The battle over Georgia’s hospital tax suddenly heated up last week, ignited by the attention-grabbing entrance of national anti-tax leader Grover Norquist.

The Washington-based activist, in a letter to Georgia legislators, said renewing the hospital fee, which raises money for the state’s Medicaid program, would kill jobs and raise health costs. He urged state lawmakers to oppose renewing what he called “a bed tax.”

Norquist is the author of an anti-tax pledge that has been signed by many of the nation’s Republican lawmakers, including leading ones from Georgia. He said renewing the hospital tax would amount to “a violation” of that promise.

Now, some major Georgia hospital organizations have fired back at Norquist and come out strongly in support of the tax, which expires in July.

Children’s Healthcare of Atlanta, Grady Health System in Atlanta, Memorial University Medical Center in Savannah and HomeTown Health, an association of rural hospitals, delivered a letter of their own to leading Georgia officials Tuesday. It said that not renewing the provider fee could double Medicaid’s already sizable financial shortfall.

If the fee is killed, “the burden of funding Medicaid and caring for the most vulnerable Georgians would fall entirely on the backs of state and local taxpayers,” said the hospital group, called the Coalition for Medicaid Payment Equity.

A rejection of the hospital tax, the coalition letter said, would probably cause Medicaid patients to lose access to health care; endanger the finances of safety-net hospitals; and raise costs to the state.

They noted the hospital fee is not levied on individual patients or on hospital beds, but is based on hospital net patient revenue. More than 40 states use such provider assessments to help cover the costs of their Medicaid programs. With bad economic times battering state budgets, some states in the past five years have increased taxes already in place or approved new ones on hospitals, nursing homes or managed care plans.

The states use the funds to increase the federal spending on their Medicaid programs.

In Georgia, the provider fee generates more than $200 million a year in state revenues, the hospital coalition said. When matched with federal funds, Georgia receives about $400 million in added funds to support the budget.

Two-thirds of that money goes to shore up Medicaid’s budget. The rest goes to raise Medicaid reimbursements to hospitals.

The amount raised from hospitals is returned to the hospital industry through reimbursements. Individual hospitals get different amounts based on how much Medicaid business they do.

There are winners and losers under this formula. Grady Memorial Hospital, which has a large Medicaid patient mix, received more than $9 million from the state’s hospital provider tax in fiscal year 2011. The biggest loser during that period was Piedmont Hospital in Buckhead, which lost $6.4 million.

Piedmont Healthcare, along with a few other hospitals, has been a strong opponent of the current formula.

The Georgia Hospital Association has been working on a revised formula for the hospital tax.

The Medicaid program in Georgia already faces a steep deficit. For the 2013 and 2014 budget years, the state faces a $700 million shortfall in its Medicaid program, Gov. Nathan Deal recently noted.

Medicaid, jointly financed by the state and federal governments, currently covers 1.5 million poor and disabled Georgians.

Georgia spends less than every state but California in Medicaid payments per beneficiary, the hospital coalition noted in its letter.

Norquist, in his letter, argued that the bed tax “is not only a state issue.”

“The reason it is so enticing to state lawmakers is that it allows state government to take advantage of the federal matching program for Medicaid,” Norquist wrote. “Fiscal conservatives should not be looking to Washington for more federal aid, especially when the national debt climbed above $16 trillion for the first time last week.”

An Americans for Tax Reform official said Tuesday that the fight over the hospital assessment will be a top priority in the 2013 Georgia General Assembly.

The “losing” hospitals either pass the cost on to consumers or absorb it as a new cost of doing business, said Josh Culling of Americans for Tax Reform in an e-mail to Georgia Health News.

Neither move is good for Georgia’s economy, Culling said.

“Gaming the Medicaid matching system is bad for the entire country,” Culling said. “We have been on record in opposition to similar tax increases in other states.”

The hospitals responded by saying that the matching funds are made up of tax dollars that Georgians pay to the federal government. “We should accept our own tax dollars back and use them for the benefit of our residents and their health,” the hospital letter said.

The hospital group delivered its letter, dated Monday, to Deal, state legislators, House Speaker David Ralston, Lt. Gov. Casey Cagle, and David Cook, the commissioner of the Department of Community Health.

If the hospital fee revenues disappear, the coalition said, Medicaid would be forced to cut reimbursements to hospitals and doctors. That, in turn, would force many providers to stop seeing Medicaid patients.

A spokesman for Deal, responding to questions about Norquist’s involvement in the controversy, sidestepped the debate, saying only, “We haven’t started the budgeting process in earnest yet; we’re still in the preliminary stages. It’s far too early to say what’s going to be in the governor’s budget proposal.”

Tim Sweeney of the Georgia Budget and Policy Institute said the chronically underfunded Medicaid program needs the provider fee revenue.

“Georgia’s policymakers should stand up to Norquist and, more importantly, focus on what’s in Georgia’s best interest,” Sweeney said. “Ensuring that Medicaid is adequately funded – whether through the hospital fee or some other means – is the right choice for Georgia.”