Is it a fee or is it a tax?

If we don’t renew it and therefore forgo the federal match dollars, what impact will it have on our state’s hospitals?

If we don’t renew it and still try to draw down federal dollars, what impact will it have on our state’s budget?

Will the legislature vote in favor of renewing it?

These are just a few of the questions surrounding Georgia’s Hospital Provider Program, also known as the “hospital tax,” “hospital provider fee” or “hospital bed tax.”

The hospital provider fee is used to draw down Medicaid dollars from the federal government to be used in the state’s Medicaid program.

In Georgia, for every 35 cents the state spends on Medicaid, the federal government puts in 65 cents.

Currently, the hospital provider fee works like this:

Most hospitals pay 1.45 percent of their net patient revenue to the state in the form of a hospital provider fee. While some, such as trauma hospitals, pay a decreased fee, federal law requires that any fees or taxes used to draw down Medicaid dollars be equally assessed and not target any one group; therefore almost all hospitals pay the fee. These fees can only be used to draw down federal funds. It is estimated that approximately $235 million will be collected under this fee in FY2013.

 With the federal government matching these funds at a 35/65 percent rate, the $235 million draws down an additional $450 million dollars, resulting in a $685 million addition to the state’s budget.

Some of the initial provider tax receipts (approximately $230 million) are paid back to the hospitals in the form of increased payments for Medicaid services. For those hospitals that accept Medicaid patients, they see a reimbursement add-on of 11.88 percent. This makes those hospitals that accept more Medicaid patients “winners” in this formula. Those hospitals that do not accept Medicaid patients or accept fewer Medicaid patients are labeled “losers” in this formula since they do not benefit as much from the increased reimbursement.

The remaining funds (approximately $450 million) are used to support general Medicaid expenses such as nursing home care, hospital care and pharmacy.

When the hospital provider fee was started in 2010, it was used to fill a $600 million shortfall in Medicaid in the FY2011 budget. It was passed with a three-year sunset provision, meaning that, unless extended by the legislature during the next session, it will expire on July 1, 2013 and the state will have a $685 million shortfall in the FY2014 budget.

If the fee is not extended, the state will have to make a decision – do we search an already-stressed budget in order to come up with the necessary funds to draw down the federal Medicaid dollars or do we forgo the federal matching dollars altogether?

Either way, the results would not be pleasant.

Currently, even with the hospital provider fee in place, the state is projecting a $400 million shortfall for Medicaid in FY2014. Having to come up with the funds to draw down the federal Medicaid matching funds will cause this shortfall in the budget to grow even larger, making cuts necessary in other areas of the budget that are already tight.

If we choose to bypass the federal Medicaid matching funds altogether, the result could be disastrous to some of our state’s hospitals that depend on Medicaid funding, perhaps causing some to have to close their doors.

So why not just extend the fee and be done with it?

Not so fast, say some. After all, it’s not a fee — it’s actually a tax.

As a freshman state senator in 2010, I remember vividly the heated debate regarding this issue. Even today, the state Senate is still feeling the fracturing effects of this issue.

Adding more intrigue to this issue is the letter released last week by Grover Norquist, president of Americans for Tax Reform, who identified the fee as a tax and said any legislator voting in favor of it would be breaking a promise not to vote for a tax increase.

Is it a fee or is it a tax?

One thing’s for certain — difficult decisions lie ahead for the state legislature in 2014.

Senator Buddy Carter can be reached at Coverdell Legislative Office Building (CLOB) Room 301-A, Atlanta, GA, 30334.
His Capitol office number is (404) 656-5109. You can connect with him on Facebook at facebook.com/buddycarterga or follow him on Twitter @Buddy_Carter.