New Jersey's hospitals persuaded the governor and state Legislature late last month to boost charity-care funding by 53%, but the bounty came at least in part on the backs of free-standing ambulatory surgery centers.
The 11th-hour burst of lobbying by the New Jersey Hospital Association brought new money to what hospitals consider a perpetually underfunded program, but the effort singed another hot spot in the increasingly prevalent frictions between not-for-profit hospitals and entrepreneurial doctors nationwide.
The state's 2005 budget, which went into effect July 1, increases charity-care funding by $202 million, deepening the pool that is shared by the state's 83 hospitals to $583 million. The new funding formula, which draws on a variety of sources including the new tax, ensures that every hospital will get at least 43 cents on the Medicare dollar spent on care for the uninsured and some hospitals will get as much as 96 cents on the dollar.
Under a separate bill to help fund the new pool of money, lawmakers levied a 3.5% tax on gross revenues for all ambulatory centers, although the tax is capped at $200,000 per center, which is equivalent to $5.5 million in gross receipts. Gov. James McGreevey was planning to sign the bill into law, said Juliet Johnson, a spokeswoman for the governor. He has until Aug. 1, when the first cash distribution to hospitals will be made.
Under the previous funding formula, 70% of the state's hospitals were receiving as little as 12 cents on the dollar in charity-care funding, said Sean Hopkins, the NJHA's senior vice president of health economics.
Hopkins said that because of the explosion of the number of uninsured in the state- 1.4 million people-hospitals collectively provided $778 million in charity care in 2002, the most recent year for which data are available, yet recouped only $381 million from the state program.
Despite the newfound money, the funding formula did not turn out exactly as the hospital association first hoped, said Gary Carter, president and chief executive officer of the NJHA. Lawmakers at first were considering raising the hospital net patient revenue tax to 0.7% from 0.5%, and lifting a $40 million cap on money that could be generated by it. When hospitals balked, legislators insisted that if hospitals were going to get new charity-care money, they would have to come up with a way of paying for it, Carter said.
"We originally looked at a way for out-of-state, for-profit companies that were coming into New Jersey and taking paying patients only, and we felt they should have a charity-care obligation," Carter said. "But when (the proposed bill) came out on June 7, it had been expanded by legislators to include everything, including hospital joint ventures with doctors. Obviously the doctors are mad and they are directing their anger at us. Doctors do provide a lot of charity care. The issue for us was that the skimming was taking place by out-of-state companies."
Physicians indeed believe there was more behind the hospital association's lobbying effort than charity-care funding. "I know the hospital association states that it supports the tax because of its ability to raise charity care, but the other reason hospitals hate ambulatory-care facilities is because they are able to do procedures safer and cheaper," said John Shaffer, a spokesman for the Medical Society of New Jersey. "Any opportunity they can take to get back at ambulatory facilities, they will."
The new money comes from a variety of other sources besides the expected $31 million that the new tax on ambulatory-care centers is expected to raise. Other funding sources include a 6% sales tax on cosmetic surgery procedures that is expected to raise $26 million, $155 million from a cigarette tax and $55 million from a 1% assessment on HMO premiums, said Tom Vincz, a spokesman for the New Jersey Department of Treasury. Another $100 million will come from the state's unemployment insurance fund, and the charity-care funding pool also includes $70.3 million in federal funding. The balance will be drawn from the budget's general fund.
Nevertheless, the tax on ambulatory centers was by far the most controversial. "The key word is `gross receipts.' A lot of these facilities, including radiology centers, are highly leveraged because they have to purchase equipment every year and have very thin margins," Shaffer said. "So that means you have to pay a tax before you pay any expenses. No other taxes work that way."