May 3, 2013 -- A tax on Oregon’s largest hospitals seems to be giving these organizations a financial edge by boosting how much they’re paid for treating Oregon Health Plan patients.
This provider tax has been in place in Oregon since 2004, though the rate hospitals pay has doubled in the past two years. For every $1 paid by hospitals, the state qualifies for roughly $2 in federal Medicaid funds. The tax and matching funds have helped the Oregon Health Plan to cover 50,000 new lives since 2011, and have partially offset massive cuts in how much doctors and nurses are paid for treating OHP patients across the state.
But it’s clear that the tax has done more for large hospitals than for most other healthcare providers in Oregon.
Hospitals that pay the provider tax saw their Medicaid reimbursements fall just 2 percent last year, compared to a 10 percent reimbursement cut at other healthcare organizations across the state. These 26 large hospitals reported average operating margins of 4.7 percent in 2011. Oregon’s 32 other hospitals averaged 2 percent.
It’s only fair that these large hospitals would get a smaller Medicaid cut than other healthcare groups, Judy Mohr Peterson, director of medical assistance programs with the Oregon Health Authority, told The Lund Report last year. After all, these hospitals alone pay a tax that benefits healthcare providers statewide, she said.
This is the final story in a Lund Report series examining hospital finances. The first six articles provided snapshots of Oregon’s 26 most prominent hospitals. In Part 7, the series examined executive pay, finding that hospital leader compensation is climbing twice as fast as that of most Americans. Part 8 looked at spending to treat the poor, and found that for-profit hospitals spend less on charity care than their nonprofit counterparts. Today, The Lund Report looks into the state’s provider tax.
In late 2011, the state nearly cut Medicaid reimbursements by 19 percent to balance its budgets. By boosting the provider tax from 2.3 percent of net revenue to about 5 percent, Oregon legislators forestalled many of those cuts.
“We believe this has been a very effective program,” said Andy Van Pelt, chief operating officer of the Oregon Association of Hospitals and Health Plans. He emphasized that the tax helps fund care for all 600,000 people covered by OHP. “The program is not just about hospitals, the hospital provider tax provides funding for additional physicians, nurse practitioners, pharmacies and medical equipment benefits.”
Who pays and why?
Under state law, the Oregon Health Plan must pay back the provider tax to hospitals in the form of reimbursements for care. Federal rules prohibit the state from paying each hospital exactly what it submitted in taxes.
So taxes are returned in aggregate, “through enhanced and supplemental payments,” Van Pelt said. “How much each hospital receives from the state of Oregon is related to the volume of Medicaid patients they serve.”
The 26 institutions that pay Oregon’s provider tax are those labeled diagnostic-related group, or DRG, hospitals. This designation refers to the Medicaid payment schedule they use, a reimbursement chart that pays for care based on diagnosis as well as the complexity of each patient’s case. The state’s remaining hospitals are paid a fixed amount based on each procedure’s official cost, without adjusting for the patient’s personal situation.
These different methods of calculating Medicaid reimbursements are the reason some hospitals pay a provider tax and others don’t, according to officials at the Oregon Health Authority. The methods used for calculating DRG hospital reimbursements allow the state to adjust payments to these hospitals. Medicaid rules don’t allow that level of flexibility with other hospitals.
In recent years, government health spending has been increasingly important at Oregon hospitals of all sizes, however. Medicare and Medicaid payments made up 50 percent of patient revenue in 2007, and had climbed to 57 percent of patient revenue by 2011, according to Oregon Association of Hospitals and Health Plans figures. Commercial insurance payments dropped from 44 percent of patient revenue to 37 percent over the same period.
Just how much each of Oregon’s large hospitals pays individually is hazy. The Oregon Health Authority is prohibited from releasing specific tax information to the public.
Tax plays role in health reform plans
The current hospital tax climbed to 5.3 percent on April 1, but it’s set to expire at the end of September if not renewed by the Legislature.
The Oregon Health Leadership Council would like to see the tax live on. It is backing House Bill 2216, which would continue the tax through September 30, 2015, in order to fund a significant portion of the Oregon Health Plan population.
This bill would also increase the tax by 1 percent, and direct the additional funds raised toward efforts to transform how hospitals perform, rewarding organizations that keep patients home and healthy – and that save money in the process.
Janet Meyer, CEO of coordinated care organization Health Share of Oregon, told the House Committee on Health that the hospital tax is key to ongoing health reform underway within the state.
"Much of the potential cost-savings immediately available in the Medicaid program stem from hospital services,” she said in written testimony on the tax. “Encouraging a reduction of unnecessary hospital utilization and improvement of patient outcomes in hospitals will lead to better results throughout the Oregon Health Plan."
The bill, requested by Gov. John Kitzhaber, is currently before Oregon’s Joint Committee on Ways and Means.
FOR MORE DETAILS
To review more financial information about the hospital provider tax, click here and here.
