In a letter to Massachusetts House leadership, MHA raised objections to the Baker Administration’s proposed new $250 million tax on acute care hospitals, but highlighted a path for acceptance based on a series of required conditions needed to achieve fairness and protection for hospitals.
Under the governor’s FY2017 budget proposal, the new hospital tax and corresponding Medicaid payments would generate federal matching funds that would ultimately – starting in FY2018 – be used to support proposed investments in Medicaid Accountable Care Organizations (ACOs) as well as community healthcare and social service providers. The Medicaid ACO program and related investments will be the main component of a new five-year Medicaid waiver that is now being considered. But while the waiver is proposed to be for five years, the proposed tax, as written, would be a permanent tax used for a variety of purposes unless the legislature steps in to place limits on it.
As proposed, the $250 million tax revenues would be paid back to hospitals as “a class”; however, some hospitals would gain revenue through the tax and some hospitals would end up as net payers of the tax. (The federal government defines the $250 million levy on hospitals as a “health care related tax.”)
While being supportive of the concept of a new, fully-funded five-year waiver, MHA’s Board of Trustees has raised serious concerns about the proposed new tax. Since it is being levied to help raise funds for the new five-year waiver proposal, then the new tax would have to sunset at five years, MHA argued in its letter, stressing that it must oppose any new hospital tax in the absence of a definitive sunset provision. This is especially important for those hospitals that will pay a heavy price as net payers.
Also, MHA argued, any tax proposal must have strengthened language that clearly stipulates the $250 million tax will be returned to the hospital community as a whole on a timely basis, and not diverted for other state uses; and if the funds are not returned to hospitals in a timely manner the tax should be terminated, MHA said, adding that there should be efforts to mitigate the harm to those hospitals on which the tax imposes a loss.
Massachusetts hospitals have had troubling experience with a similar tax used for the Health Safety Net. The terms of that program have changed frequently over the years. For example, hospitals and commercial insurance payers each are assessed $165 million annually to fund the Health Safety Net. Reimbursement to hospitals for care provided to low-income uninsured and underinsured patients qualifies for federal Medicaid reimbursement, producing approximately $150 million annually in federal funds that goes into the state’s general fund. The state has traditionally returned $30 million of the federal funds to help address the cost of caring for the uninsured and underinsured through the Health Safety Net. However the Baker Administration has proposed ending that contribution, which will increase the program’s funding shortfall in FY2016 to more than $90 million. Health Safety Net shortfalls are paid for solely by hospitals and often run into scores of millions of dollars on an annual basis.
MHA is also very concerned that the Administration proposes imposing the new tax on hospitals in FY2017 before the new waiver would begin, not to promote Medicaid ACOs as intended, but to fill a budget hole in Medicaid.
“Taxing Massachusetts hospitals to address issues with a state budget deficit is strongly objectionable,” said Tim Gens, MHA executive vice president. “If a tax is to be imposed in FY2017, any federal revenues received from such a tax should be dedicated to hospitals. This use of the funding would at least mitigate the harm to the hospital community from the tax. Otherwise, the hospital tax should be delayed until state FY2018.”
MHA is currently talking with the legislature and the administration about how to address its objections. Gens said MHA “hopes that we can all work together to ensure that any tax increase on hospitals, the corresponding Medicaid payments to hospitals, and the new ACO investments can be designed in a manner that Massachusetts hospitals can support. But any proposed temporary tax that isn’t programmed to end, should never begin.”