Guess who wants, and needs, to pay more taxes.

Hospitals that’s who and the tax is the provider tax.

This past week the governor of South Carolina called hospitals in her state “immoral”for working for the provider tax.  She’s shortsighted to say the least and I don’t believe she understands the provider tax and how it benefits Medicaid recipients in states where it’s used effectively.  You’re a loyal blog reader so I don’t want you to run the risk of saying something as idiotic as South Carolina’s Governor so let me educate you.  The first thing you must know; its important for hospitals take full advantage of funding opportunities that provide them the resources to care for their patients.    The ultimate game of chess has created a situation where hospitals across the country have found an inventive way to tax themselves in order to receive federal matching funds to support Medicaid services within their state.  On the surface it may seem as if hospitals are taking advantage of the federal government, when in reality, they are making up for political jockeying and absent-mindedness of the past.  If you have never had to run a hospital where a third of the care you provide is reimbursed at 30 percent less than your cost, perhaps you don’t understand how important it is to find anyway the law will allow to provide services to those who need them most.

I’m going to attempt to make a really difficult subject as easy as possible to understand because it’s important for every Missouri resident to be knowledgeable about what will happen if provider taxes are reduced.

On Valentine’s Day President Obama released his budget for federal fiscal year 2012 and one aspect of that budget is potentially devastating for health care delivery in the State of Missouri.  The President proposed to reduce the current provider tax cap from 6 percent to 3.5 percent over the next 5 years. 

On the surface it sounds great, who isn’t in favor of fewer taxes.  In the case of provider taxes, specifically the Federal Reimbursement Allowance, Missouri stands to lose $477 million in hospital Federal Reimbursement Allowance and $834 million in federal matching funds in FY 2017 and more than $5.5 billion by 2021. 

While you digest those staggering numbers, let me explain the Federal Reimbursement Allowance or FRA.  The FRA is a provider tax Missouri hospitals pay to fund Medicaid services in the state.  The federal government matches the amount Missouri hospitals pay in and then adds an additional percentage thus funding Missouri Medicaid services. 

This year alone the Missouri Hospital FRA has generated $902 million from hospitals and $1.6 billion in matching federal funds.  There are only two larger sources of general revenue in the State of Missouri: the state income tax and the sales tax. 

You don’t have to be an accountant to understand that if the FRA is reduced there’s no way the state can afford to continue to provide Medicaid services at the same level.  The way the current system works, Missouri hospitals pay a provider tax that funds all of the state’s share of hospital Medicaid payments.  In the hospital setting Medicaid only covers about 70 percent of the cost of inpatient care which means those services are already provided at a significant loss and any further reduction will most certainly reduce availability to care for Medicaid recipients. 

Missouri hospitals share in the cost of care for the underserved because all hospitals pay the tax but some hospitals provide higher levels of Medicaid care than others.  Hospitals in affluent suburban areas have a high percentage of commercial insurance revenue and little to no Medicaid revenue but hospitals in many rural and urban areas have a high percentage of Medicaid revenue and little to no commercial.  Commercial insurance pays at a much higher rate than Medicaid but even those hospitals who enjoy the benefits of high levels of commercial insurance help pay for services provided by hospitals that serve a higher Medicaid population.

Based on the proposed budget, the State of Missouri stands to lose 42 percent of its FRA money.  Medicaid makes up 17.2 percent of total hospital revenue throughout the state and a 42 percent drop in Medicaid revenue would equal a 7.2 percent decrease in total hospital revenue.  Many Missouri hospitals are operating at break even or slightly better and these hospitals will not be able to weather a decrease in revenue without drastic cost cutting measures.  If the 7.2 percent decrease in revenue is offset by a reduction of the hospital workforce, 8,735 of our colleagues, and potentially you and I, will be affected.

I’m the first to admit that the federal government doesn’t always get it right when it comes to taxing and spending but in the case of the FRA provider tax it seems they have.  Medicaid services are provided to some of our most susceptible citizens including the elderly, disabled, children and pregnant women.  Missouri hospitals help fund Missouri Medicaid services and any reduction in the FRA will mean that some of our most at risk friends and neighbors might have access to the health care services they need the most.

About Craig Thompson

I am a young professional with two great sons, and I work in the healthcare setting. I am employed in hospital administration and serve as Chief Operating Officer at Golden Valley Memorial Healthcare in Clinton, Missouri. These are challenging and exciting times in healthcare and my blog will focus on healthcare, raising boys or being raised by boys, and living in mid America.
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