Hospitals agree to bed tax in major budget win for Perdue

By Aaron Gould Sheinin

The Atlanta Journal-Constitution

With hospital officials standing by, grim but resolute, House budget writers on Tuesday gave preliminary approval to a plan to raise more than $175 million through a new fee on hospital revenues.

The vote by the House Appropriations Committee on HB 307 ended months of back-and-forth negotiations and threats by Gov. Sonny Perdue, lawmakers and the hospitals, and it fills a major hole in the leaky state budget. In the end, the hospitals realized the fee, which cannot be passed on to patients, was the best of several unsavory options.

"We worked in good faith to come up with a compromise," Earl Rogers, a lobbyist and senior vice president for the Georgia Hospital Association, said moments after the vote.

The compromise is an agreement among the state's hospitals to pay a fee (some call it a tax) of 1.45 percent on patient revenues. Carie Summers, vice president of financial services for the hospital association, said that will raise a total of about $225 million a year. Of that, about $50 million will go toward increasing how much hospitals are paid for treating Medicaid patients. The state will use the remainder, or $175 million, to pay for Medicaid services.

While all hospitals will have to pay the new fee, those that serve large volumes of Medicaid patients expect to end up with a net positive. Children's Healthcare of Atlanta at Egleston was estimated to see a $10 million annual bump from the 1.6 percent fee, while Grady Memorial Hospital had been estimated to see $2 million more.

Lawmakers made it clear Tuesday that the new fee cannot be passed on to patients.

"This has to come through the efficiencies of the hospitals," said Rep. Jimmy Pruett (R-Eastman). "This cannot be passed on to insurers and individual patients."

In looking at their options, the hospitals decided the provider fee was the only acceptable alternative. After Perdue first proposed a 1.6 percent fee against hospitals and some insurance companies, the hospitals and some lawmakers scornfully called it a "bed tax" and refused to back it.

But as the state's budget situation has become worse, Perdue said he was left with no choice. If the hospitals wouldn't accept the provider fee,  he said, he would push for the state to revoke the sales tax exemption that nonprofit hospitals enjoy for purchases and that he would implement a 10.25 percent cut to the Medicaid reimbursement rates.

As those ideas started to gain support in the General Assembly -- bills to revoke the sales tax exemption were already starting to move -- the hospitals, the governor and lawmakers were in a big game of bluff.

Perdue's announcement of his alternative plans "finally jarred folks into understanding there were other alternatives," said Bert Brantley, the governor's spokesman. "These sales tax exemptions would really hurt, and we needed to find an alternative."

Perdue's original vision won out, with a few modifications. The fee drops from 1.6 percent to 1.45 percent and -- most importantly to the hospitals -- goes away after 2013.

The hospitals also won agreement that the sales tax exemption and provider reimbursement cut are taken off the table, as is a proposal in HB 1061 that would have granted any hospital the right to expand its services if it agreed to become a trauma care center.

So the hospitals won concessions but are still paying the tax. Health maintenance organizations, or HMOs, are now exempt from the 1.45 percent fee but are likely to still have their sales tax exemption taken away through separate legislation. That bill, HB 1170, passed the House on Monday.

All of these proposals must still go to the Senate for consideration, but there have been high-level talks between the hospitals, the governor, and House and Senate leaders. Presumably, the Senate is on board as well.