New York State Health Care Reform Act (HCRA)

November 4, 1996

Dear Administrator:

The purpose of this letter is to inform payors and providers of health services of their obligations pertaining to reimbursement and funding of hospitals and other affected health care services under certain provisions of Chapter 639 of the Laws of 1996, the New York Health Care Reform Act (HCRA). This package will provide implementation instructions which are consistent with the intent of the law. The enclosed contains forms which payors are required to complete and submit to the Department if they elect to make surcharge payments directly to the Department's pool administrator, final regional covered lives assessment amounts, and other background material pertinent to requirements set forth by the law. A copy of each relevant section of HCRA is enclosed for your information (Attachment #1).

Effective January 1, 1997, the New York Prospective Hospital Reimbursement Methodology (NYPHRM) system expires and will be replaced by a new system established under HCRA. Under NYPHRM, non-Medicare payors are required to reimburse inpatient hospital services consistent with a statutorily delineated methodology and associated regulations. Hospital graduate medical education (GME) expenses are a component of these non-Medicare inpatient rates paid to teaching hospitals and payor surcharges totaling 6.895 percent are added to all hospitals' inpatient rates. The proceeds from these surcharges are pooled and distributed to subsidize hospital indigent care and fund health care initiatives.

HCRA substantially deregulates the inpatient hospital reimbursement system. Commencing January 1, 1997, certain non-Medicare payors, including corporations organized and operating in accordance with Article 43 of the Insurance Law, organizations operating in accordance with the provisions of Article 44 of the Public Health Law, self-insured funds or third party administrators of such funds, and commercial insurers licensed to do business in New York State are authorized to negotiate reimbursement rates for inpatient hospital services with hospitals. When NYPHRM expires, reimbursement rates and/or methodologies will no longer be imposed on these parties by the State. Medicaid and other governmental payors (such as local governments making payments for correctional inmates), as well as insurers under the workers' compensation law, comprehensive motor vehicle insurance reparations act ("no-fault"), volunteer fire-fighters' benefit law and ambulance workers' benefit law will continue to reimburse inpatient hospital services under the State established rate methodology governed by HCRA.

Under HCRA, all non-Medicare payors continue to be required to make surcharge payments for the subsidization of indigent care and health care initiatives. The percentage amounts of this surcharge vary by payor and apply to a broader array of health care services. Under HCRA, payors will have the option of submitting these payments directly to the Department's pool administrator on behalf of providers. As detailed later, certain payors' overall surcharge obligation will be 24 percentage points lower when choosing this option.

In addition, certain payors are required to fund a professional education pool either through surcharges on payments to general hospitals for inpatient services or through voluntary election to pay covered-lives assessments directly to the Department's pool administrator. Among other purposes, the money in this pool will be distributed to hospitals to guarantee a level of financial support for their GME expenses. Reimbursement by payors that continue to pay at State established rates will continue to include funding of GME in such rates.

Payors are required to notify the Department on the forms provided (Attachments #2 - 2.6) if you choose to voluntarily elect to meet your obligation under HCRA to fund public goods through direct payment to the Department's pool administrator rather than through payments submitted to providers. Statutory provisions require that the Department receive election forms postmarked no later than December 2, 1996, in order for the election to be effective for payments for dates of service commencing on January 1, 1997. You are advised to read the contents of this letter closely before making a decision regarding this election as there could be significant differences in your particular funding obligation depending upon your choice. For example, as mentioned previously, certain payors' surcharge obligation is 24 percentage points lower when electing to pay the Department's pool administrator directly.

Providers are required to notify the Department on the form provided (Attachment #6) postmarked no later than December 2, 1996 if you choose to have Medicaid surcharge payments submitted by the State directly to the Department's pool administrator rather than to you. If you choose the latter option, you are required to remit the Medicaid surcharge revenue to the Department's pool administrator within five days of receipt.

To guard against the possibility that the DOH may not have separately identified all payors that fall within the provisions of HCRA, anyone receiving this letter is encouraged to disseminate it to potentially affected parties. We especially encourage providers to forward this letter immediately to payors when issuing bills. This may be particularly helpful when submitting bills to employers which are self-insured for employee health benefits.

In summary, pools are established to subsidize indigent care, GME and critical health care initiatives because these are considered public goods requiring continued funding by all non-Medicare payors of health care services. The Department will publish and distribute to providers in mid-December 1996 a list of payors that have elected to make payments directly to the Department's pool administrator.

Attachment #8 is a partial compilation of questions that have been presented to the Department regarding HCRA and the answers to them prepared by the Department of Health and State Insurance Department. Other questions regarding this letter may be directed to:

Mr. Richard Pellegrini, Director
Bureau of Financial Management and Information Support
Room 984, Corning Tower
Albany, New York 12237-0719
(518) 473-4653


Dennis P. Whalen
Office of Health Systems Management


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