Mississippi has begun taxing hospitals as a way to generate Medicaid funds and prevent the loss of federal money, but the U.S. Department of Health and Human Services is taking a look at an alternative proposal.

Pete Smith, a spokesman for Gov. Haley Barbour, said the state Division of Medicaid is requesting the federal government’s permission to implement the substitute funding mechanism to ensure the state doesn’t lose $270 million in federal dollars.

The plan submitted to federal Medicaid officials was offered by the Mississippi Hospital Association, which has been opposing the tax Barbour’s administration began this past Friday.

Barbour has said he will implement the alternative if approved by HHS’s Centers for Medicare and Medicaid Services.

The governor’s decision to levy a $45 million tax without the Legislature’s permission has drawn criticism from both lawmakers and hospital administrators.

The proposed substitute is similar to one the MHA drafted last month but was sent back by state Medicaid administrators, said Shawn Lee of the hospital association.

The MHA has been seeking an “acceptable” funding source that’s not as burdensome as the tax, Lee said.

The MHA-written funding option is considered only a short-term measure, however.

Changes in federal rules require that Mississippi come up with $90 million to ensure hospitals don’t lose $270 million in federal Medicaid funds this year. The federal government has disallowed a funding method that states had used for years to generate funds to draw more federal Medicaid money.

With that now being prohibited, Barbour proposed that all Mississippi hospitals — public and private — pay a tax equal to 0.75 percent of their total revenues.

“The governor is actually reducing the $90 million tax to $45 million,” Smith said Tuesday.

That plan would generate money needed to sustain half of the state match for federal funds. The other $45 million would come from general funds appropriated by the Legislature in 2007.

Smith said that while the new tax has formally been implemented with the start of September, it would be another month before hospitals would actually begin paying it.

Meanwhile, the state will wait for federal officials to decide whether Mississippi can opt for the MHA funding plan.

MHA had proposed public hospitals give back a broader range of Medicaid money than the old formula to help sustain the match for federal funds. The plan still relies on the Legislature also providing the other $45 million for the state match.