Approval of hospital tax faces continued opposition

The Wisconsin Hospital Association has a tough sell with lawmakers next year that, without a change in the makeup of the state Legislature, could be an impossible one.

After initially opposing a move to impose a new assessment on hospital revenues, the association began pushing lawmakers last fall to approve the tax in an effort to draw more federal dollars that could be used to increase how much hospitals are paid to treat Medicaid patients.

But Assembly Republicans refused to embrace the proposal in the budget bill approved in October and the budget repair bill approved this spring.

With Assembly Republicans dug in on the proposal, it's likely the WHA could go 0-for-3 in its efforts unless Democrats -- who generally support the plan -- win control of the Assembly this fall.

Benefits cited

Even so, the hospital association is convinced the tax is the only hope for its members to see a meaningful increase in Medicaid reimbursements rates. Over the past dozen years, the state has accounted for a shrinking percentage of those costs, which are then passed onto other patients.

With the state again facing a difficult fiscal picture, using the assessment to attract more federal dollars is the most likely source of money to tap for bumping those rates, said Eric Borgerding, the group's executive vice president. Otherwise, lawmakers would have to carve out a bigger chunk of state tax dollars that now go to fund education, prisons and aid to local governments.

"There's not the will to put the type of dollars in there to address this," Borgerding said.

How tax works

Gov. Jim Doyle first proposed the assessment in his 2005-07 state budget. It called for hospitals to pay $418 million over the two-year budget with that money used to draw matching funds from the federal government.

Hospitals would get an estimated $284 million more than what they paid in the assessment through increased reimbursement rates, while the state would use $125 million of the federal money for other programs.

Borgerding said the gap between what the state pays to treat Medicaid patients and the hospital's actual costs was about $600 million in 2006 with those costs passed onto other patients. He said the additional money the hospitals would receive under the proposal would help ease some of that shift.

Still, the association initially opposed the plan, complaining too much of the money would go to other areas rather than back to the hospitals. But as it was revised during budget negotiations last year to make it more palatable for hospitals, the WHA warmed to the idea and publicly declared its support by fall. But Assembly Republicans were already entrenched in their opposition, some of them spurred on by the association's early criticism of the proposal.

After failing to get lawmakers to support the plan in both the budget bill and budget repair bill, Doyle has made clear that he plans to bring the proposal back next year as part of the 2009-11 state budget. He also hasn't been bashful in expressing his disbelief that Republicans couldn't see the benefits of implementing the assessment.

"I can't understand why we'd turn our backs on $450 million in federal money," Doyle said of the proposal.

Seen as a gimmick

But Assembly Speaker Mike Huebsch, R-West Salem, has derided it as a "sick tax" that would only add to the exploding health-care bills Wisconsin consumers already pay. He mocked it as nothing more than a budgeting gimmick meant to draw more federal dollars.

"Don't try this in your business or you're going to jail," Huebsch said during a presentation this spring.

Barring a change of heart by Huebsch and his fellow Republicans, the assessment's supporters will have to hope for a change in the Legislature.

Democrats control the Senate 18-15, while Republicans hold the Assembly by a 52-47 margin with the fight over control of the Assembly expected to be more intense this fall. If Republicans can maintain their hold on the chamber, the hospital assessment will face another uphill battle in the Assembly next year.

Even if Huebsch and Assembly Republicans were open to a change, they would be under intense pressure from conservatives to hold the line against the tax. The GOP base has been looking to Assembly Republicans to act on a check against Doyle and Senate Democrats, and any concessions they've made have been met by a series of rumbles.

Some GOP-leaning lobbyists say Assembly Republicans' opposition to the hospital tax has played well with the party's core, and giving in on the issue could have weaken the support of conservatives.

The board of Wisconsin Manufacturers & Commerce, which typically opposes any tax increases on businesses, decided to back the assessment in March after initially opposing it. The group took its share of flak -- particularly from conservatives -- after its board decided to back the proposal, said Jeff Schoepke, the business group's director of tax and corporate policy.

After the way Assembly Republicans dug in so hard to oppose it during the most recent legislative session, Schoepke said it's hard to see how they would be able to make a similar switch.

"When you have Speaker Huebsch, who is as strong opposed as he is now and has been all along, it's going to be awfully difficult," he said.

Line in the sand

Borgerding admitted it would be a hard sell to get Republicans to switch positions after the line they've drawn in the sand on the issue since early 2007. But he said the WHA has no other real option to boost its reimbursement rates.

The state faces a $1.7 billion structural deficit heading into the next budget, meaning state revenues have to grow that much just to continue paying for the programs already in place. If the state comes up short of that mark, lawmakers and the governor will either have to cut spending, raise taxes or both just to make ends meet.

It also means they likely won't be willing to pump more tax dollars into Medicaid reimbursements rates when other priorities such as K-12 education are competing for those same limited funds.

"It lends itself to powerful sound bites," Borgerding said of opposition to the proposed assessment. "But what's easy for people to understand is we've left $400 million in federal money on the table, and if we do nothing, the cost shift is going to continue."

JR Ross is the editor of WisPolitics.com.