By Mary Ellen Klas and Daniel Chang

The tumultuous debate over the future of healthcare funding for the poor came to a quiet end Tuesday as the governor signed into law a budget that includes $1 billion in federal funds to pay for charity care and raise Medicaid rates at Florida hospitals.

In a letter to state officials, the federal Centers for Medicare and Medicaid Services (CMS) said they have "agreed in principle" to a Florida plan for distribution of the Low Income Pool (LIP) funds that pay for hospital care for Medicaid beneficiaries and the low-income uninsured. The plan also calls for paying higher Medicaid rates to hospitals, particularly those that care for large numbers of uninsured patients.

State lawmakers had to redesign the LIP program and raise Medicaid reimbursement rates because the federal government reduced LIP money for Florida by $1.2 billion for the coming year, which led to a budget impasse between the House and Senate this spring and then to a special session on the budget that ended last week.

The Senate, siding with business groups, hospitals and health insurers across the state, wanted to offset the loss of LIP money by creating a privately-run insurance exchange to draw down federal Medicaid expansion money available under the Affordable Care Act. But the House rejected the plan, resulting in the budget standoff.

Government regulators agreed to extend Florida's 9-year-old LIP program, but capped spending for the coming year at $1 billion in combined federal and state funds. Under the agreement, combined LIP spending will be capped at $608 million the following year, starting in July 2016.

For this year's budget, legislators decided to inject $400 million in state funds, which will draw down $600 million in federal matching funds, to raise Medicaid rates for hospitals -- offsetting the reduction in LIP funds with higher rates.

After suing the federal government for allegedly coercing Florida to expand Medicaid by withholding an approval on the state's LIP proposal, Gov. Rick Scott on Tuesday signed the state budget, including the compromise on LIP. The federal and state money, combined with local matching funds, will result in a total of $2.17 billion in LIP and Medicaid rate enhancements for hospitals across the state.

In a statement, Scott credited his lawsuit for pushing the Obama administration into "finally agreeing to continue funding the Low Income Pool program."

But in a letter to the state Agency for Health Care Administration, CMS Director Vikki Wachino said the agreement is based on principles the agency laid out in a letter from April 21, before the Legislature ended its regular session. The principles stipulate that federal LIP funds "should not pay for costs that would be covered in a Medicaid expansion."

Florida's new system of distributing LIP funds and raising reimbursement rates represents a fundamental change in the way the state and federal government pay for healthcare for the uninsured, said Tony Carvalho, president of the Safety Net Hospital Alliance of Florida, which represents public and teaching hospitals.

"It is a way of trying to transition from a shrinking LIP pot to a rate system where you're still trying to recognize the difference between hospitals," he said.

In South Florida, public and teaching hospitals are expected to see a drop in funding under the new plan.

For example, Jackson Health System, Miami-Dade's $1.6 billion-a-year public hospital network and the state's largest Medicaid provider, is projected to receive $263.6 million in net payments from LIP and the higher reimbursement rates. That's a reduction of about $6.9 million over the prior year's LIP total.

Broward Health, the public hospital system for North Broward, is projected to receive $108.5 million in net payments next year, about $2.3 million less than the prior year. Memorial Healthcare System in South Broward also will see a net reduction of $2.27 million over the prior year, for a projected net total of $108.1 million.

Not all Medicaid providers will see the same effect on rates, however. Miami Children's Hospital, for example, will receive about $6 million more than the prior year.

Carvalho said that of the $1 billion in higher Medicaid rates, about $800 million will be used to pay for care once covered by LIP funds. And about $125 million will go toward higher rates for some trauma centers.

Florida's nine Level I trauma centers, for instance, including Ryder Trauma Center at Jackson Memorial Hospital in Miami, will see a 17 percent increase in Medicaid reimbursement rates, while Level II and pediatric trauma centers will see an increase of 11 percent.

Healthcare reform requires the federal government to move away from programs that pay hospitals for treating the uninsured after the fact, and toward increased health insurance coverage for eligible Americans.

But the governor and Legislature have rejected Medicaid expansion, which would cover an estimated 850,000 additional low-income adults according to the Urban Institute, a nonprofit health policy research group.

(c)2015 Miami Herald