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Local Hospital Tax Would Help Urban Facilities Qualify for More Medicaid

Suburban and rural hospitals argue that bill would set bad precedent.

Randy Minniear, senior vice president of the New Jersey Hospital Association (NJHA)
Randy Minniear, senior vice president of the New Jersey Hospital Association (NJHA)

New Jersey's urban hospitals are pushing for a bill that would use a local tax to qualify for more federal funding, but suburban facilities are resisting the measure, saying it would set a bad precedent.

Hospitals that serve a large number of low-income residents are pushing for the bill (A-4209/S-2466), which would create a program allowing some city and county governments to charge local hospitals a fee or tax.

The local governments would keep some of the taxes, but most would be used to increase Medicaid payments to hospitals and managed-care organizations by making more funds available for Medicaid to match.

One way for a state to qualify for federal Medicaid matching funds is by taxing hospitals. When this is done on a statewide level, it effectively redistributes money from wealthier to poorer hospitals, which have a larger pool of low-income patients and thus receive more money from Medicaid.

Local hospital taxes are not redistributive. They make it possible to apply Medicaid funding directly to a specific institution or community.

“It is the hospitals themselves that partner with the state to bolster the health of our Medicaid program, which in turn benefits critically vulnerable patients in our cities,” said Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, which represents urban hospitals.

But advocates for hospitals that serve fewer low-income residents are concerned that the measure would set a bad precedent for institutions that are likely to pay more in taxes than they would receive in Medicaid payments. While the bill establishes a pilot program that would expire in 2017 and affect a limited number of local governments, suburban and rural hospitals are concerned that it could increase pressure for more local hospital taxes.

“It is a big precedent, to go over that bridge to taxing hospitals,” said Richard A. Pitman, executive director of the New Jersey Fair Share Hospitals Collaborative, which represents hospitals that are not located in urban areas.

Legislators are still working out which counties and cities would be eligible for the program.

Both chambers’ versions of the bill would include Newark, Jersey City, Trenton, Camden, and New Brunswick, as well as Atlantic and Passaic counties. The Assembly version also would cover all of Essex and Camden counties, although legislators expressed interest in excluding Camden County outside of the city of Camden, after Virtua officials objected to the potential effect on the Voorhees and Berlin hospitals. Virtua is a health system with four hospitals, including the two Camden County facilities.

Virtua Vice President Fred Hipp said the bill could tax the hospitals $92 million over four years, “money that we would otherwise spend to hire nurses, doctors, and support staff to meet” growing patient needs.

The size of the taxes would depend on the local government. The tax would be applied to all revenue from patients, including private insurance and Medicaid payments but excluding Medicare payments.

The New Jersey Hospital Association also opposed the bill. While NJHA Senior Vice President Randy Minniear said the organization wants to maximize federal funding, it was concerned that the number of localities in the pilot program could be expanded without local hospital support. In addition, the bill doesn’t limit the amount that local governments could take from the fee before transferring the balance to the state Medicaid program. The federal government will not match any revenue raised beyond a 6 percent tax on patient revenue.

Bill advocates said the additional federal money is badly needed. Cooper University Health Care Executive Vice President Gary Young said that with state hospitals facing steep cuts in Medicaid funding and increasing demand for services due to the Affordable Care Act, the state should allow local governments and hospitals to pursue more federal funding.

Young noted that New Jersey has one of the lowest Medicaid reimbursement rates in the country. With the expansion of the program under the ACA, safety-net hospitals like Cooper will feel increased financial pressure, he said.

The bill also received support from Jay Picerno, the executive vice president and chief financial officer of Barnabas Health.

“The provider tax is an opportunity without any impact on the state dollars or on individual taxpayers to get federal matching dollars to enable these hospitals to get additional money,” Picerno said. Newark city officials also supported the measure.

Ianni emphasized that there will be several steps before the taxes are in effect. After the legislation passes, local governments must set the taxes, which then must be approved by both the state Department of Human Services and the federal Centers for Medicare & Medicaid Services.

The Assembly Health and Senior Services Committee approved the bill yesterday. The Senate version of the bill has been referred to the Senate Health, Human Services and Senior Citizens Committee.

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