New York State Health Care Reform Act (HCRA)


May 27, 1997

RE: Health Care Reform Act of 1996 (HCRA)

TO: Health Care Providers and Payors

This letter is intended to provide clarification of certain aspects of the Health Care Reform Act of 1996 (HCRA). As you are aware, the Departments of Health and Insurance have been continually working and communicating with all parties affected by HCRA. As a result of questions and concerns raised by both payors and providers alike, the respective Departments have made determinations with regard to two major issues needing clarification:

  • Revenues subject to HCRA surcharges.
  • Governmental payments exempt from HCRA surcharges.

The following describes and explains the determinations on these issues.

"Net Patient Service Revenues" Subject to Surcharges

It has been determined that the phrase "patient services provided to persons" as used in Public Health Law ("PHL") § 2807-j(1) shall be defined as hospital and medical services whose purpose is the treatment or prevention of human illness, disease, injury or disability. Accordingly, the phrase "net patient service revenues" as used in PHL § 2807-j(3) shall be understood as referring only to those revenues which are received by a designated provider for hospital and medical services for the above stated purposes. Therefore, surcharge obligations established under PHL § 2807-j are only applicable to revenues received for such hospital and medical services. Examples of revenues which fall outside this definition include: revenue received for clinical laboratory tests performed in connection with the screening of employees for drug use; revenue received for clinical laboratory tests and/or physical examinations performed in connection with applications for life insurance, health insurance, disability insurance or employment; revenue received for clinical laboratory tests performed for the purpose of establishing paternity; and revenue received for forensic laboratory testing. In each of these instances, exemption status is allowed since related diagnostic procedures are not primarily or directly linked to the potential for treatment or prevention of illness, disease, injuries, or disabilities.

Certain Governmental Agency Payments Exempted From Surcharges

Pursuant to § 2807-j(2)(b), payments directly made by New York State and its local governmental subdivisions are only subject to surcharge payment obligations specifically assigned to such governmental agencies in accordance with PHL § 2807-j(2)(d). These assigned obligations are limited to state programs (i.e., Medicaid and other state administered payments) which have as a program component direct reimbursement to hospitals for rendered inpatient services, and local correctional agencies. To the extent that governmental agencies or programs have surcharge obligations pursuant to PHL § 2807-j(2)(d), these surcharge obligations are set at 5.98% for all payments for HCRA affected services, including non-inpatient services, made by such agencies or programs to designated providers.

Examples of the kinds of payments made by local government agencies which are exempt from surcharge obligations include payments made under the Early Intervention Program, payments for drug testing by local government operated substance abuse programs, payments for paternity testing to establish child support obligations, mandated payments for tuberculosis treatment under PHL § 2202 and mandated payments by local governments for treatment of sexually transmitted diseases under PHL § 2304. Also exempt are service payments made by state administered programs such as the AIDS Drug Assistance Program ("ADAP") and health services for Native Americans.

It should be noted, that such local governments may also function as designated providers of services affected by surcharge obligations under HCRA. In such instances, surcharges continue to be due for all revenues received from payors not otherwise exempted by law.

Please note that the aforementioned limit on surcharge obligations is only applicable to New York State and its political subdivisions. Consequently, payment to designated providers of services made by governmental agencies from other states remain fully subject to surcharges, at rates based on their pool participation election decision (i.e., 8.18% or 32.18%) [plus, for non-Medicaid patients receiving]. In addition, where inpatient hospital care coverage is provided, and the out-of-state governmental agency makes a direct payment to a New York hospital on behalf of one of its employees in its role as an employer, the applicable GME regional surcharge would also apply. The GME regional surcharges do not apply to out-of-state Medicaid programs since such programs are not considered specified payors for purposes of the Professional Education Pool surcharge obligations under PHL §§ 2807-s and 2807-t. However, out-of-state Medicaid programs must elect to remit surcharges directly in order to avoid the additional 24% surcharge.

The aforementioned exclusion on surcharge obligations is also not applicable to payments made by self-insured governmental entities in connection with health benefits for their employees (including self-insurance for Workers´ Compensation and No-Fault) since, under HCRA provisions, governmental entities in this situation are acting in their role as employers rather than as governmental agencies. Consequently, payments to designated providers of services made by public employee health benefits plans remain fully subject to surcharges at rates based upon their pool participation election decision (i.e., 8.18% or 32.18% plus, for non-workers´ compensation/no-fault coverage revenue received for inpatient hospital services only, the GME regional surcharge).

Only payments made directly by the State or any of its political subdivisions to a designated provider are affected by the aforementioned exclusion on surcharge obligations. Payments made to designated providers of services pursuant to private insurance coverage purchased through government programs remain fully subject to the surcharge, based upon the pool participation election decision of the organization providing such coverage.

Should there be any questions regarding this notification please contact Richard Pellegrini, Director, Bureau of Financial Management and Information Support, Department of Health at (518) 474-1673.


Fredric L. Bodner, J.D.
Assistant Deputy Superintendent and Chief
Health Bureau
State Insurance Department

Mark H. Van Guysling
Assistant Director
Division of Health Care Financing
NYS Department of Health