A ruling last week by a Kentucky Circuit Court judge that rejected a tax on doctors' fees could create a funding crisis for the state's $4 billion Medicaid program.

Franklin County Circuit Judge Roger Crittenden ruled Nov. 23 that the 2% tax on doctors' gross receipts violates the state constitution because it compels support of a program whose benefits are applied too broadly. Crittenden also declared unconstitutional a relaxed tax on health maintenance organizations.

If upheld by the state Supreme Court, the ruling jeopardizes not only the two fees cited by Critteden, but all health provider taxes used to finance Medicaid, state officials say.

In a joint statement, Masten Childers, general counsel for the state's Cabinet for Human Resources, and Alex Rose, commissioner for administrative services for the state's Revenue Cabinet, said an appeal will be filed.

"CHR and Revenue will attempt to expedite the case through the appellate process and bring it before the Kentucky Supreme Court as soon as possible," the officials wrote.

We "hope the Supreme Court will have an opportunity to hear the case and render an opinion before the 1994 regular session of the Kentucky General Assembly," the statement says.

The General Assembly's session begins Jan. 4.

The state has used a system of provider fees to cover Medicaid costs since August, after a special legislative session revamped Kentucky's health care system. The lawmakers' action followed a federal government ban on the state's previous method of financing Medicaid. The system, which had been in use throughout the country, generated revenues by taxing hospitals and using the money to draw federal matching funds.

During August and September, revenues from the provider taxes totaled $26.7 million, with physicians paying in $5.7 million and HMOs accounting for $2.7 million, according to the Revenue Cabinet.

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