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Oklahoma Gov. Mary Fallin, who said her state won't expand Medicaid, was among those who visited the White House last week to share concerns that their states will suffer under fiscal cliff deals.
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Targeting provider taxes

Hospitals fear Medicaid-wary states

By Rich Daly
Posted: December 8, 2012 - 12:01 am ET

One option under consideration as a piece of solving the federal government's debt problem could undermine the Medicaid expansion that's supposed to cover millions more Americans beginning in 2014.

Among myriad proposals floating around Washington to help fund an end-of-the-year debt-reduction package is a reduction or elimination of state Medicaid provider taxes.

But beyond the long-standing concern that cutting provider taxes could hurt safety net hospitals that depend on the supplemental payments they yield, there is growing worry among some hospitals that it might become another factor making states wary of adding more residents to their Medicaid rolls under the Patient Protection and Affordable Care Act.

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The tax has drawn bipartisan derision in Washington because it allows states to inflate their spending on Medicaid using money they generally automatically return to providers through higher reimbursements. The additional Medicaid spending fueled by the tax proceeds serves to draw increased federal funds. And it has become a common tactic, with 47 states and the District of Columbia using provider taxes to help pay for the state share of Medicaid costs, according to the National Association of Public Hospitals and Health Systems.

Sen. Richard Durbin (D-Ill.) recently referred to the tax as a “charade,” and a Nov. 29 Washington Post editorial urged a “phased-in” cut to the use of the taxes.

“The provider assessment program, as imperfect as it is, is a Band-Aid on a severely broken program,” Richard Pollack, chief lobbyist for the American Hospital Association, said in an interview. “What that means to assuring that these facilities will be able to stay open and provide services is a real question.”

State political leaders might see cutting the tax as a cut to federal funding for Medicaid and one more reason not to approve the reform law's expansion of Medicaid eligibility to any resident with income of up to 133% of the federal poverty level, or as high as 138% of the federal poverty level.

“If we have to be explaining how we got cut and yet we're still going to be able to go forward with more coverage, that's going to be hard to explain to lawmakers who are already somewhat concerned,” said Laura Appel, vice president of federal policy and advocacy for the Michigan Health and Hospital Association.

Michigan is one of 18 states that remain undecided on whether to expand their Medicaid program, according to an update last week by the Advisory Board Co. Another six states were listed as leaning against the expansion.

The Medicaid expansion is one of the primary means by which the ACA would extend healthcare coverage, reaching an additional 11 million people by 2022, according to the Congressional Budget Office. That figure is 6 million fewer than had been expected to gain coverage through Medicaid before the U.S. Supreme Court ruled that HHS could not penalize states for declining to expand their programs.

Governors and state legislators have raised concerns that the Medicaid expansion will carry massive unexpected costs for states, despite the federal government covering much of the cost of newly eligible beneficiaries.

For example, a Nov. 26 study by the Kaiser Family Foundation concluded that the Medicaid expansion and other provisions of the federal healthcare overhaul would lead state Medicaid spending to increase by $76 billion over the next 10 years. The report emphasized the much greater $952 billion federal share of the cost of that expansion, but state leaders do not have to worry about finding that money.

In Colorado, another state where political leaders have yet to decide on expanding the Medicaid program, state officials are less likely to do it if Congress limits provider taxes, said Julian Kesner, spokesman for the Colorado Hospital Association.

“The reality is that what some lawmakers in Washington are calling 'cuts to Medicaid provider taxes' is really just another moniker for cutting Medicaid, period—and Colorado's most vulnerable citizens will likely be impacted the most in this scenario,” Kesner said in an e-mail. “Scaling back the provider fee program could very well result in reduced healthcare services and access for thousands of children, the poor and the disabled, especially in rural parts of Colorado.”

Colorado hospital officials and their advocates are gearing up to press congressional representatives on the issue, he said.

Meanwhile, Michigan hospital officials who visited Washington and discussed the Medicaid provider taxes with congressional representatives recently heard conflicting views on whether the provision would get rolled into any year-end legislative deal, Appel said.

The desire for a large debt-reduction deal has led many in Congress to refuse to rule out any specific cuts—especially to providers, a less potent political force than beneficiaries—as they scour for savings in federal healthcare programs viewed as driving the government's historic debt. But at least some have raised concerns about cutting states' use of provider taxes.

“That one will take money from states at a time when the administration is encouraging them to expand Medicaid to cover childless adults,” Sen. Chuck Grassley (R-Iowa) said about cutting Medicaid provider taxes in a Dec. 3 speech on the Senate floor.

Hospitals and long-term-care providers have fended off attacks on provider taxes since at least a 2006 budget proposal by President George W. Bush.

For instance, the National Association of Public Hospitals and Health Systems highlighted the broader societal and economic benefits of provider taxes in an advertising campaign and website with related research launched last week. The ripple effects of cutting the tax, according to the campaign literature, would cause states to either press their taxpayers for additional revenue or lead hospitals to end or scale back community services, such as specialty-care clinics.

Dr. Lisa Harris, CEO and medical director of Wishard Health Services, Indianapolis, appeared in one of the group's new Web videos. “For those that would advocate cutting Medicaid spending,” Harris said, “I would say we can either spend a relatively small amount now or massive amounts later.”

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