Fee on hospitals might be key to health-care deal

08/30/2007 9:08 AM

08/30/2007 9:11 AM

Three years ago, California’s Legislature was presented with a novel circumstance: a group that wanted a new fee imposed on it.

The state’s nursing-home industry supported a 6 percent charge as a way to draw more federal money to California for Medi-Cal, the health-care program for the poor. The federal government matches the state’s spending on Medi-Cal. So for every dollar California collected in fees from the homes and then spent on Medi-Cal, the nursing homes, as a group, got an extra dollar back from Washington.

The bill passed on overwhelming votes in both the Assembly and Senate, and Gov. Arnold Schwarzenegger signed it. Even many Republicans who normally oppose all tax increases and most new fees voted for the bill.

Now the Legislature is considering a similar fee on hospital revenues, proposed by Schwarzenegger as part of his plan to expand access to health insurance. But so far, the hospital industry has strongly opposed the idea.

And Republicans have derided it as a tax increase.

Senate Republican leader Dick Ackerman of Irvine voted for the nursing-home fee in 2004, but Ackerman opposes the governor’s proposal. The difference between then and now, he said, is that the nursing-home industry wanted the fee while the hospital industry opposes it. Also, the Legislature’s lawyer has classified Schwarzenegger’s proposal as a tax, not a fee, making it less palatable to Republicans. Finally, he said, the proposal is part of Schwarzenegger’s broader health-care plan, which has many other elements the Republicans oppose.

“This is not an industry-supported fee,” Ackerman said. “Some people are saying yes but a lot are saying no.”

Democrats have also opposed the fee, citing hospital-industry opposition. But Schwarzenegger has not given up on the idea, and there were signs last week that it might still be viable.

The California Hospital Association has been working behind the scenes with Schwarzenegger’s staff to test different ways of applying the fee.

Their mutual goal: to find a method that spreads the new federal money as widely as possible, to maximize the number of hospitals that would be winners under the deal and minimize the number of losers.

Although Schwarzenegger’s original proposal called for a flat, 4 percent fee on all hospital revenues, the negotiations have now led the parties to a different approach: a fee based on the number of patient-days in each hospital. For each patient who belongs to a managed-care health plan, a hospital would pay $141 per day. For other patients, the hospitals would pay $405 per day.

Those fees, the hospital association found, would raise $1.7 billion per year from private hospitals in the state. That money would be matched by $1.7 billion from the federal government.

The state would then plow that $3.4 billion back into health care.

About $1.5 billion would be used to increase Medi-Cal payment rates to private hospitals. Fees the state pays to hospitals that serve Medi-Cal patients as part of a managed-care plan would increase by $400 million. The state would use the remaining $1.5 billion to widen eligibility for both Medi-Cal and the Healthy Families program, which serves low-income children.

According to the industry’s analysis, 282 hospitals would get more out of the exchange than they put in, while 88 would lose out on the deal.

The biggest winners would be those hospitals that serve the most Medi-Cal patients, while the biggest losers would be hospitals that do not serve the poor or do so on a more limited basis.

In Sacramento, Sutter Medical Center would pay in $15 million and get $52 million back. Mercy General Hospital would pay in about $7 million and receive more than $11 million back from the state.

Methodist Hospital would put in about $1.4 million and get almost $13 million in return.

Although there would be no big losers in the Sacramento area, hospitals around the state that serve mainly private-paying clients would pay in plenty and, in many cases, get nothing back. The Betty Ford Center would lose $12 million a year, and the American Recovery Center, a substance-abuse treatment center in Pomona, would lose $13 million.

The biggest loser of all would be Kaiser Permanente, which as a chain would be out $113 million a year. But the company has said it would support this kind of fee as part of a comprehensive approach to providing universal health insurance.

The hospital association, after studying the numbers, has decided to maintain its opposition because not every member of its group would benefit.

C. Duane Dauner, the association’s president, said the fee would create inequities that would “fracture” the health-care system rather than improve it.

But given that the big winners would be hospitals that serve the poor and the losers would be mostly centers that cater to the affluent, it’s hard to see why Democrats in the Legislature would continue to oppose the idea.

Look for the concept to re-emerge in the weeks ahead as the governor and Democrats try to narrow their differences and close a deal before the end of the legislative session.

Daniel Weintraub can be reached at dweintraub@sacbee.com .

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