Assessment fees benefit Indy hospitals

A new hospital assessment fee program created by the Indiana Medicaid system has worked out well so far for Indiana University Health and Community Health Network.

The two Indianapolis-based hospital systems enjoyed net gains of $267 million and $23 million, respectively, from the program during the fiscal year ended June 30.

Both hospital systems reported the financial gains in their third-quarter financial reports, filed in the past month. Most hospitals have yet to report on how the program affected their finances.

The assessment fee program, created by the state Legislature in 2011, is a way to increase federal matching dollars paid to Indiana’s hospitals through the federal-state Medicaid program, which pays for health care for the poor.

The federal government currently matches Indiana’s spending on Medicaid at about a 2-to-1 ratio. And federal rules allow Indiana to raise its payments to hospitals in order to draw even larger federal payments.

The hospital assessment fee is essentially a tax on hospitals to fund those higher state payments, so the hospitals can then enjoy larger federal payments.

A February projection by the Indiana Hospital Association expected new fees from the program to total $609 million per year. But the new revenue to hospitals was expected to top $828 million.

That would leave a net gain for the hospitals of nearly $220 million.

For example, IU Health paid $145 million in fees for the fiscal year ended June 30, but it received $411.8 million in additional revenue due to higher Medicaid reimbursements. So its net gain from the assessment program itself was $267 million.

However, the program also brought on a reduction in special Medicaid payments to hospitals that serve the largest numbers of Medicaid paymenys. So-called "disproportionate share" payments fell for IU Health by $122.7 million, meaning its total gain under the program totaled $144.3 million.

Community Health paid $38.6 million in additional fees but received $61.8 million in higher Medicaid payments.

Not all hospitals will be winners under the program. With IU Health and Community already raking in $168 million in net gains from the program, it’s likely that some hospitals—those that serve a small number of Medicaid patients—will actually pay more in tax than they receive in larger Medicaid payments.

That could become an issue next year when the Indiana General Assembly considers whether to renew the program for another two years.

The state government will do OK by the program, though, because it gets to keep at least 28.5 percent of the additional federal revenue generated by the assessment fees. According to the estimate by the Indiana Hospital Association, the program will generate more than $94 million in new revenue for the state.

Tight state finances forced cuts to Medicaid payments for hospitals in 2010. In nearly all cases, Medicaid payments do not cover hospitals' costs of providing care.

"Particularly with looming cuts in Medicare, better reimbursement for providing Medicaid services is a very welcome development," said Brian Tabor, the vice president of government services for the Indiana Hospital Association.