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BOSTON -- Health care payers soon will be liable for another state-mandated surcharge on hospital bills.

The new Massachusetts surcharge, currently 5.06%, will affect third-party claims administrators, insurers, health maintenance organizations, preferred provider organizations and employers nationwide that self-administer their health care plans that make payments to Massachusetts acute care hospitals and ambulatory surgical centers on or after Jan. 1.

"Generally, those responsible for the payment of bills of those who use Massachusetts hospitals must pay," said Charles L. Donahue, president of HealthCare VALUE Management Inc., a health care plan network in Norwood, Mass.

However, health care payers whose Massachusetts hospital bills were less than $300,000 in 1996 -- such as TPAs outside Massachusetts, for example -- can escape the surcharge if by Jan. 15 they register with the state's Division of Health Care Finance and Policy as an "infrequent payer" and pay a $2,400 fee.

However, if in any calendar year an infrequent payer makes at least $300,000 in payments to Massachusetts' hospitals, it would be liable for the surcharge in the next year.

The new surcharge is designed to fund annually a $100 million pool the state will use to reimburse hospitals for uncompensated care provided to the uninsured.

When the new law takes effect Jan. 1, Massachusetts will join New York as the two states to establish hospital bill surcharges directly paid by the buyers of health care services.

The Massachusetts surcharge, though, is much less costly than New York's, which can go as high as 57.27% per medical claim.

The Massachusetts surcharge -- while not without complexities -- also imposes fewer administrative burdens than New York's. Calculating the Massachusetts assessment is simple, while New York's has a number of variables, including where in New York employees live and the location of the hospital providing services.

"We have tried to develop a system that, while not perfect, is as simple as possible," said Katharine London, policy development manager with the Massachusetts Division of Health Care Finance and Policy in Boston.

Still, the new surcharge -- typically paid by TPAs -- ultimately will mean higher costs passed onto employers and perhaps employees.

"If TPAs have to absorb this cost, they can't stay in business. To survive, they will have to pass it on" to clients, said Stephen Zubiago, an attorney in the Providence, R.I., office of Edwards & Angell.

Employer groups say they should not be the ones to bear the cost of funding coverage for the uninsured.

"It is not a fair system. Employers end up paying twice: once for their own employees and once for the uninsured," says Richard Lord, executive vp of legislative policy for the Associated Industries of Massachusetts in Boston, a business trade group.

In the end, employers may ask employees to shoulder some of the added costs.

"Employers are reluctant to take on new costs. Eventually, it may be pushed back to employees," said Keith Dallas, a principal with Buck Consultants Inc. in Boston.

Others worry that if two states -- New York and Massachusetts -- now have a system of hospital bill surcharges to help finance uncompensated care, others may not be far behind.

"The issue isn't so much that one or two states have done this. The issue is, what if every state does something like this? Imagine the cost and administrative burden of trying to keep track and comply with dozens of state surcharge rules," said Fran Bruno, an attorney with William M. Mercer Inc. in New York.

"If all 50 states do this, I'm looking for another job. It is getting out of control," said William McKelvey, president of Medical Claims Services Inc., a TPA in Quincy, Mass.

And, a provision in the Employee Retirement Income Security Act that pre-empts state laws and regulations that "relate" to employee benefit plans -- once thought to be an impregnable barrier to such state laws -- may not provide as much protection as previously believed.

That is because in 1995 the Supreme Court ruled that an earlier New York hospital bill surcharge law was not pre-empted by ERISA because it had only an "indirect effect" on choices made by health care buyers (BI, May 1, 1995).

The new surcharge is the result of a bill passed earlier this year by the Massachusetts Legislature. That bill amended an earlier system of funding uncompensated care.

Previously, the state assessed hospitals a surcharge on their bills. The revenue was collected by the state and returned to hospitals based on how much uncompensated care they provided. The new surcharge on payments made to hospitals will allow the assessment hospitals have to pay to be cut to 3.9% from 6.2%.

The new surcharge legislation was passed in July and was to go into effect Oct. 1. However, a second bill passed in November delayed the effective date until Jan. 1, 1998.

It was at that point that "everyone began to wake up and realize what happened," said William Breidenbach, president of Health Plans Inc. in Worcester, Mass.

Because the surcharge does not go into effect until Jan. 1 -- rather than Oct. 1 as originally intended -- the 12-month revenue goal of $100 million will have to be raised in nine months.

As a result, when the surcharge is adjusted next year for the 1999 fiscal year, it should be decreased to about 3.25%, as revenues then will be collected over a 12-month period.


BOSTON -- In February 1998, an insurance company settles and pays claims totaling $14,500 with a Massachusetts hospital for services delivered in 1993, 1994 and 1995.

Does the insurer owe a surcharge on the payments? Yes.

The Massachusetts 5.06% surcharge applies to payments made to hospitals in the state on or after Jan. 1, 1998 -- regardless of when the services were delivered or when the bill is sent. In this example, the insurer would owe the Commonwealth of Massachusetts $733.

Answers to questions like this and many others about the Massachusetts surcharge on hospital payments are provided on a World Wide Web site maintained by the Massachusetts Division of Health Care Finance and Policy. The address is

In addition, questions can be sent to the division through electronic mail at For those without access to the Internet, the division can be reached at 800-888-2250 or 617-988-3328.