The hospital gross revenue tax levied by the Division of Medicaid is in violation of the Mississippi Constitution. The statutory authority claimed by the Division to levy this tax is an unconstitutional delegation to DOM of the Legislature’s taxing power. The tax will result in significant financial losses to many of our state’s hospitals and may result in the reduction or elimination of needed hospital services in our communities.
Through the inter-governmental transfer (IGT) program that Mississippi used in past years, qualified public providers moved state or local funds to Medicaid to be matched with federal funds. The qualified hospitals got their transferred money back plus additional monies. This also benefited non-public hospitals because Medicaid had money to fund the program. (For example, a public hospital that last year contributed $360,000 to the program would receive $500,000 in return as a disproportionate share hospital payment. In addition, the state recognized $1,000,000 to be used to fund the Medicaid program.)
The federal government, in June of 2005, decided that this method of financing the program to maximize federal matching was unacceptable. Their position is that the program is designed to increase federal revenue to the state without additional state effort. The state has known for over a year that this financing methodology would go away. They knew about it during the 2006 legislative session – when the legislature could have earmarked appropriations to meet the shortfall.
The Division of Medicaid asked the Mississippi Hospital Association to hire the law firm of Covington & Burling to identify alternatives to the DSH IGT funding mechanism shortly after the June 2005 announcement. MHA and Covington & Burling worked on developing a funding mechanism using certified public expenditures (CPEs) similar to what CMS has recently approved in several other states. (CPEs are an alternate means of securing federal matching funds. For more information about IGTs and CPEs, read this issue brief, written by the National Association of Public Hospitals & Health Systems.) Covington & Burling finalized their CPE work in April and presented it to Medicaid staff and MHA on April 5, 2006.
On May 9, 2006, MHA met with Medicaid at their request. Medicaid informed MHA that they did not believe the CPE program was the best alternative. Instead, they presented their proposal to increase the hospital gross revenue tax by 1% while keeping hospital reimbursement unchanged. Medicaid planned to implement this increased tax on July 1, 2006, and Medicaid asked for MHA’s support of this proposal.
In late May, MHA notified Medicaid in writing that we would not support the increased provider tax but were willing to continue looking at all other options. We had a meeting with Governor Barbour on May 26 to express our concerns about the tax. At that time, we asked that no tax be levied until September 1, 2006, to provide time to explore other options. Shortly thereafter, hospitals received notice by letter of a July 1 effective date for the collection of the new Medicaid tax.
Recently, Gov. Barbour has agreed to delay the hospital tax until Sept. 1. Though appreciated, that still does not change MHA’s position that the gross revenue tax is in violation of the Mississippi Constitution and the statutory authority claimed by the Division to levy this tax is an unconstitutional delegation to DOM of the Legislature’s taxing power. (Frighteningly, state officials have also made it clear that they believe they have the authority to raise the tax up to 6% without any legislative involvement.) It is taxation without representation, pure and simple. In the past, we have worked, in conjunction with the legislature and Medicaid, to shore the program up. Hospitals last year agreed to an additional bed tax so the state would not cut the benefits of Medicaid beneficiaries. But the state cannot continue to balance the Medicaid budget on the backs of hospitals. If this continues, we will all see access to care seriously threatened in our state.