What happened to a $2.8 million withhold account held by the Oregon Association of Hospitals and Health Systems in 2007?
February 17, 2011 -- A provider tax imposed on hospitals has helped keep the Oregon Health Plan afloat since July 2004.
Their dollars -- $386 million – have been matched with federal funds -- $852 million – representing $1.2 billion over the past six years.
The hospitals agreed to pay the tax, with the understanding that they’d be reimbursed once the state drew down those federal funds.
But the Oregon Association of Hospitals and Health Systems created a for-profit entity to review payments under the tax, and receives $428,000 annually from the Oregon Health Authority. This arrangement is unique, since neither the managed care plans or the nursing homes have such an entity and they too pay a provider tax to support the Oregon Health Plan.
There remain many unanswered questions. For example, what happened to the $2.8 million in a withhold account held by the Oregon Association of Hospitals and Health Systems in 2007? And, on what basis did the hospitals determine they needed close to a half million dollars starting in 2010 to make certain they were actually paid back those tax dollars? Where are the financial documents showing those exact costs?
And, ultimately, were legislators aware of the contract signed with Oregon Healthcare Enterprises, a for-profit entity of the Association that pays them for their work?
The Lund Report pored over several legal documents – a 990 tax return filed by the Oregon Association of Hospitals and Health Systems in December 1997 – the contract and its amendment signed by the Division of Medical Assistance Programs and the Oregon Healthcare Enterprises in January 2010, a for-profit entity under the auspices of the Association which set in motion the $428,000 contract -- and a quarterly report showing the work performed by OHE during the fourth quarter of 2010.
Questions were also posed to leading stakeholders – Kevin Earls, senior vice president of the Association known as the “key person” for administering the OHE contract, Judy Mohr Peterson, Medicaid director for the Oregon Health Authority and Patty Wentz, spokesperson for the Oregon Health Authority.
The truth has been difficult to extract. As just one example, Earls declined comment when asked about the $2.8 million in the withhold account, and only agreed to provide responses to other questions in writing. .
Here’s what we found:
From July 2004 through September 2009, the hospitals paid $202 million in taxes, which were matched with $354 million in federal funds. The Department of Human Services agreed to pay “an equal amount in enhanced fee-for-service diagnostic-related-group hospital reimbursement” creating what it called “equilibrium in aggregate.”
The Oregon Association of Hospitals and Health Systems redistributed those tax dollars to their “qualifying members based on prescribed formulas in the Association’s agreement,” according to the 990 IRS document filed with the Oregon Department of Justice.
The Association held $2,758,989 in a bank account consisting of cash and cash equivalents in December 2007, which “exceeded FDIC coverage,” the 990 stated. “However, management believes that its credit risk with respect to these accounts is minimal due to the financial strength of this financial institution.”
Kevin Earls, the Association’s senior vice president, was asked to explain how that $2.8 million had been spent and whether another $262,000 in investment income, also shown in the 990, was disbursed to the hospitals or kept by the Association. Earls refused to comment. Instead, he wrote: “OAHHS’ 990 filings for 2007 have nothing to do with that contract or the current tax program.
However, the $2.8 million in question, according to the 990 documentation involves the “provider tax paid by the hospitals from 2004.
Starting in October 2009, the Association no longer redistributed those tax dollars to its hospitals. Instead, according to Earls, “When the provider tax program was renewed in 2009 and substantially expanded, the amount of work required to monitor and administer this program was also substantially expanded. At that point, our board simply felt it made sense to move the management of the tax program to [Oregon Health Enterprises], as it was a good fit with OHE’s longstanding focus on healthcare data and services.”
Contract Runs Through 2013
A contract was signed between Oregon Healthcare Enterprises – a for-profit offshoot of the Association – and the Division of Medical Assistance Programs that runs through 2013.
Earls is the key person who manages that contract on behalf of the hospitals. “DMAP has stipulated that they require a person who has expertise, experience, judgment and the ability to provide personal attention to the execution of this contract,” he wrote.
