CHICAGO -- The federal Health Care Financing Administration recently reduced by $94 million the total amount of Medicare overpayments that 54 New Jersey hospitals are required to pay the federal government.

Resolving a long-standing dispute with the hospitals, the health care administration last month reduced their Medicare overpayment obligation to $15 million and will allow the hospitals to spread out the payment over the next five years.

Rating agency officials said that the reduced payments will help strengthen the New Jersey hospitals' balance sheets. Individual hospital payments will range from $3,688 to $2 million.

The overpayments occurred between 1985 and 1988 after the health care administration granted New Jersey a waiver to test a new payment system for Medicare, the federal health program that covers senior citizens.

Gov. Jim Florio last year directed the state's health commissioner to work with the health care administration to resolve the issue. The governor recently discussed the matter with White House officials, according to a press release from the New Jersey Department of Health.

Pamela S. Federbusch, an assistant vice president in the health-care rating group at Moody's Investors Service, said the settlement resulted in a "significant" reduction in liability to several of the 15 New Jersey hospitals that the rating agency rates.

In a press release, Moody's said that the settlement "will also eliminate the uncertainty surrounding the adequateness of reserves established for the potential repayment" by many of the hospitals.

Cynthia Keller, a director at Standard & Poor's Corp., said that some of the 31 New Jersey hospitals that Standard & Poor's rates could have faced a negative rating action if the health care administration required payment of the original $109 million obligation. She said that the $15 million payment will have "no impact" on New Jersey hospitals rated by the agency.

Ed Merrigan, a senior vice president at Fitch Investors Service, said that the settlement will help improve hospital debt service coverage ratios. Fitch rates two New Jersey hospitals.

In a press release, New Jersey hospital and state officials said they were pleased with the settlement.

Christina Klotz, executive director of the New Jersey Health Care Facilities Financing Authority, said in the release that the uncertainty surrounding the resolution of the dispute and the potential liability for repayment made some New Jersey hospitals "less attractive to investors."

However, Klotz said that the reduced obligation allows investors to "take comfort in both the state's ability to resolve the issue as well as the substantially reduced liability. "

Klotz said that New Jersey consumers will directly benefit through lower hospital costs, while hospitals will benefit by greater access to capital markets.

Ralph Dean, executive vice president and interim chief executive officer of the New Jersey Hospital Association, said that the settlement "eliminates a long-standing hurdle" for New Jersey hospitals.

"This resolution also gives hospitals more flexibility as they adapt to the ongoing challenges of health-care reform," Dean said.

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