Health Care

Hospital official urges support for controversial ‘fee’

September 23, 2019

Ray Carter

During a recent meeting of the bicameral Healthcare Working Group at the Oklahoma Legislature, hospital officials urged policymakers to preserve a “provider tax” to obtain federal Medicaid funding. But that program and others like it have been criticized by Democrats and Republicans alike as a “scam,” and one legislative leader noted federal reform may require meaningful changes to the program.

Jay Johnson, the president and CEO of Duncan Regional Hospital who is also chairman of the Oklahoma Hospital Association’s executive committee, urged lawmakers to maintain the state’s Supplemental Hospital Offset Payment Program (SHOPP).

“The Supplemental Hospital Offset Payment Program that was enacted several years ago has been a lifeblood, or a lifeline for hospitals across our state,” Johnson said. “We are able to maximize the federal match within Medicaid by a provider fee that’s paid to the Health Care Authority and then sent to the federal government and we get a two-to-one match, and then those funds flow back to the hospitals. There is no doubt in my mind that we would have had additional hospitals close had this program not been in place.”

He said “maintaining and preserving SHOPP is just critical.”

But that program has long been controversial and drawn strong criticism from all parts of the political spectrum.

In 2011, Michael F. Cannon, director of health policy studies for the libertarian Cato Institute, highlighted how “provider taxes” like SHOPP are abused. Cannon wrote, “In a ‘provider tax’ scam, a state passes a law to increase Medicaid payments to hospitals, which triggers matching money from the federal government. Yet in the very same law, the state increases taxes on hospitals. If the tax recoups the state’s original outlay, the state has obtained new federal Medicaid funds at no cost. If the tax recoups more than the original outlay, the state can use federal Medicaid dollars to pay for bridges to nowhere.”

In a 2016 report, Brian C. Blase, at that time an official with the Mercatus Center at George Mason University, pointed out similar problems with Medicaid provider taxes.

“As an illustration of how provider taxes work, assume a state assesses a hospital tax equal to $100 million and after the state receives the revenue, it returns the funds to hospitals through higher Medicaid reimbursements,” Blase wrote. “A state with a 60 percent reimbursement rate receives $60 million from the federal government to cover this Medicaid expenditure. The state can then spend that $60 million on hospitals, other Medicaid providers, or other government programs.”

Provider taxes, widely criticized as a budget gimmick, have been the target of reform efforts for years.

Blase noted, “Both the Bush and the Obama administrations proposed limiting provider taxes, and the bipartisan Bowles-Simpson Commission endorsed phasing them out.”

In December 2010, the National Commission on Fiscal Responsibility and Reform, which was created by the Obama administration and whose members included U.S. Sen. Tom Coburn, R-Muskogee, recommended that policymakers “eliminate state gaming of Medicaid tax gimmick.”

The commission report stated, “Many states finance a portion of their Medicaid spending by imposing taxes on the very same health care providers who are paid by the Medicaid program, increasing payments to those providers by the same amount and then using that additional ‘spending’ to increase their federal match. We recommend restricting and eventually eliminating this practice.”

In his book, “The Price of Politics,” journalist Bob Woodward reported on 2011 budget negotiations between the Obama administration and Congress. Those discussions included proposals to restrict or eliminate provider fees like SHOPP. Woodward reported that those pushing for change included then-Vice President Joe Biden who called the fees a “scam” and argued SHOPP-style programs amount to “gaming the system.”

During the Healthcare Working Group’s meeting, Sen. Kim David, R-Porter, noted that federal officials have also discussed linking SHOPP payments to how well a state improves patient care and health outcomes.

“If I’m not mistaken,” she said, “Oklahoma has been told that we have to restructure how we do SHOPP.”