A federal appeals court this week gave New Jersey more breathing room to solve a crisis threatening the solvency of all hospitals in the state.
A May 27 federal court ruling that essentially dismantled the state's hospital reimbursement system was to take effect today. But an appeals court Wednesday decided to let New Jersey keep its existing system in place at least until mid-August, when legal briefs from the state and various insurers contesting the system are due.
The appeals court could rule as early as Aug. 8, after legal briefs are filed by both sides.
The May ruling by U.S. District Judge Alfred Wolin in Newark ex-empted 2.4 million members of self-funded insurance plans from surcharges the state uses to fund aid programs for the poor and uninsured. The decision was based on the federal Employee Retirement Income Security Act, which prohibits the use of union funds for non-union members.
The state won a temporary stay earlier this month to work on an appeal, and the Third Circuit Court of Appeals granted an extension of the stay this week.
In the meantime, however, the crisis for hospitals will continue. Several large health insurance plans have stopped paying the contested 19% surcharge on hospital bills that is used to fund the state's $737 million indigent care trust fund for the uninsured.
Both Prudential Insurance and New Jersey Blue Cross and Blue Shield have announced plans to escrow the money until the court case is decided rather than pay it to hospitals. But the state is still requiring hospitals to make their normal payments into the uncompensated care trust fund, creating the potential for severe cash-flow problems.
According to the New Jersey Hospital Association, which represents 112 health-care facilities, hospitals will be forced to seek payment of the escrowed surcharges from individuals when insurers balk. The association said hospitals on average have only 14 days' cash on hand available to deal with the cash-flow crisis.
Even with the extra weeks the court allowed yesterday, New Jersey lawmakers busy with a budget crisis say they will not have enough time to meet the new deadline.
Gov. Jim Florio has asked the Legislature to extend the trust fund through Nov. 30, despite the court's earlier timetable. Yesterday, the state Senate sent the proposal to its Appropriations Committee for consideration.
Market sources say there has been no unusual activity in the secondary market for outstanding New Jersey hospital bonds.
Troy A. Gerleman, a senior associate at Kemper Securities Inc., said the uncertainty surrounding the situation may explain why reaction has so far been muted.
"A lot of people may just be sitting back and making sure they're getting their facts straight," Mr. Gerleman said. "When so many hospitals are affected, you can't afford to speculate."
Christina M. Klotz, acting executive director of the the New Jersey Health Care Facilities Financing Authority, said yesterday that no new hospital deals will be brought to market until the situation becomes clearer.
"The question is whether or not we can adequately disclose to bond-holders what the situation is," Ms. Klotz said. "Until the disclosure issue is resolved, we will not be going back into the market."
Our Lady of Lourdes Hospital in Camden and Underwood Memorial Hospital in Woodbury have delayed plans for bond sales for that reason, Ms. Klotz said.
Health-care analysts say the federal ruling on New Jersey's system has nationwide implications. Minnesota's HealthRight program, for example, is one of several state plans that rely on surcharges on self-insured funds to pay for increased health-care access for the poor.
Sen. David F. Durenberger, R-Minn., has introduced federal legislation to stop the income security act exemption from, as he put it, standing "in the way of legitimate state efforts to expand access to health care."
Sen. Durenberger said the New Jersey ruling could "seriously jeopardize" Minnesota's HealthRight program.