Porter fears state funding shortfall

January 31, 2008
MIDDLEBURY — A change in a tax on Vermont hospitals included in Gov. James Douglas’ fiscal year 2009 budget proposal could result in a $550,000 hit to Porter Hospital.
As a result of the tax change in the Douglas budget released last week Vermont hospitals fear they will have to raise fees and they won’t be able to fund care for low-income Vermonters or a statewide effort to use electronic medical records more widely.
The health care provider tax is collected by the state of Vermont, which in recent years paid an equivalent amount back to hospitals in federal Medicaid money. That repayment was based the need of the community that the hospital served. But there is a limit to the Medicaid match, and in 2009 the health care provider tax would exceed that limit by $16 million.
For a number of years, the state of Vermont has set the health care provider tax rate no higher than the amount that could be paid back to hospitals in Medicaid, according to Mike Del Trecco, vice president of finances for the Vermont Association of Hospital and Health Systems (VAHHS).
“If (hospitals around the state) have $70 million in taxes, the state has always promised to pay back at least $70 million,” he said.
However, the Douglas administration’s proposed budget for the 2009 fiscal year sets the provider tax at the maximum level of 5.5 percent of total revenue, Del Trecco said, which is projected to raise $71,176,974. With the maximum allowed reimbursement of $55,176,974, that leaves hospitals left making up $16 million.
The VAHHS is requesting that the rate be reduced to 3 percent.
According to the VAHHS, the proposed change in policy will hit 13 of Vermont’s 14 hospitals to one degree or another. Springfield Hospital is projected to receive $267,312 more than it pays in under the formula for financial need, according to Del Trecco, but all other Vermont hospitals will pay out more than they get back.
Porter Medical Center is projected to pay a provider tax of $2,267,620, but only to get back a payment of $1,720,633, resulting in a $546,987 shortfall. That’s more than the median shortfall of all Vermont hospitals of $421,487. Last year Porter’s provider tax came to $1.9 million, Del Trecco said, and the hospital got back roughly the same amount in payments.
The increase in the health care provider tax in the Douglas proposal came as a surprise to Porter Medical Center President Jim Daily.
“Shared sacrifices aside, we had an understanding that the administration, even in these tough economic times, was going to do no harm, which I translated to mean … that hospitals would at least realize back an amount equal to the amount of the provider tax,” Daily said. “That turns out not to be the case this year.”
Porter spokesman Ron Hallman said the change in policy probably came from a desire to raise revenues without direct taxes on Vermonters.
“The state of Vermont has some difficult gaps with their budget that they need to fill,” Hallman said.
If the governor’s budget remains as proposed Porter Medical Center will have to deal with extra pressure on its budget. “There are only so many ways a hospital can raise revenue like that,” Hallman said.
Daily said that the loss will be harder for a hospital like Porter to make up than it would be for a private business in some other industries, because much of the hospital’s income is based on fees fixed by previous agreements or set by federal regulation.
“Because of cost-shifting and governmental repayment, it takes about three dollars to make up a dollar on the bottom line,” Daily said.
Douglas spokesman Jason Gibbs referred questions to Joshua Slen, director of the Office of Vermont Health Access, which administers the Medicaid program in the state.
Slen said that the administration’s change will not hurt hospitals in the long run. The state increased funding of the Medicaid program by $2 million in the current year, he said, and the administration plans to increase funding by an additional $16 million over the next two years, so the apparent loss this year would be made up.
“That’s more than made up by 2010,” Slen said. “Hospitals are not going to be paid less on a net basis.”
Hospital advocates point out that the care givers would still be saddled with the full $16 million burden this year with no guarantee that additional payments would be made in future years.
Lawmakers in the House Ways and Means Committee were the first to get a look at Douglas’s budget plan. Rep. Dave Sharpe, D-Bristol, said the committee, of which he is a member, became aware of this change in hospital taxation and funding late last week. The committee stripped the change in the hospital tax out of the budget it is considering and told the administration to come back when its plan for funding hospitals was complete.
“We said this is an incomplete proposal, and this needs to be looked at by the health care committee,” Sharpe said. “It’s still an open question that we (on the Ways and Means Committee) will have to decide later.”
Funding health care has become very complicated and this move should be taken up  by the Health Care Committee, which has an eye toward overall funding reforms, Sharpe said.
“We in state government, in the administration and the legislature, knew that this was a game we were playing with federal rules that allowed us to draw down federal Medicaid dollars,” Sharpe said.
Rep. Steve Maier, D-Middlebury, chairman of the House Health Care Committee, said his body would look at the tax soon.
Sharpe didn’t believe it would immediately affect care for low-income Vermonters.
“Vermont’s community hospitals, including Porter, have done a great job giving care to anyone who walks in the door,” he said. “They will provide the care. It just makes it harder for hospitals to balance their books.”
Porter Medical Center is still trying to work out how it would handle the tax increase, and Daily hopes the proposal can still be dropped or changed.
“The one thing that is self-evident is, it’s only January. It’s not yet time to pull out all the stops,” he said.

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