Mass. hospitals support new tax with certain conditions
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Massachusetts hospitals say they can get behind what they describe as a $250 million tax on hospitals recommended by Gov. Charlie Baker, but only if certain conditions are met, including sunsetting the levy on Sept. 30, 2022 to keep it aligned with a planned five-year federal Medicaid waiver.
Hospitals are lobbying lawmakers ahead of Wednesday's release of the House Ways and Means Committee's rewrite of Baker's budget, hoping for changes designed to ensure that hospitals recoup revenues from what the administration calls a new assessment to support new MassHealth accountable care organization (ACO) incentive payments under a five-year waiver proposal that is being assembled.
The Massachusetts Taxpayers Foundation (MTF) on Monday called the Baker administration's Delivery System Reform Incentive Program proposal "a substantial expansion and overhaul of the current program" that relies on the new hospital assessments and assumes approval of an upcoming waiver to generate hundreds of millions of dollars and incentivize Medicaid providers to move toward preferred care systems.
Predicting "strong debate" on the hospital assessment, MTF said the levy "may prove to be controversial and meet with resistance from legislators representing providers with large net assessments," but noted lawmakers would need to find $73.5 million in savings or budget cuts for fiscal 2017 if they don't agree to Baker's plan.
In a memo circulated to lawmakers on Thursday, the Massachusetts Hospital Association (MHA) said its board, "including hospitals that would gain and lose under the plan," has concluded that it can support the governor's plan "but only with important modifications: the tax must be made contingent upon a sunset date that aligns with the 5 year term of the waiver; specific assurances must be included to ensure that hospitals are made 'whole, as a class' each year of the Waiver; and the tax must cease if hospitals are not made 'whole, as a class.'"
The hospital group urged lawmakers, "Please stand up for your local hospital. Please support the MHA-proposed modifications to the Governor's tax proposal."
According to the association, the administration has proposed the tax to secure additional federal revenue that will be used to support the new MassHealth ACO incentive payments, with the Executive Office of Health and Human Services expecting to seek approval of $2 billion over five years. But the association objects to the tax being launched in October with revenues in fiscal 2017 being used initially to cover general Medicaid costs. And hospitals also want clear statutory assurances that new revenues will be spent on intended purposes during the waiver period.
In testimony before lawmakers in February, Medicaid director Daniel Tsai, a Baker administration appointee, said the hospital assessment is used in other states and "there will be an increase in MassHealth rates to hospitals that also totals $250 million."
"In other words, for hospitals as a class, the new assessment has no net impact," Tsai said, according to his written testimony. "Federal rules require that the rate increase be disbursed to align with a hospital's share of Medicaid volume. As a result, while hospitals as a whole are not impacted, hospitals with higher Medicaid payer mix have a net benefit, while hospitals with relatively higher commercial payer mix will pay more in the assessment than they receive in Medicaid increases."
As U.S. voters choose a successor to President Barack Obama, Tsai called on lawmakers to "act quickly given the timing of our waiver financing and dynamics at the federal level."
Rather than wait until the beginning of fiscal 2018 when new waiver would kick in, Tsai told lawmakers that the administration was hoping to accelerate the hospital assessment increase to demonstrate a commitment to federal negotiators, as well as generate additional revenue this fiscal year. Tsai said the October rate increase would generate $73.5 million in new net revenues in fiscal 2017 that would allow the state to increase Medicaid rates and avoid having to look at reduced benefits, provider payment rates or eligibility.
The hospitals say the new tax will increase the total annual assessment on hospitals through the state budget to $410 million, with $160 million currently assessed to cover Health Safety Net payments for care to low-income uninsured and underinsured residents.
If the plan moves ahead, a separate hospital provider tax should be created, according to the hospital association, and specifically tied to system reform. "Federal law sets forth limits on the rate of provider taxes and the percentage of total Medicaid expenditures that can be financed through provider taxes," the association wrote in its budget testimony. "Massachusetts will not run afoul of these limits, even with the new tax. Federal law also stipulates that any provider tax must be broad-based, uniform and not hold taxpayers harmless for the tax liability."
According to an administration official, Massachusetts could lose $1 billion per year in funding if its three-year waiver is not renegotiated and the five-year waiver being contemplated would expand the number of hospitals receiving safety net payments from seven to between 12 and 14. The assessment is needed to raise the state share required for federal funding, the official said.
According to the taxpayers foundation, no breakdown of the assessment or payments by provider is available, but the research organization projects that more than half of the 65 to 70 affected providers would be "net beneficiaries" with payments exceeding costs by $70 million. About 30 providers will be net payers, by a total of $70 million, with a "few" providers facing annual net payments of more than $10 million.
In March 10 testimony, MHA President Lynn Nicholas laid out changes the trade group hoped to see to the governor's proposal, but added, "We have confidence that we can 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, even though the current circumstances and options are not optimal for the hospital community."
Hospitals are seeking assurance that the full $250 million in taxes will be reimbursed in a timely way. The hospital group said it had developed language that it said "would simply establish needed safeguards and ensure the hospital tax is fully transparent and utilized for its intended purpose."
In a statement, Michelle Hillman, spokeswoman for the Executive Office of Health and Human Services, said, "MassHealth believes increasing the existing assessment to maximize federal revenue will aid in the transition into an Accountable Care Organization (ACO) model of care and value-based payments. This accelerated assessment will be returned to hospitals through a rate increase and will result in a one-time $73.5M transfer to the General Fund in FY17, avoiding a reduction in MassHealth benefits for FY17."
According to MTF, Baker's fiscal 2017 budget assumes that Medicaid enrollment will grow by 2.7 percent, or 50,000 members, to 1.889 million members in fiscal 2017. The projection is "well short" of enrollment increases in recent years and "far below" the Baker administration's initial enrollment growth rate of 4.3 percent. MTF describes the enrollment premise in Baker's budget as a "possible budget exposure," with each percentage point increase in Medicaid enrollment associated with a cost increase of $100 million.
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