NASHVILLE - For two years running, Tennessee's hospital industry has bailed out the state's TennCare program by agreeing to a fee on gross receipts that generates hundreds of millions of dollars.
And with no immediate end in sight to the state's financial woes, Gov. Bill Haslam says he expects next year to seek another extension of the assessment, now set at 4.52 percent.
"If it doesn't get extended, we have massive issues in terms of funding state government," Haslam said in a recent interview. "You can say what you want or put a political spin on it, but without that you're looking at very severe cuts to TennCare and impacts that would be felt on the budget throughout state government."
The governor said Tennessee Hospital Association leaders support the assessment as "the right thing for the people of Tennessee" as long as the money is used to prop up the $8.9 billion TennCare program. TennCare covers about 1.2 million low-income pregnant women, children and some disabled and elderly Tennesseans.
In an interview, Tennessee Hospital Association President Craig Becker wouldn't say positively that hospitals will go along with a future extension. He said it hasn't been easy holding the coalition of hospitals together since some are losing money on the deal.
But, Becker said, if the fee is extended, hospitals will want the state to put up some matching money so the assessment rate can be lowered.
"I think it's going to be important for the state to show some good faith and put some more dollars in," Becker said.
State lawmakers adopted a 3.52 percent assessment at the Tennessee Hospital Association's request in 2010 to stave off planned TennCare cuts in areas including hospital and physician reimbursements.
Lawmakers renewed the assessment this year and raised the rate to 4.52 percent. The fee raises an estimated $449 million, which draws down about $870 million in federal Medicaid matching dollars. That let the state avoid $1.3 billion in TennCare cuts this year.
The assessment isn't levied on government-owned hospitals like Erlanger Health Systems in Chattanooga, which provide large amounts of charity care, or on rural critical-access hospitals and freestanding rehabilitation hospitals.
Erlanger Health Systems President and CEO Jim Brexler said the fee has helped avoid "devastating cuts" to TennCare. He agreed with Haslam that the fee needs to be renewed next year.
Going forward, Brexler said, "I think each year we need to take a look at it. The economy is not coming back as fast as anybody would want, but it is getting better."
While hospitals don't want to be stuck permanently with the fee, there is precedent for provider taxes not going away. Lawmakers routinely extend a nursing home bed tax passed nearly 20 years ago for TennCare.
Haslam said better-than-expected revenues and an anticipated $20 million refund from the federal government allowed the state put some additional funds into TennCare this year.
"It made my life a lot easier and it made our budget discussions a lot easier," he said. "Unfortunately, you're not always going to have that luxury. I can easily see the next year or two budgets being more difficult than the budget we dealt with this year."
Tony Garr is with the Tennessee Health Care Campaign, which advocates for low-income residents on health issues. He praised hospitals for stepping up, saying that without the industry's help "we would be making very deep cuts" in TennCare.
Proposed reductions in physician reimbursements, for example, would have caused some doctors to quit taking low-income patients, Garr said. That would have hurt rural Tennesseans especially, he noted.
The Center for Budget and Policy Priorities, a liberal-leaning Washington-based research and policy institute, says Tennessee is one of 46 states that use provider taxes to help fund part of their Medicaid budgets. Among them are Georgia and Alabama.
But the federal deficit and the debt ceiling fight between Democratic President Obama and congressional Republicans are threatening states' use of such taxes to help fund their share of Medicaid.
"There is discussion (by Obama, House Republicans and various commissions) of Medicaid reductions being part of any package," said Edwin Park, vice president for health care at the Center for Budget and Policy Priorities.
"They all propose a number of cuts to federal Medicaid funding that effectively means you're shifting costs to the states."
According to the center, Obama's budget framework would sharply restrict or even bar provider fees or taxes. Such a move could save the federal government an estimated $25 billion to $45 billion over 10 years, because states likely wouldn't replace provider taxes with general taxes to draw down matching federal funds.
Becker and Brexler said hospital officials have spoken to the state's congressional delegation about proposed Medicaid cuts.