7. a. For the period beginning January 1, 1996 and ending June 30, 2004, and except as provided in section 8 of P.L.1996, c.28 (C. 26:2H-18.59f), the charity care subsidy shall be determined according to the following methodology.

If the Statewide total of adjusted charity care is less than available charity care funding, a hospital’s charity care subsidy shall equal its adjusted charity care.

If the Statewide total of adjusted charity care is greater than available charity care funding, then the hospital-specific charity care subsidy shall be determined by allocating available charity care funds so as to equalize hospital-specific payer mix factors to the Statewide target payer mix factor. Those hospitals with a payer mix factor greater than the Statewide target payer mix factor shall be eligible to receive a subsidy sufficient to reduce their factor to that Statewide level; those hospitals with a payer mix factor that is equal to or less than the Statewide target payer mix factor shall not be eligible to receive a subsidy.

Charity care subsidy payments shall be based upon actual documented hospital charity care.

As used in this section:

(1) The hospital-specific “documented charity care” shall be equal to the dollar amount of charity care provided by the hospital that is verified in the department’s most recent charity care audit conducted under the most recent charity care eligibility rules adopted by the department and valued at the same rate paid to that hospital by the Medicaid program.

For 1996, documented charity care shall equal the audited, Medicaid-priced amounts reported for the first three quarters of 1995. This amount shall be multiplied by 1.33 to determine the annualized 1995 charity care amount. For 1997 and the period from January 1, 1998 through June 30, 1998, documented charity care shall be equal to the audited Medicaid-priced amounts for the last quarter two years prior to the payment period and the first three quarters of the year prior to the payment period. For fiscal year 1999 and each fiscal year thereafter, documented charity care shall be equal to the audited Medicaid-priced amounts for the most recent calendar year;

(2) In 1996, the hospital-specific “operating margin” shall be equal to: the hospital’s 1993 and 1994 income from operations minus its 1993 and 1994 charity care subsidies divided by its 1993 and 1994 total operating revenue minus its 1993 and 1994 charity care subsidies. After calculating each hospital’s operating margin, the department shall determine the Statewide median operating margin.

In 1997 and each year thereafter, the hospital-specific “operating margin” shall be calculated in the same manner as for 1996, but on the basis of income from operations, total operating revenue and charity care subsidies data from the three most current years;

(3) The hospital-specific “profitability factor” shall be determined annually as follows. Those hospitals that are equal to or below the Statewide median operating margin shall be assigned a profitability factor of “1.” For those hospitals that are above the Statewide median operating margin, the profitability factor shall be equal to:

.75 x (hospital specific operating

margin – Statewide median operating margin)

1 – ______________________________________________

highest hospital specific operating margin – Statewide

median operating margin

(4) The hospital-specific “adjusted charity care” shall be equal to a hospital’s documented charity care times its profitability factor;

(5) The hospital-specific “revenue from private payers” shall be equal to the sum of the gross revenues, as reported to the department in the hospital’s most recently available New Jersey Hospital Cost Reports for all non-governmental third party payers including, but not limited to, Blue Cross and Blue Shield plans, commercial insurers and health maintenance organizations;

(6) The hospital-specific “payer mix factor” shall be equal to a hospital’s adjusted charity care divided by its revenue from private payers; and

(7) The “Statewide target payer mix factor” is the lowest payer mix factor to which all hospitals receiving charity care subsidies can be reduced by spending all available charity care subsidy funding for that year.

b. For the purposes of this section, “income from operations” and “total operating revenue” shall be defined by the department in accordance with financial reporting requirements established pursuant to N.J.A.C.8:31B-3.3.

c. Charity care subsidy payments shall commence on or after the date of enactment of P.L.1996, c.28 and the full calendar year 1996 allocation shall be disbursed by January 31, 1997.

L.1996,c.28,s.7; amended 1997, c.263, s.5; 2004, c.113, s.2.