The state of Kansas is getting ready to stick Lawrence Memorial Hospital for about $700,000.

So why is LMH president and CEO Gene Meyer smiling?

“Oh, I think it’s a good deal,” he said. “I wish they’d done it years ago.”

Meyer is referring to a bill that’s passed both the House and Senate and that Gov. Kathleen Sebelius has said she would sign. It calls for taxing hospital revenues, using the money raised to bring in matching federal dollars that, in turn, will be used to increase Medicaid rates paid to hospitals and doctors.

A similar tax will be imposed on First Guard, the private health management organization that runs HealthWave, the state’s insurance program for children in low-income families, as well as the Medicaid programs in about two-thirds of the state.

The tax on First Guard revenues will be used to increase its rates as well as those paid to doctors, pharmacists, dentists and clinics for the poor.

Together, the two taxes are expected to generate $111 million.

“This is good for everybody,” said Senate President Dave Kerr, R-Hutchinson, a key supporter of the bill.

But there’s a catch.

“To do these things, we’re going to have to have the feds’ approval,” said Robert Day, director of the Governor’s Office of Health Planning and Finance Team. “And that won’t come easy or quick. If I had to guess, I’d say it could take six months, meaning providers would see a rate increase sometime in 2005.”

Similar plans have been approved in 22 states, Day said, adding that some have been in place for several years.

In Kansas, Medicaid payments are a 40:60 blend of state and federal funds. So LMH’s $700,000 should generate an additional $1.75 million for the facility.

The state’s Medicaid rates have long been among the lowest in the nation.

“On the physician side of things, we’re somewhere between 20 and 45 percent of what a private insurer like Blue Cross Blue Shield would pay,” said Laura Howard, deputy secretary in charge of health care policy at the state Department of Social and Rehabilitation Services.

“On the hospital side,” she said, “it’s a little better. It’s between 35 and 55 percent.”

Howard said the rates paid to doctors, dentists, hospitals and pharmacists hadn’t increased significantly since the mid-1970s.

Because of the low rates, most doctors and dentists either have stopped taking Medicaid patients or limit the number they do see.

Lawmakers had little trouble winning the support of the associations that represent the state’s hospitals and doctors.

“This is a really good example of what can happen when the Legislature, the Governor’s Office and the private sector are all on the same page,” said Tom Bell, executive vice president at the Kansas Hospital Assn.

The state’s nursing homes are not in on the deal.

“We opposed the bill,” said John Grace, executive director at Kansas Association of Homes and Services for the Aging, which represents the nonprofit nursing homes.

“For us, that would mean raising residents’ monthly payments, and we don’t think it’s good public policy to tax the private-pay frail elderly to pay for the care of the frail elderly who happen to be on Medicaid,” Grace said, noting that about half of the state’s nursing home residents are private-pay.

“It’s different for hospitals,” he said. “Very few of their patients are private-pay.”

Kansas Health Care Assn., the lobby for the state’s for-profit nursing homes, supported including nursing homes in the bill.