Legislation to Increase Financial Resources Provided through New Jersey Medicaid Program and to Establish County Option Hospital Fee Pilot Program Quietly Took Effect in April

by Parampreet Singh

On April 30, 2019, N.J.S.A. 30:4D-7r et seq., the County Option Hospital Fee Pilot Program Act (“Act”) establishing the County Option Hospital Fee Pilot Program (the “Pilot Program”), went into effect.  The bill was sponsored by Senators Joseph F. Vitale and M. Teresa Ruiz, and Assemblyman Craig J. Coughlin.  Governor Phil Murphy signed the bill on November 1, 2018.    

The Act creates a pilot program which will be overseen by the Commissioner of the New Jersey Department of Human Services (“DHS”).  The Act will initially allow seven qualified counties to participate in the Pilot Program, and grant them the authority to “impose a local health-care related fee on hospitals.”  The stated purpose of the Pilot Program is “to increase financial resources through the Medicaid program to support local hospitals and to ensure that they continue to provide necessary services to low-income citizens; and to provide participating counties with new fiscal resources.” 

In order to qualify for the Pilot Program, a county must have “a population greater than 250,000,” based on the most current federal census data available as of the effective date of the Act, with a municipality that is classified as a first or second class municipality, or a fourth class municipality with a population greater than 20,000, pursuant to N.J.S.A. 40A:6-4.  Furthermore, the municipality must have a Municipal Revitalization score greater than sixty, based on the New Jersey Department of Community Affairs’ calculations. 

Participating counties must submit proposed fees and expenditure reports to the Commissioner to ensure compliance with state and federal law.  Prior to submitting the fees and expenditure reports, the counties are required to “consult with affected hospitals within” their jurisdictions.  After submission, the Commissioner shall provide affected hospitals with twenty-one calendar days to provide comments.  The proposed fees must be “implemented in accordance with the provisions of 42 U.S.C.A. 1396b(w)(3)(A),” and subject to the limitations of 42 C.F.R. 433.68(f)(3).  42 U.S.C.A. 1396b(w)(3)(A) outlines the requirements for a fee to qualify as a “health care related tax,” and requires at least eighty-five percent of the burden of the tax to fall on health care providers.  42 C.F.R. 433.68(f)(3) sets forth the conditions under which a taxpayer will be considered to be held harmless. 

Additionally, a county may exempt a specific hospital from within its jurisdiction from the imposed fee, as long as “the exemption complies with the requirements of 42 C.F.R. 433.68.”  Furthermore, at least ninety percent of the funds collected must be used to benefit hospitals within the collecting county’s jurisdiction, and at least one percent of the fee must be transferred to DHS to cover administrative costs.  The Act is silent with respect to how the remaining nine percent of the collected funds can be utilized. 

The Act explicitly prohibits affected hospitals from passing on the costs of the fee to patients or insurers.  Notably, the Act acknowledges that “funds generated by the fee shall not supplant or offset any current or future State funds allocated to a county participating in the pilot program” and “payments distributed to hospitals . . . shall not supplant or offset any current or future funds paid to hospitals through other State or federal funding mechanisms or pools.”

Based on the requirements set forth in the Act, the counties most likely to be eligible for the Pilot Program are: Atlantic, Burlington, Camden, Gloucester, Essex, Hudson, Mercer, Middlesex, Monmouth, and Passaic.  According to Senator Vitale, “while Medicaid is the safety net that prevents low-income New Jerseyans from falling through the cracks, hospitals need to be well-funded and supported to properly deliver expert care to the community they serve.”  Furthermore, Senator Vitale believes the “pilot program will expand the resources for Medicaid and funnel funds into those facilities that ensure the disadvantaged continue to receive the quality care they need.”

It will be interesting to monitor the health care community and county legislators’ reactions to the actual implementation of this Act.  On the one hand, only seven out of ten potentially eligible counties will be authorized to participate in the Pilot Program, leaving at least three, if not more, counties unable to impose health-care related fees on hospitals within their jurisdictions to raise funds like their sister counties.  On the other hand, hospitals in seven counties will be subject to additional financial burdens, unlike the hospitals in the remaining fourteen counties not qualified or chosen for the Pilot Program.  Furthermore, the Act’s silence with respect to the remaining nine percent of the funds collected through the Pilot Program (requiring at least ninety percent to be distributed to hospitals within a county’s jurisdiction and at least one percent to be transferred to DHS for administrative costs) may become a point of contention for hospitals and counties alike.