percent and do not change any tax provisions or
• Implement a hospital provider fee and use a portion of the resulting federal funds to increase provider reimbursements by at least 11 percent.

The first two options caused a lot of turmoil because Medicaid providers were (and still are, according to many providers) in a precarious situation due to reimbursements barely covering the cost of services. The third option, to implement a fee, was proposed by the hospital community and adopted by the Legislature as a way to increase provider reimbursements and also deal with the state’s budget deficits.

The hospital provider fee works like this: 1.45 percent of net hospital patient revenue is remitted to the state as part of the fee. Trauma hospitals pay a fee of 1.4 percent, while critical access hospitals, free-standing psychiatric hospitals and state-owned and operated hospitals are exempt from the fee. The funds generated are statutorily restricted to pay Medicaid expenses only. These revenues are deposited into a restricted account used to draw down federal Medicaid funds. The matching federal dollars are the key point to understand how this fee benefits providers and the state.

Georgia pays 35 percent of Medicaid costs
Georgia has an approximately 35/65 state/federal split on Medicaid expenses. In other words, for every 35 cents Georgia spends on Medicaid, the federal government puts in 65 cents. Estimates for FY13 project that the hospital provider payment program will collect around $235 million. This $235 million will enable the state to continue to draw down approximately $450 million in additional federal funds for Georgia’s Medicaid program. About two-thirds of the fee and resulting federal funds are utilized to cover Medicaid expenses such as nursing home care, hospital care, and pharmacy costs.

About a third of the funds generated from the hospital fee are utilized to increase Medicaid provider reimbursements to hospitals by 12 percent. Another way to look at it is this: Hospitals put up approximately $230 million and the state uses these funds to match federal dollars. The state then returns the fee to the hospital community in the form of higher Medicaid provider reimbursements and uses the federal funds generated to fund benefits and keep provider reimbursements from being cut.

 
Currently 47 states have at least one type of provider fee. Of those, 38 states impose a hospital provider fee similar to Georgia’s. The most common provider fees are on nursing facilities, hospitals, managed care organizations, and intermediate care facilities for individuals with mental retardation or developmental disabilities.It should be noted that Georgia currently has another provider fee arrangement with nursing homes, which has proven to be a good benefit to both the state and nursing homes.

The “rub” is that not everyone gains from this fee arrangement.There are definite winners and losers on this fee.

Next week: The debate — winners and losers and possible consequences if there is no renewal.

I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
1-800-367-3334 day or night
Reidsville office: (912) 557-3811