New Jersey hospitals say they're owed hundreds of millions of dollars for care provided under the state's old rate-regulated system, and they're seeking legislation that would force insurers, health maintenance organizations and employee benefit plans to pay them.
But at a hearing late last month, payers said they're not responsible. They said the state's 1992 health reform law allows hospitals to charge whatever they want and that requiring insurers to make up any past deficits represents a tax on healthcare consumers.
The rate dispute has been brewing for the past year. Negotiations between insurance and hospital representatives to resolve the matter have proved fruitless.
Hospitals now have turned their efforts toward lobbying for a legislative solution. A bill sponsored by state Sen. Andrew Ciesla would require the New Jersey Department of Health to determine exactly how much hospitals are owed and establish a system for collecting money from payers. The state Senate Health Committee has referred the bill to the full Senate.
Estimates range from $600 million to $900 million for the amount that New Jersey's 86 acute-care hospitals contend they are owed for covered services that were provided but not reimbursed. Thomas E. Terrill, executive vice president of the University Health System of New Jersey and a supporter of the bill, said the nine hospital members of the UHSNJ consortium are owed an estimated $100 million.
Under the old rate-setting system, hospitals were allowed to settle with payers at year-end to account for costs that were incurred during the year but weren't reflected in approved rates. For example, a hospital may have been entitled to a higher rate if it added a new service that wasn't reflected in its prospective rates. Hospitals also could appeal their rates, and those appeals could last more than a year.
But because New Jersey enacted legislation that deregulated hospitals rates in 1993, final rate adjustments were never made, hospitals said.
Ralph A. Dean, executive vice president of the New Jersey Hospital Association, said insurers have known about the prior-year rate obligations and collected money through their approved premiums.
But Henry E. Meisner, director of government affairs for the Prudential Insurance Co. of America, said that's not true. Payers were only responsible for approved rates and didn't raise premiums to cover for future adjustments. If hospital rate-setting had continued, payers would have been obligated to pay for such adjustments, he said. But under deregulation, hospitals may charge whatever they want.
"The insurance companies should know better than anyone that, in this competitive environment, simply raising rates to make up for the money owed is a false argument,"said Ron Czajkowski, an NJHA spokesman.
The proposed legislation prohibits insurers from raising their premiums to generate extra funds to pay hospitals. "That, we feel, is unconstitutional under New Jersey law," said Debra Cohn, senior counsel for the Health Insurance Association of America.
Fred Hillmann, a spokesman for Blue Cross and Blue Shield of New Jersey, said mandating such payments without allowing premium increases could "jeopardize our financial solvency." As a not-for-profit insurer, the Blues plan doesn't have profits to meet extra payments, and it would have to draw money from its reserve fund, he said.