Illinois hospitals and state government are poised to collect about $1 billion a year through a complicated maneuver involving the federal government, but the money hasn't begun flowing because of the ex-governor's legal troubles and the state's cash crunch.

Illinois hospitals and state government are poised to collect about $1 billion a year through a complicated maneuver involving the federal government, but the money hasn't begun flowing because of the ex-governor's legal troubles and the state's cash crunch.

Hospitals had expected to start receiving money from the so-called "hospital assessment plan" by now, said Howard Peters III, senior vice president of the Illinois Hospital Association.

State lawmakers and Gov. Rod Blagojevich authorized the plan last summer, setting its effective date for July 2008. Federal officials gave their approval on Dec. 4, five days before Blagojevich's arrest on federal corruption charges.

It has yet to be implemented. State officials say the money is on the way, but hospitals want it as soon as possible.

The assessment plan was devised as a way for hospitals and state government to reap extra federal dollars to pay for health care provided to patients on Medicaid. Similar assessment plans have been used twice before in the Blagojevich administration.

The idea is for hospitals to pay money to the state, and that money is used to generate extra Medicaid funds from the federal government. That results in a cash boost for hospitals and state government.

The first step in the assessment program, however, requires the state to come up with some cash -- about $1 billion as of Friday. That hasn't happened.

"It's terribly frustrating," Peters said. "There are hospitals that can't survive without the assessment money. I mean, they literally are borrowing against it to make payroll."

Once the assessment program gets launched, it will be self-financing, Peters said. That means if state officials decide to borrow money to start the program, "they immediately get the money back and can pay off the borrowing and come out ahead," he said.

Hospital officials throughout the state say that the delay in implementing the assessment program has left them in a lurch. They've put off large purchases and reduced travel and other expenses, but they say patient care hasn't been affected.

"We were under the assumption that they would be getting caught up on this and paying us by the first of February. So far, we haven't seen anything from them," said Hervey Davis, chief executive officer of Franklin Hospital in Benton.

Davis said Medicaid business makes up nearly a quarter of his hospital's gross revenues, so the holdup in getting the assessment money is an especially harsh blow.

"It directly affects my ability to pay my bills," he said. "The accountants here in the hospital fight a constant battle in trying to prioritize who gets paid first."

St. John's Hospital in Springfield is due about $15 million a year from the assessment program, said spokesman Brian Reardon. While it waits for those funds, the hospital has been dipping into reserves to pay vendors, he said.

"We're hoping with the new governor that can be resolved and they can get the payments going," Reardon said.

Methodist Medical Center in Peoria expects to receive about $11.6 million a year from the assessment program, said Calvin MacKay, senior vice president and chief financial officer.

"I've got enough cash that I can survive, but cash is getting tight for everybody," said MacKay.

OSF Saint Francis Medical Center in Peoria is eligible to receive about $10.5 million a year through the program, said chief financial officer Ken Harbaugh.

Annie Thompson, spokeswoman for the Illinois Department of Healthcare and Family Services, said payments to the hospitals should start by March 14. The law that authorizes the assessment plan gives the state 100 days to begin making payments, once the federal government approves the plan. The 100-day mark is March 14.

"The department is currently working with the governor's budget office to identify resources available to begin making those payments," Thompson said.

State Sen. Jeff Schoenberg, D-Evanston, on Friday filed legislation intended to break the logjam. His Senate Bill 324 would authorize up to $1.5 billion in short-term borrowing, enabling the state to pay the hospitals and garner any additional federal funds that might be available through the pending economic stimulus package.

Schoenberg couldn't be reached for comment.

By not acting quickly to implement the assessment program, the state basically is leaving money on the table, Peters said.

"When anyone sees how this works and that the state comes out ahead, there is no reason not to support it. It's just been frustrating in this transition period to bring the attention to it, to get it moving."

Adriana Colindres can be reached at (217) 782-6292 or adriana.colindres@sj-r.com.

How the assessment program works

The goal, through a complicated set of money transfers, is for both state government and hospitals to get hundreds of millions of dollars in extra money from the federal government for health care needs.
 
The state gets the program rolling by paying hospitals so they can, in return, pay the state an "assessment," or tax, most of which will be used to attract federal Medicaid matching funds. The combination of state and federal funds then gets distributed back to the hospitals, which will wind up with a net gain of about $640 million a year.
 
Hospitals pay assessments totaling about $900 million a year, with each hospital's share based roughly on the number of occupied beds. Of that amount, $770 million will be used to attract the federal matching funds -- generating about $1.54 billion a year in Medicaid payments to the hospitals.
 
The remainder of the assessment money, about $130 million a year, will be used to boost state funding for long-term care, developmental disability services and existing Medicaid health care services. When the money is used for Medicaid services, it can also attract federal matching funds, making more money available to the state.

The program will be in effect for five years.

Launching the program will require about $1 billion from the state to the hospitals. But once it starts, the program becomes self-sustaining, and the state almost immediately reaps that money back and receives a surplus of funds to use for other Medicaid needs.