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Hospitals pay tax in Medicaid-expansion bill — but rake in millions more, through other means

Posted: 8:52 PM, Mar 28, 2019
Updated: 2019-03-29 09:29:53-04

HELENA – Montana’s hospitals, a big beneficiary of the state Medicaid expansion program, pay a new tax that would raise $15 million a year to help fund the state’s share of the program, under the bill that would continue the program.

But that same bill also includes tax provisions that would generate about $300 million a year in additional federal money for the hospitals, to offset what they consider a loss on Medicaid business.

“This isn’t free money and it’s not a windfall that just comes in and turns into cash,” Bob Olsen of MHA, the hospitals’ lobby group, told MTN News Thursday. “It is covering costs.”

The additional money is what’s known as a hospital “supplemental payment” — money that Montana hospitals have been generating for years, through Medicaid. But under Medicaid expansion and House Bill 658 , which would extend the program, the total take for hospitals is greatly increased.

Rep. Ed Buttrey (R-Great Falls) who is sponsoring HB658 and sits on the board of Benefis Hospital in Great Falls, also said the extra money for hospitals is nothing particularly new. It allows hospitals to cover the cost of Medicaid patients, the payment for which does not cover their costs, he said.

“And remember, anything that’s below the cost of the service that (hospitals) get reimbursed gets cost-shifted to other folks, who have insurance or self-pay,” he said. “This is not a tack by the hospitals to get rich. This is a tack to help them pay for the services they provide.”

HB658, if approved, would continue Medicaid expansion, which provides health coverage to 96,000 low-income Montanans. The bill is on the House floor Friday.

It includes some substantial changes, such as “community engagement” requirements for participants. But it also has language that enables hospital taxes to generate millions of dollars for hospitals.

The supplemental payments to hospitals are generated by a hospital bed tax that hospitals pay to the state, on every “bed day” for every patient. The tax has been $50 per bed day for some time.

It generates about $22 million a year. The state takes that money, acquires a federal match, and then returns the entire amount to the hospitals.

Before Medicaid expansion, the match would generate three times the money, so the $22 million would turn into $66 million, which was distributed back to the hospitals, based on what services they provided to Medicaid-covered patients.

Under Medicaid expansion, where the feds pay a much bigger share of the costs, the matching money grew to $200 million a year.

But the federal match has been declining under Medicaid expansion, from covering 100% of the costs down to 90%. Buttrey’s bill increases the hospital bed tax to $70 per bed day, to maintain the payment at $200 million a year.

Buttrey’s bill also levies another tax on hospitals: An 0.875 percent tax on all outpatients services, expected to generate about $30 million a year.

Half of that money — $15 million — will go toward covering the state’s share of Medicaid expansion. But the other half will be used like the bed-tax revenue, to obtain another federal match, and ends up being worth another $100 million a year in federal funds for the hospitals.

Olsen said that money also will be used to offset losses for covering Medicaid patients, whose bills cover only about 45 percent of hospitals costs.

The $300 million in annual supplemental payments for Montana hospitals also comes on top of more than $500 million hospitals were paid for medical services, through Medicaid expansion, in its first two-and-a-half years.

Olsen said hospitals have seen their bottom line increase slightly, but customers have benefited, too.

“For a lot of hospitals, they now no longer have to shift any unpaid costs to the private-paying patient or to the insurance company,” he said. “We have a number of hospitals that have not raised their rates in the last two or three years. We have a number of hospitals that have been able to provide additional services.”

The money going to hospitals also has created thousands of new jobs, Olsen added — and the tax hospitals pay under Buttrey’s bill would “take the burden off the state taxpayer” for the program, while maintaining an effort that has expanded coverage and improved the overall health of Montana.

Mike Dennison reporting for MTN News