Legislative fiscal staff and department officials briefed the subcommittee on how Montana’s hospital utilization fee (HUF) and related supplemental payments operate, and hospital representatives described how the fees translate into reimbursement levels for hospitals.

Why it matters: the HUF has become a significant component of Medicaid spending in Montana. Supplemental payments drawn with hospital tax revenues can materially change hospital revenue and the state’s Medicaid budget, and the presence of Medicaid expansion increases the federal match for those payments.

Overview given to committee: presenters explained the mechanics. The inpatient HUF is a per‑bed‑day fee (testimony referenced the longstanding $70 per bed‑day inpatient fee), and the outpatient fee is a small percentage of outpatient revenue. Those state‑collected fees are used as state match to draw federal Medicaid funds up to an upper payment limit (UPL). The UPL is defined by federal rules as a ceiling (frequently related to Medicare rates) that limits supplemental payments. LFD staff provided national context documents from MACPAC and a 2024 review of hospital payments showing wide state variation in supplemental payment practices.

Numbers discussed: a national MACPAC/Medicaid review (appended to committee materials) showed Montana’s total hospital supplemental payments in fiscal 2022 at about $393 million, of which roughly $387 million were UPL‑style payments and about $6.4 million were other categories (for example graduate medical education). Department and hospital representatives explained that supplemental payments are more substantial in states with Medicaid expansion because a larger share of services can be matched at the higher expansion match rate. In discussion, staff said supplemental payments represented an estimated 30 percent of total Medicaid expansion spending in Montana’s projections, and roughly 4.9 percent of traditional Medicaid spending.

Hospital association comment: Dwayne Pressinger of the Montana Hospital Association summarized how the fee operates in practice and gave figures the association obtained from department data. Pressinger said the department’s base reimbursement for hospitals before supplemental payments was about 53 percent of hospital cost; after HUF‑funded supplemental payments are returned to hospitals, reimbursement averages about 95 percent of cost. He said, after removing the portion derived from the hospital tax itself, the net reimbursement to hospitals is about 82 percent of cost. Pressinger also noted critical access hospitals are paid at about 101 percent of cost under the existing system and observed that hospitals as a group now receive more back in supplemental payments than the amount they remit in fees.

Policy context and constraints: presenters emphasized federal limits (UPL) and the need to certify supplemental payments do not exceed federal UPL ceilings. Committee members and staff discussed whether the HUF structure focuses dollars in Montana facilities (the fee is assessed on in‑state providers and the resulting supplemental payments are distributed to Montana hospitals) and how supplemental payment growth over time interacted with expansion. Staff provided source documents to explain national variation in approaches to hospital supplemental payments and the legal framework for UPL and related mechanisms.

Ending: the committee requested further analysis of hospital supplemental payment trends and asked the department and LFD to provide comparative tables and sensitivity analyses demonstrating how HUF and UPL rules affect state general fund exposure. The Montana Hospital Association committed to work with staff on data and background materials for the subcommittee.