Why Are Not-for-Profit Providers Lining Up To Be Taxed?

Why Are Not-for-Profit Providers Lining Up To Be Taxed?

California hospitals are among providers in many states voluntarily asking for new fees or assessments, regardless of the national reform debate's outcome. The fees are being used to draw down additional federal funding for Medicaid.

California hospitals are near final agreement on a self-imposed tax designed to boost federal matching funds for the state’s Medi-Cal program. The deal is years in the making and could affect billions of dollars in annual reimbursements.

While many innovative health care laws — from mandating nurse-to-patient ratios to putting chargemasters online — were pioneered in California, the state’s actually behind much of the nation this time.

Not-for-profit health care providers in more than 20 states currently are assessed some fee, despite their tax-exempt status, and there’s been a rush for similar assessments since the federal government’s stimulus legislation passed last year.

The clamor hinges on a key stimulus provision related to the Federal Medical Assistance Percentage, or the federal government’s share of Medicaid spending. The stimulus bill raised the FMAP from about 57% of Medicaid spending on average to 63%, and states responded by drawing down roughly $30 billion in added Medicaid funds in 2009. That was more than one-third of the federal spending distributed last year to help prop up state governments during the recession.

The provision is slated to expire at the end of 2010, although the jobs bill (HR 4213) that is under consideration on Capitol Hill could extend the FMAP hike through June 2011, pending the outcome of negotiations between the House and Senate.

Although the FMAP’s not widely understood or explicitly discussed in popular coverage, the measure has played a key role in the national health reform debate. Much-criticized deals to win the support of Sens. Ben Nelson (D-Neb.) and Mary Landrieu (D-La.) for Senate Democrats’ health reform legislation revolved around offering state-specific increases or changes to the FMAP. President Obama’s own framework for a health reform bill would do away with Nelson’s so-called Cornhusker Kickback, but keep Louisiana’s special FMAP protections.

Otherwise — with the White House aware of the FMAP controversy — Obama’s proposal explicitly calls for all states to “be treated equally and … not receive any special matching rates” under a plan to have the federal government cover most costs for newly eligible Medicaid enrollees in coming years.

However, the stimulus’ FMAP hike remains untouched, and providers in states like Iowa and Tennessee are pushing for new taxes in hopes of boosting total reimbursements. According to the Iowa Hospital Association, a self-imposed fee on member hospitals would annually generate $40 million in new taxes but result in $68 million in new Medicaid funds — a $28 million net gain that IHA has called a “win-win” for providers.

How each state structures the tax has been crucial to winning support. Georgia’s hospitals have fought a proposed 1.6% assessment on net patient revenue, saying it would ultimately harm organizations and boost health care costs.

For California hospitals and health systems, the proposed tax is tied to Medi-Cal volume, which appears to benefit most providers. Roughly 19% of the state’s hospitals would pay the fee but lose funds — Kaiser Permanente likely to be among them — based on low Medi-Cal volumes. The tax also appears to be gaining steam with the state’s growing uninsured population and the FMAP stimulus window closing.

Shaping the Debate

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