Although HCFA last month rejected pleas by investor-owned hospitals to increase their Medicare capital reimbursement to offset tax payments, the proposed change is now in the Senate and House Republican Medicare reform bills.
The battle over this issue, which involves about $80 million in annual property tax payments, has pitted the Catholic Health Association against the Federation of American Health Systems. The federation represents the nation's 1,300 investor-owned hospitals.
Last week, CHA Executive Vice President William Cox conceded that it would be tough to get the change in capital payments out of both bills. "We just think it's bad public policy," Cox said. He branded the proposal a "payoff to for-profit hospitals" for supporting the inclusion of capital reimbursement in diagnosis-related group payments in fiscal 1992.
When asked whether the CHA would work to have the provisions taken out of both congressional bills, Cox said, "We'll see."
Although the proposed allowance for property taxes is small when compared with the $6.3 billion HCFA will make in capital payments this year, it could represent another cut in Medicare payments to not-for-profit hospitals. Because such a change must be "budget-neutral," the government would have to take the money from some other portion of Medicare to pay for the allowance.
When the capital prospective payment system began in October 1991, HCFA used the industry's capital costs as a base in figuring the initial prospective rate. Those costs included taxes paid by hospitals. However, the reimbursement was spread among all hospitals. Although tax-paying hospitals reported higher costs with the taxes, the reimbursement rate doesn't reflect those costs.
Investor-owned officials argue that HCFA said at that time it would remedy the inequity after it collected sufficient data on how much taxes are paid.
After collecting the data, HCFA in June proposed paying investor-owned hospitals $70.47 more per Medicare discharge.
However, that provoked cries from the CHA, which contended that while not-for-profit hospitals are tax-exempt they incur extra charges for community benefits. That led HCFA to abandon the proposal.
After lobbying by the Federation, both leading Medicare bills in Congress contain the adjustment for capital-related tax costs. It would only affect hospitals that paid taxes in 1992.
Some not-for-profits that make payments in lieu of taxes also would benefit from the change. According to the Federation, 700 for-profit and 550 not-for-profit hospitals would benefit from the adjustment.
In recent years, local governments have become more aggressive about seeking tax payments from not-for-profit hospitals. Philadelphia's 40 not-for-profit hospitals last year agreed to make payments in lieu of taxes to the city (Dec. 12, p. 22). Property-tax disputes also have arisen in New York, Iowa and the District of Columbia.
"It's just a matter of equity," said Thomas Scully, the Federation's president and chief executive officer. "We were very disappointed and surprised when HCFA changed its mind."
Concerning the amendment in the Senate and House bills, Scully said, "We wanted to make sure it was addressed. I don't think it should be all that controversial. The people that pay taxes and the not-for-profits that pay fees are probably the people who should get reimbursed for that in Medicare."