Hospitals will get more, and also give more

Though Gov. Christie's proposed budget cuts millions in state aid for nearly everything, including municipalities, K-12 education, and colleges and universities, at least one group stands to get more money. But not before dishing out more in taxes.

Christie wants to give hospitals $867.9 million in aid, up $11.3 million, during the fiscal year that starts July 1. He would do it by doubling a tax on hospital revenue in order to secure matching federal money.

Hospital executives praised Christie last week for making them a priority despite the state's $11 billion budget gap. But some questioned the underlying logic of taxing hospitals to fund them.

Betsy Ryan, president of the New Jersey Hospital Association, said the plan "simply makes no sense" and could "strike a significant financial blow" to the nearly half of New Jersey hospitals already losing money.

The state's hospitals paid $40 million this year through a tax of about 0.22 percent of patient revenue. That money went to community health centers, such as CamCare in Camden, which serve underserved, migrant, and homeless populations.

Christie has proposed raising an additional $38.7 million from hospitals and $6.5 million from ambulatory-care centers. That money would draw $45 million in additional Medicaid funding.

The total new revenue, about $90 million, would feed two funds. A third of the money would help stabilize struggling hospitals, enough to preserve a program that could have been axed, Department of Health spokeswoman Donna Leusner said.

The balance of the added money would boost the state's contribution to Charity Care for the working uninsured to $665 million.

The Department of Health hasn't yet answered the big question: As all hospitals contribute more, how will money be distributed?

Charity Care money now is doled out based on the percentage of a hospital's patient base lacking health insurance. Hospitals are divided into three tiers, with those that serve proportionally more uninsured compensated at a higher rate.

New Jersey hospitals provided $1.4 billion in services to uninsured patients in 2008, according to Sean Hopkins, senior vice president of the hospital association. The state had just $605 million to cover those costs, and hospitals swallowed the rest.

With an increase in unemployment, the demand from uninsured patients likely has gone up, Hopkins said.

Virtua's four hospitals - in Berlin, Marlton, Mount Holly, and Voorhees - fall into the bottom two tiers. This year the hospital system, one of the most financially stable in the state, received $2.6 million in state aid for $24 million in services to the uninsured, according to spokeswoman Peggy Leone.

Under Christie's plan, Virtua's $2 million hospital-tax bill would double, and the health system would pay an additional $1.6 million on four ambulatory-care centers owned jointly with physicians, according to Fred Hipp, Virtua vice president for government relations.

Cooper University Hospital in Camden is one of nine "safety net" hospitals that serve a high number of uninsured. Though its rate of compensation is among the best, it's never enough, chief executive officer John Sheridan said.

The hospital, which paid $1.23 million in taxes this year, received about $35 million in state compensation for at least $60 million in services to the uninsured, he said.

Sheridan praised Christie's efforts to increase state aid to hospitals and maintain level funding for those that provide residencies to doctors in training.

"This is a very good effort on the part of the governor to try to come up with the funds to address some serious financial problems," he said.

Hipp said he would like to see a more even distribution of Charity Care aid. He and Hopkins said they were grateful that Christie had maintained funding but were anxious to see what the impact would be on individual hospitals.

Alan Zuckerman, president of the consulting firm Health Strategies & Solutions in Philadelphia, said New Jersey hospitals "should thank their lucky stars" for the budget Christie proposed. They could have been hit with major cuts in aid. And with most hospitals dealing with negligible or negative operating margins, he said, the fallout would have been severe.

As for taxing hospitals to fund them, he said it was not unusual. Philadelphia hospitals began paying a provider tax last year of 3.93 percent in order to draw federal aid to help cover the city's uninsured.

Kennedy Health chief executive officer Martin A. Bieber said he was glad New Jersey hospitals were spared the drastic cuts that colleges and universities were hit with. But, he said, the tax increase reflects a "whittling away" of aid.

Kennedy, with hospital campuses in Cherry Hill, Stratford, and Washington Township, had a $4 million drop in total state aid last year, he said.

Like his counterparts, Bieber is waiting to see how, and whether, tax money will come back to his organization after its $862,000 bill doubles.

"If I get a couple of shekels out of this we may be lucky," he said.