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NASHVILLE -- The Tennessee Hospital Association is considering asking incoming Gov. Bill Haslam and state lawmakers to extend and possibly increase an "assessment" fee on hospitals that enabled the state this year to avoid making more than $700 million in TennCare cuts.

But industry officials warned the fees cannot become a financial cure-all for problems related to the end of federal stimulus funding for the $8.29 billion program that covers some 1.2 million people.

Tennessee Hospital Association President Craig Becker said he "wouldn't call it a foregone conclusion that we'll continue" the assessment.

Becker said "it's just a question of if we go forward with the fee, what are we going to cover? I have to tell you, people are just coming out of the woodwork, thinking we should fund their program, and that's not what these dollars are for."

Erlanger Health System President and CEO Jim Brexler, who recently served as the hospital group's chairman, said part of the issue is making sure the new governor and a new General Assembly understand the 3.25 percent fee hospitals agreed to this year. It will expire July 1 unless lawmakers renew it.

"I believe there will be a result that will come together positively, but we do need to make sure everybody is on board with the same principles, and we are not stepping into hospitals funding non-health activity," Brexler said.

Erlanger provides services to a large number of TennCare enrollees. It also provides a large amount of health care for which it is not compensated.

The current hospital fee, which hospitals urged lawmakers this spring to pass to avoid cutting provider reimbursements, now raises some $290 million. About $80 million helps fund a pool payment back to hospitals.

The other $210 million goes to TennCare. The state uses those funds to draw an additional $506.5 million in federal matching funds. The total $717 million is being used to "buy back" previously planned cuts the Bredesen administration had slated for TennCare.

Those included limiting a patient's hospital stay to no more than eight days. Hospitals said that effectively cut their payments since they wouldn't be kicking sick patients out of their facilities. Becker said officials now have to contend with inflation and the end of enhanced federal matching funds Congress enacted to help states weather the recession.

Earlier this year, then-state Finance Commissioner Dave Goetz said the Bredesen administration assumed hospitals would increase the fee to cover the expected loss of $121.5 million in one-time federal stimulus-related funds. The state is using the money now to attract about $321 million in additional federal matching dollars.

The money is being used in a number of ways including off-setting 6 percent in planned cuts to provider reimbursements. If the $121.5 million is not replaced, that could blow a $442.7 million hole in TennCare's budget, according to a recent presentation by the TennCare Bureau.

"If our budget stayed the same and no more one-time funding came, this is what it would look like as far as cuts," TennCare spokeswoman Kelly Gunderson said. "But that's not necessarily the case. There's the hospital fee discussions going on. Any of these things can move around. This is not set in stone."

If hospitals balk at renewing the current fee, the situation becomes far worse. TennCare would suffer a loss of $717 million in addition to the $442.7 million -- a combined $1.17 billion blow.

Brexler indicated he is not averse to using some funds to help other areas of TennCare.

But Becker warned that "there's not much more we can do." If the association seeks to raise the fee by too much, he warned of a "total fracture" occurring between large providers of TennCare services and other hospitals that do not have many TennCare clients.

During his successful campaign to become the next man to run Tennessee government, Haslam, who is Knoxville's mayor, warned the hospital assessment fee might not be extended.

Asked what he will do, Haslam spokesman Davis Smith said via e-mail that hospitals this year "came together and made it clear to the legislature and the governor that they wanted and needed a coverage assessment to help close the budget gap."

"The Haslam administration will evaluate the circumstances that exist, gather input from hospital industry leaders and other stakeholders, and make sure an appropriate, fiscally responsible solution is reached," Smith said.

Smith said that "first and foremost, Mayor Haslam will make sure TennCare never again threatens to bankrupt our state."

Sen. Bo Watson, R-Hixson, said he had not heard the latest hospital discussion or TennCare plans. He said extending the tax would be difficult without hospitals' support.

Becker said hospital leaders will try to make a decision in January or possibly February.

Contact staff writer Andy Sher at asher@timesfreepress.com or 615-255-0550.

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