OHE is responsible for verifying the accuracy of the state payments to the hospitals, and “provides claim-level review of all hospital claims and payments, and reviews all outlier calculations and payments, interim payments, cost reports and cost settlement activities related to Oregon’s Medicaid program,” Earls wrote. “This audit-like function ensures the accuracy of payments for both the hospitals and the states, and provides expertise that assists the state in maximizing its access to federal Medicaid funding.”
Judy Mohr Peterson, Medicaid director with the Oregon Health Authority, who signed the contract, said: “Hospitals pay a tax and receive what’s known as the enhanced payment, an aggregate that equals the tax,” she said. “Oregon Healthcare Enterprises does a review on a case by case and a claim by claim basis to determine the levels of enhanced payments. They have a contract with Moss Adams to look over the claims. By the time you work through the inpatient and outpatient claims and outliers and cost settlements for each hospital, it gets very complicated.
“The settlements are part of the normal process we go through in paying hospitals regardless of the hospital tax,” she added. “It takes about two years from point in time that the service is provided and payment made for the cost settlement process to occur. Because of that, there are implications for how much payment should be attributed to the enhanced payment. It takes a lot of work to do all of those calculations.”
OHE Received $428,000
Under its agreement with the state, OHE was paid $428,000 in 2010, which includes $378,000 for staff costs including sub-contracted financial expertise to Moss Adams and $50,000 in information technology costs to purchase hardware, software and ongoing IT expenses. OHE will receive the same amount this year. Its contract runs through 2013. o
When Earls was asked how much of the $378,000 is paid to Moss Adams, he refused to provide a monetary figure and wrote: “Their payments vary based on the amount of time they spend to complete a given set of defined deliverables.”
According to the contract, Moss Adams provides expertise on “Medicaid payment, cost report and settlement methodologies including, but not limited to, review of claims payment.”
Mohr Peterson insisted OHE is not paid a transaction fee to administer the contract and does not earn interest on the $428,000.
“They receive quarterly payments based on the work they perform,” she said.
However, it’s unknown how OHE actually spends those dollars since it does not provide the state with a line-item budget, but does provide quarterly reports showing the work that has been performed.
OHE is a for-profit entity and, therefore, is not required to file revenue statements with the IRS.
Hospital Tax Not Fixed Amount
Meanwhile, the managed care plans that provide medical services to Oregon Health Plan members and the nursing homes also have been paying a provider tax, but have not created organizations similar to Oregon Healthcare Enterprises.
The reason, according to Wentz, is that those taxes are fixed – at 1 percent for the managed care plans and 5.5 percent for nursing homes based on their occupied bed rate.
“The hospital tax is not,” she said. “Their tax rate is based on the agreement that we don’t tax more than what we pay in enhanced reimbursement, which leads to the next big difference between the statute. The hospital statute requires that aggressive assessments (taxes) may not exceed the total amount paid to hospitals in the form of managed care and fee-for-service reimbursement.”
From October 2009 to June 2010, the hospitals paid a tax of 2.8 percent on their net revenue, and that tax was lowered to 2.32 percent in July 2010, the current amount.
The 2007 Tax Filing
Meanwhile, looking back again at the 2007 tax filing, during that year the Association received $150,732,000 from the Department of Human services, and transferred $106,801,000 to the qualifying members for providing services to Oregon Health Plan patients, and paid $44,685,000 to them as redistributions of the withhold account.
In 2007, the Association also paid $131,000 from the withhold account for consulting and processing fees and received $262,000 of investment income on the programs cash, cash equivalents and investments, which were added to the withhold account.
The Association also had the ability to charge a 1 percent administrative fee for administering those funds; however, it waived that fee during 2007.
To Learn More
The 990 from 2007
filed with the IRS by the Oregon Association of Hospitals and Health Systems
To look at the statute that determined the tax rate for the hospitals
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