The Illinois Hospital Association will dismiss two lawsuits it filed against the Illinois Department of Public Aid that claimed Medicaid payment rates to hospitals were inadequate.

Last month, the association dismissed one suit that was pending in U.S. District Court. A second suit that was filed in Cook County Circuit Court will be dismissed "shortly," according to Mark Deaton, the association's general counsel.

Dean Schott, a spokesman for the department of public aid, said the dismissal of the suits was part of an agreement between the department and the association. For its part of the agreement, the state put a new law into effect that changes the state's reimbursement system to hospitals.

Mr. Deaton said the new system bases Medicaid reimbursements on actual cases handled by the hospital, instead of a flat, per day rate.

"The shift to the new reimbursement system should bring hospitals about $300 million more in the first year of operation," he explained.

In its lawsuits, the association had charged the state had only been reimbursing hospitals 52 cents to 79 cents for each dollar of hospital outlays and that the low payment rate had contributed to the closing of several hospitals.

Mr. Deaton said the state's new reimbursement system was funded entirely by Illinois's new Medicaid assessment program, which recently won a reprieve until Oct. 1 from Congress. Illinois's program, and those of other states, had been threatened with a Jan. 1 shutdown by the federal Health Care Financing Administration.

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