Hospitals want revenue tax to offset TennCare cuts

One-year fix to close $546M reimbursement gap

Tennessee hospitals are asking the state to approve a tax on their revenues in order to offset an anticipated $546 million negative impact from TennCare cuts scheduled to take effect July 1.

The Tennessee Hospital Association’s board of directors voted unanimously Monday afternoon to recommend the one-year “coverage fee.” The fee would place a 1 percent to 2 percent tax on the net revenues of non-government-owned hospitals, generating up to $200 million that then would be used to draw down matching federal funds for TennCare.

In essence, Tennessee would take $1 to Washington, D.C., and come back with $2 or $3, “plenty to take care of the cuts and pay back the fee itself,” explained THA President and CEO Craig Becker on a Monday conference call with reporters. It would prevent what he called the “potentially catastrophic impact the cuts would have on hospitals, patients and communities across the state.”

The cuts in question, formally proposed by Gov. Phil Bredesen last week, would eliminate $200 million in spending from the state Medicaid program for the 2011 fiscal year, on top of the $170 million in TennCare cuts proposed but not implemented in the current fiscal year. TennCare would stop paying for certain services and cap payments for others, such as placing a $10,000 annual limit on inpatient hospital care.

Because the reduction would also mean the loss of matching governmental dollars, THA estimates the total impact of the cuts at $546 million. That loss likely would trigger reductions in service hours and lines of care and even the closing of some facilities, said THA board chairman and Erlanger Hospital CEO Jim Brexler.

Locally, Nashville General Hospital last week estimated the TennCare reductions would create a $10.5 million deficit for the safety net facility. In a statement, Nashville General interim CEO Jason Boyd said the hospital could not absorb that blow.

Under the coverage fee plan, Nashville General and the rest of the state’s roughly 50 government-owned hospitals would be exempt from the coverage fee so they can continue to receive public funds to offset charity care.

Becker said the THA will insist that one-year sunset language be included in any legislation. “There is a concern among our membership that we could end up funding the entire TennCare program,” which is the state’s responsibility, he said.

Of course, all the details are yet to be determined. For one thing, because the program would require first state and then federal approval, it could be a year or more before the fee takes effect. In the meantime, the THA plans to work with the governor’s office and TennCare officials to try to stop the cuts from taking effect as scheduled, potentially through the use of stimulus dollars or rainy-day funds.

On a conference call last week, Bredesen acknowledged the cuts would be painful for many Tennessee hospitals, but said it’s impossible to balance the cash-strapped state’s budget without TennCare reductions.

As proposed, TennCare will account for 24 percent of the state’s $28 billion budget in 2011.