Private hospitals and large nursing homes are willing to pay new fees to draw millions in federal money to help cover health care for the poor, but the agreement is at risk of dissolving in a dispute over how much of the money should go to the state.

A provider fee on private hospitals would generate $42 million to attract additional federal money for QUEST, the state’s version of the federal Medicaid program, and result in $77 million in payments back to hospitals to help cover the cost of providing care to the poor and uninsured. A provider fee on large nursing homes would raise $11.5 million and result in a return of about $21 million.

The fragile consensus among hospitals and nursing homes that provider fees are worthwhile — meaning they would get both the fees and additional money back in the exchange — is built on an expectation that the state would take 5 percent of the fees. But the state Department of Human Services wants to retain about 12 percent and use some of the money to eventually restore the unlimited hospital coverage benefit for adults in QUEST. The state plans to institute a 30-day cap on that benefit in July to cut costs.

The Healthcare Association of Hawaii, which represents hospitals, and the Hawaii Long Term Care Association, which represents nursing homes, have threatened to back out if the state insists on a share of more than 5 percent. State House and Senate lawmakers, who are in conference committee on bills that would establish the provider fees, have sided with the hospitals and nursing homes.

Hospital and nursing home advocates and department officials met separately Friday afternoon with Bruce Coppa, Gov. Neil Abercrombie’s chief of staff, to discuss how to save the agreement.

"We feel that this is a bill that will help everyone," said George Greene, president and chief executive officer of the Healthcare Association of Hawaii. "The legislators support it. They understand it. And frankly I’m proud of our members for taking this risk, because there are other states where this has gone completely haywire and now there are providers that are pulling out of these programs because state organizations are taking more and more and more."

Bob Ogawa, president of the Hawaii Long Term Care Association, said provider fees are "a self-proposed, self-imposed tax."

"Our skilled nursing facilities are struggling, but we fully understand that the state is, as well," he said in an email. "So, we found a way to ensure quality care for our kupuna, help our nursing homes keep their heads above water and secure much-needed funds for a strapped DHS."

Patricia McManaman, director of the state Department of Human Services, said the state would not only use the extra share of the provider fees to lift the cap on hospital stays for adults in QUEST — which could mean more money for hospitals — but also remove a 3 percent cut in reimbursement payments to hospitals and nursing homes that the state has ordered to trim costs.

"It’s our position that these funds should also benefit the people of Hawaii," she said.

Hawaii is one of the few states without provider fees to help cover Medicaid costs. Forty-seven states and the District of Columbia use the fees to leverage additional federal Medicaid money. The share of money that states retain from the fees varies widely.

Under draft legislation before lawmakers in conference committee, all but a few private hospitals and large nursing homes would get a return on the provider fees. The fees would be no more than 3 percent of net patient service revenue.

The incentive to voluntarily pay the fees is the potential to improve Medicaid reimbursement payments that many see as unsustainable. Greene said hospitals are reimbursed 70 cents for every $1 in Medicaid patient care. The provider fees would generate higher reimbursement payments that could push that ratio to 83 cents on the dollar.

While the provider fee on private hospitals is in effect, the state would funnel the federal money it is able to draw to compensate for Medicaid losses in the Hawaii Health Systems Corporation back into state hospitals instead of using some for private hospitals, so state hospitals would also see a benefit.

The provider fee on large nursing homes would bring in federal matching funds that the state would use to pay enhanced rates in both QUEST and QUEST Expanded Access, the health plan for seniors and the disabled. Nursing homes with 28 or fewer Medicaid-licensed beds would be exempt from the fee.

While McManaman has described the state’s position as "extremely favorable" to the hospital industry, and Greene has said it would be "heartbreaking" not to get the additional federal money, several industry sources say privately that there is a lack of trust.

"I think we’re rebuilding," McManaman acknowledged. "I think over the past several years the trust that the hospitals had placed in the Department of Human Services eroded. I’m working very hard to restore that faith and trust. We do view hospitals as essential partners. They provide much-needed services to our Medicaid beneficiaries. We view them as partners, not adversaries."

House and Senate lawmakers say that getting hospitals and large nursing homes to agree to provider fees is a potential victory they do not want to squander. The conference drafts of the hospital provider fee (House Bill 2275) and the nursing home fee (Senate Bill 2466) reflect the industry’s position.

"The reason why we have been siding with the private side is that they came to us saying: ‘We want to help the overall safety net. We’re willing to pay a fee. However, it’s not to pay a fee to go into more government service. We want to pay a fee to be part of more reimbursement to help everybody in the whole system,’" said state Rep. Ryan Yamane (D, Waipahu-Mililani), chairman of the House Health Committee.

State Sen. Josh Green (D, Milolii-Waimea), chairman of the Senate Health Committee and an emergency room doctor, said the financial pressures on hospitals and nursing homes can erode patient access to care. Low Medicaid and Medicare reimbursement payments, for example, were cited as a factor in the bankruptcy and eventual closure of the Hawaii Medical Center hospitals.

"The hospital coalition has all agreed, and I’m not willing to jeopardize the legislation under any circumstances," he said.