CHICAGO - Illinois Gov. Rod Blagojevich last week signed into law a new five-year hospital assessment program aimed at leveraging about $4 billion in additional federal matching Medicaid funds for the state's not-for-profit hospitals, especially those considered "safety-net" hospitals with high Medicaid volumes.

The new program - which still must receive the approval of the federal Centers for Medicare and Medicaid Services - will leverage about $640 million annually for hospitals and another $130 million for long-term care and other health programs. It replaces an expiring three-year program that leveraged about $465 million more a year for hospitals. That program, along with a predecessor, leveraged a total of about $2.3 billion for hospitals and state health programs.

"Health care is a top priority in Illinois. This bill facilitates that process, secures the matching federal dollars, and gets the money where it needs to go to ensure everyone gets the quality health care they deserve," the governor said in a statement.

Authorization for the first year of the program was included in the state's fiscal 2009 budget. Under the program, the state assesses a tax on hospitals based on volume with the rate set at $218.38 annually per occupied hospital bed, excluding Medicare beds. The federal government matches much of the assessments and the state then distributes the assessment payments and most of the matching federal funds back to hospitals.

The additional funds are distributed over the course of the year and the amount hospitals receive is based on their level of services provided to Medicaid and other factors such as their location in rural areas. Some changes from the past programs, better aligning distribution with Medicaid volumes, were driven by requirements outlined by the Centers of Medicare and Medicaid which requires a program that is broad-based, uniform, redistributive, and reasonable.

Hospitals, especially those already fiscally struggling with growing costs for covering the uninsured and under-insured, have grown accustomed to the additional federal funds over the last five years and had eagerly awaited passage of a new program. Rating agency analysts who review Illinois hospital credits have also followed the legislative process, given the fiscal strain some hospitals would face absent the additional funds.

While lawmakers favored an extension of the program, some were concerned that legislative feuding over the state's operating budget and inaction on a capital budget during the spring session would interfere with passage of a new assessment program. The legislation - sponsored by state Sen. Jeffrey Schoenberg, D-Evanston, and Rep. Barbara Flynn Currie, D-Chicago - was eventually approved in near-unanimous votes.

"This critical infusion of federal dollars will help hospitals and other health care providers ensure accessible, affordable, and quality health care services for those who live in underserved communities across Illinois," Schoenberg said. "Without these resources, hospitals serving residents of predominantly lower and lower-middle income communities in the Chicago area and those downstate would be threatened with closing their doors or drastically cutting services to stay alive."

The state has in recent years issued short-term notes - including earlier this year - to expedite payments owed to hospitals but state budget officials said no borrowing is planned in the near future.

The governor also last week signed a law that increases the Illinois Finance Authority's bonding authority to $28.15 billion from $26.65 billion effective immediately. The authority had sought the increase to ensure that sufficient capacity existed to allow the agency to meet the demands of the state's tax-exempt hospitals, educational and cultural institutions, and other not-for-profits borrowing needs without bumping up against it cap.

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