Governor Corzine Signs Bill to Keep New Jersey Hospitals Afloat

Article

The Business Advisor

July 23, 2008

It is no secret that U.S. healthcare providers are facing significant financial challenges. New Jersey’s healthcare providers are not exempt from those challenges. To identify and analyze those challenges and to make recommendations for addressing them, New Jersey Gov. Jon S. Corzine in October 2006 issued Executive Order No. 39 creating the New Jersey Commission on Rationalizing Health Care Resources (“Commission”). In January 2008, the Commission submitted its final report to Gov. Corzine, providing the impetus for New Jersey Legislature’s enactment of the Health Care Stabilization Fund Act (“HCSFA”), which Gov. Corzine signed into law on June 30, 2008.

The HCSFA establishes the Health Care Stabilization Fund (“Fund”). The purpose of the Fund is to ensure the continued availability of necessary healthcare services to communities served by healthcare facilities in financial distress. To that end, the Fund will provide emergency grants to healthcare facilities facing either total closure or a significant reduction in their operations.

The Fund will comprise monies appropriated by the Legislature and any interest thereon. Disbursements from the Fund will be solely in the form of grants. To receive such grants, a healthcare facility will have to meet certain eligibility criteria; the use of the grants will be subject to conditions prescribed by the Commissioner of Health and Elder Services (“Commissioner”).

A grant from the Fund will be made only upon the Commissioner’s determination that “extraordinary circumstances” make the grant necessary to maintain a community’s access to “essential healthcare services or referral sources.” Before approving a grant, the Commissioner is to consider, “at a minimum,” whether the following factors exist:

  • “extraordinary circumstances” threaten access to “essential” health services for residents of a community;
  • the residents of the community will lack ready access to “essential” healthcare services absent the grant;
  • the availability of other sources of funding;
  • the likelihood that the grant will “stabilize” access to “essential” healthcare services;
  • the likelihood that “essential” healthcare services will be sustainable upon the termination of the grant;
  • the recipient’s agreement to any conditions the Commissioner imposes on the receipt of the grant, such as providing the Commissioner with quality of care, financial, and utilization information; and
  • a significant number of uninsured or underinsured persons is served by the healthcare facility.

The Fund will not serve as a general source for the funding of healthcare facilities. Indeed, the availability of other funding sources would militate against a grant from the Fund. Rather, the Fund will serve a more limited, albeit crucial, goal—maintaining a community’s access to necessary healthcare services by preventing the sudden closures of or significant reductions in services by financially distressed healthcare facilities. Consistent with that purpose, the funding of a healthcare facility under the HCSFA is to be temporary, and, before approving a grant from the Fund, the Commissioner must consider whether the recipient will be able to provide “essential” healthcare services after the grant has terminated.

The HCFA also provides healthcare facilities with an incentive to find ways to resolve their financial problems. Among the conditions the Commissioner may impose on the receipt of a grant from the Fund are “requirements to ensure the efficient and effective delivery of healthcare services.” More specifically, where the “financial condition” of a healthcare facility “created or contributed to the extraordinary circumstances” necessitating the grant, as a condition to receiving the grant the facility “shall agree to such corrective steps to its governance, management, and business operations as the [C]ommissioner deems reasonable and appropriate.”

The HCFA also expresses the Legislature’s particular concern for less affluent communities. In deciding whether to make a grant, the Commissioner is to consider whether the recipient serves a significant number of insured and underinsured persons. Additionally, as a condition to receiving a grant, the recipient must agree to facilitate the enrollment of individuals in appropriate government insurance programs.

The recipient of a grant from the Fund will be subject to an audit within a year from receipt. The purpose of the audit is to determine whether the grant was properly used and whether the use of the grant furthered the purposes of the HCSFA.

The HCSFA leaves unanswered two important questions: What would constitute the “extraordinary circumstances” justifying a grant from the Fund? And what would constitute “essential” healthcare services? Those two questions are likely to be addressed in the coming months.

It remains to be seen whether the HCSFA will be successful in its goal of stabilizing the availability of essential healthcare services in New Jersey. The statute clearly attempts to strike a balance between (i) simply letting financially distressed healthcare facilities close or significantly reduce services abruptly; and (ii) pouring money into healthcare facilities without incentivizing them to make the changes necessary to improve their financial condition. However, New Jersey’s healthcare facilities, like those throughout the United State, face daunting financial and operational challenges that may require more radical solutions than those provided by the HCSFA.