Date Requested: January 27, 2015
Time Requested: 12:38 PM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
1918 Introduced HB2376
CBD Subject: Tax


FUND(S):

General Revenue Fund, State Medicaid Fund

Sources of Revenue:

General Fund,Special Fund,Other Fund Federal Medicaid Matching

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to create the Save the Hospitals Act; exempting nonprofit hospitals that provide a certain amount of uncompensated care from sales tax; allowing all hospitals that provide a certain amount of uncompensated care a credit against medical provider tax; and requiring West Virginia Hospital Finance Authority to promulgate rules to effectuate this section.
    
    According to our interpretation, the bill provides a Consumers Sales Tax and Use Tax exemption for the next taxable year for nonprofit hospitals that incur uncompensated care costs equal to or greater than 4 percent of the hospital’s total net patient revenue. The bill also allows a credit in the amount of 100 percent of the uncompensated care costs against Health Care Provider Taxes.
    
    Passage of this bill would likely result in some reduction in State General Revenue Fund collections, some significant reduction in direct State Medicaid funding levels and uncertain financial results for nonprofit hospitals and other health care providers. The following estimates of revenue loss were derived from a combination of 2013 cost reports filed with the West Virginia Health Care Authority and a national estimate of percentage reduction in hospital uncompensated care (HUC) costs associated with implementation of the Affordable Care Act (ACA) in 2014 by U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation published on September 24, 2014. According to this publication, total HUC costs were projected to decrease by 25% following implementation of ACA. The latest complete financial disclosure statements are from a period that predates any changes associated with the Affordable Care Act. Based on this limited available data, passage of this bill would result in an annual loss of roughly $45 million in Health Care Provider Tax revenue from 27 nonprofit hospitals for the State Medicaid Fund, a net loss of nearly 4.7% or $178 million to overall Medicaid funding (including both State and federal matching funds). Prior to the calculated 25% downward adjustment to HUC costs, passage of this bill would have mathematically resulted in a $117 million reduction in Health Care Provider Tax revenue from 37 nonprofit hospitals for the State Medicaid Fund, a net loss of $464 million to overall Medicaid funding (including both State and federal matching funds). The higher numbers assume no reduction in HUC costs below their 2013 levels. Unless replacement funding for Medicaid is found, beneficiaries of Medicaid funding, such as nonprofit hospitals and other health care providers will be negatively affected by the outcome of this bill.
    
    In addition, passage of this bill would result in a decrease in revenue for the General Revenue Fund due to the blanket exemption for hospitals that provide 4 percent or more of uncompensated care costs. Based on limited available data, the reduction to the General Revenue Fund would be roughly $18 million per year after accounting for the projected 25% decrease in HUC costs associated with implementation of ACA and closer to $47 million absent any decline in HUC costs from their 2013 levels.
    
    Additional administrative costs for the State Tax Department would be $15,000 in FY2016 and $10,000 in subsequent years.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 15,000 10,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 196,000,000 196,000,000


Explanation of above estimates (including long-range effect):


    According to our interpretation, the bill provides a Consumers Sales Tax and Use Tax exemption for the next taxable year for nonprofit hospitals that incur uncompensated care costs equal to or greater than 4 percent of the hospital’s total net patient revenue. The bill also allows a credit in the amount of 100 percent of the uncompensated care costs against Health Care Provider Taxes.
    
    Passage of this bill would likely result in some reduction in State General Revenue Fund collections, some significant reduction in direct State Medicaid funding levels and uncertain financial results for nonprofit hospitals and other health care providers. The following estimates of revenue loss were derived from a combination of 2013 cost reports filed with the West Virginia Health Care Authority and a national estimate of percentage reduction in hospital uncompensated care (HUC) costs associated with implementation of the Affordable Care Act (ACA) in 2014 by U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation published on September 24, 2014. According to this publication, total HUC costs were projected to decrease by 25% following implementation of ACA. The latest complete financial disclosure statements are from a period that predates any changes associated with the Affordable Care Act. Based on this limited available data, passage of this bill would result in an annual loss of roughly $45 million in Health Care Provider Tax revenue from 27 nonprofit hospitals for the State Medicaid Fund, a net loss of nearly 4.7% or $178 million to overall Medicaid funding (including both State and federal matching funds). Prior to the calculated 25% downward adjustment to HUC costs, passage of this bill would have mathematically resulted in a $117 million reduction in Health Care Provider Tax revenue from 37 nonprofit hospitals for the State Medicaid Fund, a net loss of $464 million to overall Medicaid funding (including both State and federal matching funds). The higher numbers assume no reduction in HUC costs below their 2013 levels. Unless replacement funding for Medicaid is found, beneficiaries of Medicaid funding, such as nonprofit hospitals and other health care providers will be negatively affected by the outcome of this bill.
    
    In addition, passage of this bill would result in a decrease in revenue for the General Revenue Fund due to the blanket exemption for hospitals that provide 4 percent or more of uncompensated care costs. Based on limited available data, the reduction to the General Revenue Fund would be roughly $18 million per year after accounting for the projected 25% decrease in HUC costs associated with implementation of ACA and closer to $47 million absent any decline in HUC costs from their 2013 levels.
    
    Additional administrative costs for the State Tax Department would be $15,000 in FY2016 and $10,000 in subsequent years.
    
    



Memorandum


    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov