CHICAGO — The Illinois Finance Authority expects to launch a program in the coming months that links state Medicaid providers with private investors willing to purchase overdue payment vouchers in case lawmakers fail to act on Gov. Pat Quinn’s $2 billion borrowing plan to ease the state’s liquidity crisis.
The program received preliminary approval from the authority’s board at its meeting this week. Some details are still being finalized but the program could be ready in the next few months if lawmakers reject pressure from Quinn to borrow to pay down Medicaid bills.
“We are putting the structure in place to act as an intermediary in case there is a need,” said IFA executive director Christopher Meister.
The plan is an extension of the Illinois Department of Human Services voucher program set up late last year linking non-Medicaid vendors with a group of pre-qualified investors that included commercial and investment banks. In exchange, the lenders collect the 1% monthly interest payment the state otherwise would owe the vendor after 60 days.
The DHS program did not include Medicaid claims — which come from nonprofit hospitals, physicians, nursing homes, group homes and home health agencies — because a federal waiver was required. The state has since asked the IFA to manage the Medicaid-related program under which vendors would assign their claims to the authority, which in turn would assign its collection rights to the private investor.
“Many health care providers that render services to poor and disabled residents in exchange for Medicaid payments are experiencing cash-flow management problems due to the delayed payment of Medicaid claims,” according to IFA documents.
Under the program, the vendor receives 90% of the overdue payment, while the other 10% is held in an interest-bearing account and paid after the state pays off the debt to the purchaser-lender. The debt does not carry a full faith payment pledge like a general obligation bond.
The Illinois Office of Management and Budget is overseeing selection of qualified investors to participate. OMB spokeswoman Kelly Kraft said about $300 million of overdue bills were purchased by private investors under the initial non-Medicaid program. State officials are still waiting on the federal waiver for the IFA program, but expect it to be eligible within 30 days, Kraft said.
Illinois closed out the third quarter of fiscal 2011 on March 31 with a general backlog of $4.5 billion in bills, including some that date back to October, according to Comptroller Judy Baar Topinka’s quarterly newsletter.
Even with extra revenue from a recent state income-tax increase, Illinois is on pace to close out the fiscal year on June 30 owing more than $6 billion, as it did last year when the books were closed on fiscal 2010.
The comptroller’s office has prioritized Medicaid payments in order to capture the higher federal reimbursements rates that remain in place through June under the federal stimulus program.
Quinn initially wanted to borrow $8.75 billion to pay down the backlog and for other expenses as part of his $53 billion fiscal 2012 budget proposal that is pending before the General Assembly. The borrowing has stalled amid bipartisan opposition.
The Democratic governor recently scaled back the plan and is pushing lawmakers to authorize $2 billion of borrowing to pay off Medicaid bills and cover some other expenses, but no vote has been taken.
At the meeting this week, the IFA board also gave clearance to the University of Chicago Medical Center’s sale this spring of up to $182 million of bonds for the ongoing construction of a new 10-story hospital pavilion with a rooftop helicopter landing pad. Construction began in 2009.
The deal includes a mix of fixed- and floating-rate bonds with letters of credit from Bank of America and Wells Fargo Bank. The medical center currently has low double-A ratings from all three rating agencies.
Melio & Co. is financial adviser to the hospital. Jones Day is bond counsel. Bank of America Merrill Lynch, Wells Fargo Securities, JPMorgan, Cabrera Capital Markets LLC, and Loop Capital Markets LLC make up the underwriting team.
