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Provider taxes on hospitals have been around for decades, but states have increasingly adopted or expanded the use of them during the recession. Nationwide, 47 states and the District of Columbia have provider taxes. The first was established by Florida in 1984, according to the National Conference of State Legislatures.
In 2011 alone, 15 states established or expanded provider taxes and fees – totaling more than $1.8 billion in new tax revenue, statistics from the national group show.
President Barack Obama has proposed capping the amount of federal dollars spent on provider fee programs to save money – a move hospitals officials fear will shift more costs onto states and ultimately providers.
Piedmont Healthcare and Children’s Healthcare of Atlanta — two of Georgia’s hospital power players – have been battling this fall over a law that taxes them and every healthcare system in the state.
The two are at odds over the state’s “bed tax” — a fee that Georgia hospitals pay to help prop up the state’s Medicaid program. Hospitals pay the bed tax to the state, and the state sends the money back to them according to the level of Medicaid care they provide. The scheme has meant millions in revenue for Children’s and millions in losses for Piedmont; that’s because 55 percent of patients at Children’s Healthcare are on Medicaid; at Piedmont Hospital in Buckhead, the total is less than 3 percent.
The hospital provider fee comes up for renewal in the next session of the Legislature. The central question: Should hospitals that don’t see a heavy load of Medicaid patients help pay the costs of the hospitals that do?
Children’s argues yes; Piedmont argues no — at least not as it’s currently set up. And though they have been the most visible combatants on the issue, hospitals across Georgia stand to gain or lose millions depending on the outcome. In metro Atlanta, Grady Memorial Hospital and DeKalb Medical Center also see a windfall from the bed tax, but the fee acts as a financial drain on St. Joseph’s, Emory University Hospital and Northside Hospital as well as Piedmont.
The Georgia Hospital Association is prodding hospitals to sign off on a compromise that will enable it to present a united front in favor of the fee to the Legislature. And though few legislators like the idea of renewing any tax, many believe the fee is too important to the state budget to do away with it.
“I do not see any other way the General Assembly can balance the budget without having that factored in,” said Sen. Renee Unterman, R-Buford, who is chairman of the Senate’s Health and Human Services Committee. “We can’t go to the basement and print money like the federal government.”
The state’s budget for Medicaid and PeachCare for Kids is already facing a $374 million shortfall for the current fiscal year and an expected shortfall of nearly $400 million shortfall for the 2014 fiscal year. Failing to renew the provider fee would create an even bigger budgetary hole.
Leveraging federal dollars
The Legislature approved the “provider fee” in 2010 under pressure from then-Gov. Sonny Perdue. The state was facing a massive shortfall in its Medicaid budget and the fee offered a solution.
The fee is, essentially, a scheme that allows the state to get “matching funds” from the federal government without having to actually spend state taxpayer dollars.
Here’s how it works. Hospitals pay a “provider fee” of 1.45 percent of net patient revenue. (Trauma centers pay 1.40 percent.) The state uses the money to pump up what it pays hospitals to treat Medicaid patients by 11.88 percent. Because the Medicaid program is jointly paid for by the states and the federal government, Georgia can use the money collected from the hospitals to draw down federal matching funds.
The fee is designed to help level the financial playing field among hospitals, since Medicaid pays less than what it costs to treat patients covered by the plan.
In the 2011 fiscal year, the state collected $215 million in fees from hospitals, which brought in an additional $590 million in federal dollars for the Medicaid program, according to the Georgia Department of Community Health.
The General Assembly authorized the fee for three years, so it will phase out at the end of of June unless the Legislature reauthorizes it.
‘There are better ways’
Piedmont believes the bed tax sets hospitals against one another.
“It polarizes the industry and creates the perception that more successful hospitals are subsidizing less successful ones,” said Matt Gove, a Piedmont spokesman.“There are better ways for the state government to fill a budget hole than to tax the industry providing the care to the patients.”
Gove suggested increasing the state’s tax on tobacco as an alternative.
Piedmont is not the only player questioning whether Georgia should renew the fee. Earlier this year, anti-tax activist Grover Norquist urged Georgia legislators not to renew the bed tax. He argued that doing so would violate the promise many Republican lawmakers made when they signed a pledge not to raise taxes.
No new taxes may make a great bumper sticker, but the options are to dismantle the health care safety net or tax Georgians instead of hospitals, said Dr. Bruce Siegel, president of the National Association of Public Hospitals and Health Systems.
“Do hospitals like this? No,” Siegel said. “But this is the best option we have.”
David Tatum, vice president of government relations for Children’s Healthcare, said there’s an easy solution for hospitals that say they are losing too much money on the provider fee system. “The simple answer is — you should do more Medicaid,” he said.
Some of the resentment about the provider fee flows from fact that Children’s Healthcare is one of the biggest winners in the system and also has some of the strongest finances among the state’s hospitals. An Atlanta Journal-Constitution review of hospital financial reports filed with the state found that the system’s Egleston and Scottish Rite hospitals had profits of more than $200 million on their hospital operations alone.
Children’s says the reports do not account for $100 million in losses the system incurs elsewhere, including at Hughes Spalding, Marcus Autism Center, Emory-Children’s Center and its physicians practices. Plus, the extra resources are pumped back into the nonprofit system. “These two hospitals have a positive bottom line, but they fund our mission in areas like research, teaching and wellness,” the system said in a statement.
‘Draconian cuts’
Rep.Mickey Channell, R-Greensboro, said the provider fee was passed initially to draw down millions in federal dollars that helped the state avoid major cuts to Medicaid.
“If this is not renewed, then I think the hospitals and other health care providers are probably going to be looking at pretty draconian cuts again,” said Channell.
Significant Medicaid reductions could be devastating to many Georgia hospitals.
“If it is not renewed, I think it threatens the Medicaid program statewide,” said Matt Hicks, vice president of government relations at Grady Memorial Hospital.
The Georgia Hospital Association is working to mediate a solution that all of its members and the General Assembly can embrace, knowing that a massive Medicaid shortfall will end up hurting even those not covered by the program.
“When Medicaid is under-funded, it’s a hidden tax on everybody else that has insurance,” said Kevin Bloye, spokesman for the Georgia Hospital Association. “The less Medicaid pays, the more folks who have health care insurance pay. It’s a known fact.”
Grady CEO John Haupert said that Grady is expected to end the year with a $10 million net profit after years of trying to climb out of multimillion-dollar budget holes. Losing the bed tax money would likely force the hospital to cut services eventually, he said.
Those cuts, he said, would affect doctors and other providers – not just hospitals.
“Anyone who gets Medicaid funding gets nailed,” Haupert said.
The Georgia Hospital Association said it believes it is close to working out a plan for the provider fee to continue while also addressing the concerns of hospitals that lose money on the fee. The association is not ready to release the details of the plan. But Bloye said GHA hopes to find support by reminding hospitals that all could be hurt by big Medicaid cuts or other actions the Legislature has considered in the past – including the threat of ending a sales tax exemption for non-profit hospitals.
“For us getting consensus on our plan has proven to be a great challenge,” Bloye said. “But 100 percent of our members agree that the alternative is far, far worse.”
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