NASHVILLE-Gov. Bill Haslam says his proposed $30.2 billion budget would have been far tougher to put together had not the hospital industry agreed to extend and expand an assessment fee on hospitals that will generate $450 million for TennCare.
The Republican governor said the 2011-12 budget that starts July 1 includes "real cuts" but added, "we would have had a much different-looking budget and our cuts to TennCare would have been a lot harder" without the Tennessee Hospital Association's agreement.
Haslam spoke last week during a roundtable discussion with reporters after presenting his first budget to the Republican-controlled General Assembly.
Asked whether he thinks the fee extension is a "done deal" among lawmakers, Haslam said, "I think it is. I haven't heard anybody yet bring up an alternative to that. I'd be surprised if it wasn't, I'll put it that way."
An $8.69 billion program
Under Haslam's proposed budget the state would spend $8.69 billion in state and federal funds on TennCare, or about 32 percent of the general fund.
TennCare covers about 1.2 million people, primarily lower-income pregnant women and children and some elderly and disabled people. It also funds essential-access hospitals and other safety-net providers.
The coming year's TennCare budget is $395.7 million higher than the current year's, counting state and federal funding. That comes mostly from raising the assessment fee from 3.52 percent of gross revenue to 4.52 percent.
The increase will draw additional federal matching funds and make up for the loss of federal stimulus funds in the fiscal year that begins July 1.
Even so, Haslam's budget still calls for TennCare cuts of $120.5 million, which will cost the program an additional $77.9 million in federal matching funds.
No assessment: $1.32 billion hole
If the assessment doesn't go through, figures show, the state would lose not just the fee revenue but another $870.5 million in federal matching funds.
That would blow a $1.32 billion hole in TennCare's budget.
To plug it, the state would cut reimbursement rates to hospitals and doctors by 8.5 percent and limit adult hospital stays to eight days a year.
House Majority Leader Gerald McCormick, R-Chattanooga, said he believes the measure will pass.
"I think we've got to or else we're really in a lot of trouble financially," McCormick said. "I think Democrats may play politics a little bit."
He said House Democratic Caucus Chairman Mike Turner told him there was "resistance" among minority Democrats to extending and expanding the fee, first implemented at hospitals' request last year.
"He would not commit to me they were going to be in favor of it," McCormick said.
Over in the Senate, Sen. Andy Berke, D-Chattanooga, said he isn't excited about extending the fee again.
"I don't think anybody in the hospital industry or the government is happy with having to do it," he said.
But the results of inaction are "certainly the hammer that's being used to push the assessment," Berke said.
"I'm certainly concerned about continuing this one-year process that we have. But I'm also worried about Erlanger, Memorial and other hospitals if we don't pass it."
Government-owned hospitals such as Erlanger, which provide large amounts of uncompensated care, are excluded from the tax.
Tennessee Hospital Association President Craig Becker said failing to extend and expand the fee would wreck TennCare.
"It's the same [situation] as it was last year only worse," Becker said. "We were looking at 7 percent cuts instead of the 1 percent cuts to the hospital fees and the same thing to physician fees."
That "would have pretty much gutted the program because we probably would have lost our physician friends," Becker said.
He didn't want to predict what the Legislature would do, but said it's "hard to imagine they wouldn't pass it."
Tennessee Medical Association President B W. Ruffner, a Chattanooga oncologist, spoke to lawmakers at the Capitol recently about extending the assessment.
Ruffner said TennCare physicians already are losing money in the program. Further payment cuts will hurt the provider network, Ruffner said.
Gary Zelizer, who lobbies for doctors, said they are "grateful for the hospital assessment the [hospital industry] is supporting."
The budget calls for reducing payments to doctors for nonemergency cesarean deliveries, saving $14.9 million, and for cutting $8.4 million in reimbursements to emergency room physicians whose patients do not have true emergencies.
Officials also want to save $12.6 million in state funds by implementing 1.5 percent cuts in reimbursements to providers other than hospitals and professionals such as physicians, Becker said.