Who said health care reform?

Last week a local brewery stopped plant operations briefly to show concern about the proposed increase in New York State's excise tax on beer.

It’s hard to know what taxpayers might think about increasing the beer tax. Most people don’t know about it, and that is probably the point. Hidden taxes are below the radar of taxpayers who otherwise focus on income tax, sales tax, or property tax.

Who knows about hidden taxes on health care? The state has proposed an invisible tax on hospital revenues, something like a sales tax on every dollar a hospital collects. Significantly, this is not a tax on a hospital's "bottom line." Many New York hospitals don't even have a positive bottom line.

The impact of the state's proposed hospital tax, along with the proposed cuts on hospital payments, now appears much worse than it did a few months ago. According to Healthcare Association of New York State (HANYS), new figures from the Department of Health show Community General Hospital will lose some $2.2 million (far more than the $636,000 loss estimated last December). [1]

The accompanying chart shows the result of hidden taxes and state cuts on all four Syracuse hospitals. Together these hospitals will lose nearly $9 million under the proposed state budget. To see the impact of the budget on any hospital in New York, go to this site.

There are also hidden taxes on health insurance. I was surprised to learn this week just how much they are. The health insurance tax represents the fourth largest source of income for New York State. The following information comes from Excellus, updated as of March 10.

Major sources of NYS taxes, last year
1. Personal income taxes, $36.27 billion
2. Sales and use taxes, $11.301 billion
3. Corporation franchise taxes, $ 4.265 billion
4. Private health coverage taxes, $3.177 billion
5. Petroleum business taxes, $ 1.184 billion

After the proposed increases, health insurance taxes will move to the third largest source of state revenue, at $3.75 billion annually. [2]

Taxes on hospital revenues...increased taxes on health insurance. Did someone say, “health care reform?”


[1] The state’s proposed cuts and taxes will cost Community General about $200 for each patient admitted to the hospital.

[2] Excellus estimated the state’s hidden taxes would add some $400 to the cost of treatment for a woman diagnosed with breast cancer who has a lumpectomy and follow-up cancer care.

"Help your hospital"

No question: Governor Patterson and the State Legislature face a huge task as they address the multi-billion dollar shortfall in the 2009-2010 state budget.

In an earlier posting, I alluded to concerns expressed by the Syracuse hospitals about the state’s budget, even before the Governor announced his proposed taxes and cuts. A newspaper story about hospitals' concerns, prompted a response from the Commission of Health that, in turn, resulted in a follow-up by the Hospital Executive Council.

In mid-December the Governor unveiled the budget proposal, one month earlier than customary. The proposal included a complex series of reductions and increases that would generate a net reduction in state health care spending of some $3.6 billion in the coming fiscal year.

The impact on Community General Hospital next year would be to reduce overall revenue by some $636,000. For all four Syracuse hospitals, the cumulative hit would amount to a negative $5.4 million, the majority of it affecting Crouse Hospital.

Help Your Hospital is a new website, sponsored by the Healthcare Association of New York State (HANYS), that allows the public to see the impact of the state budget on each and every hospital. It also provides a way for anyone concerned about the impact on the local hospital to communicate about it with elected officials.

With the budget complexity, it may not be obvious that one of the Governor’s proposals is a tax on hospitals – not on hospital profits but on overall revenue (“gross receipts”). That means not-for-profit hospitals in New York State would have to pay a 0.7% assessment on every dollar they receive, i.e., $7,000 for each $1 million of revenue.

As non-profits, New York’s hospitals don’t generate a return for any owners or shareholders. They are tax-exempt facilities operated in the public interest. Many hospitals do not have funds left over as a positive bottom line at year-end. For example, in 2008 every dollar of the approximately $120 million Community received was used to pay nurses, doctors, and other employees; to buy medical and surgical supplies; to pay utility bills, insurance premiums, and maintenance, etc. There was nothing left at year-end for reinvestment in Community's patient care, and there is nothing left in our budget for 2009.

Yet, if the Legislature passes the state budget, as proposed, Community will have an additional expense of some $636,000, representing the net effect of the Medicaid cuts, the revenue tax, as well as offsetting revenue increases.

The Help Your Hospital website allows anyone to look up the impact a hospital has on its local economy -- and it makes it easy to send a letter to members of the Legislature.

The senator and the budget

In December 2002 State Senator John DeFrancisco invited a couple of us to his Albany office to meet with officials of the State Department of Health. The subject was CGH’s application for the Physical Medicine and Rehabilitation Unit (PM and R), which had been stalled in the state’s approval process for a year or longer. The Senator thumped the desk. He looked each official in the eye. He said it was time to call the question, to get moving, to make a decision.

That meeting broke a logjam, and several months later the state officially approved the PM and R unit for CGH. In December 2003 Senator DeFrancisco helped us cut the ribbon at the PM and R opening on 4 East. I have a picture of that event in my office. He arrived here a few minutes before ribbon-cutting and asked me about CGH plans. I told him about the cardiac catheterization laboratory being developed in partnership with St. Joseph’s Hospital Health Center. In his typical way, the Senator asked several blunt questions, then said simply, “I’ll support it.”

Fast forward to the opening of the cardiac cath lab on February 14, 2006. The Senator had not only endorsed the project to the state, he had obtained $500,000 in state funds for it. A plaque outside the cath lab commemorates his assistance in securing that funding.

Two weeks ago the Legislature passed the 2007 state budget after a particularly difficult budget season.[1] As proposed by the Governor, the budget would have cost CGH some $940,000 a year. In the end, some of the proposed cuts were reversed by the Legislature. The new state budget will cost CGH about $440,000 a year. That is a significant reduction in revenue, but it is about a $500,000 improvement over the budget’s starting point.[2]

Two days after budget passage, Senator DeFrancisco called me. He said he had been able to secure in the final budget $200,000 in capital funds for CGH. “I know you can use it,” he said. Needless to say, I expressed appreciation for his assistance.

This was a difficult budget year and, despite the relative improvement for CGH – that is, fewer budget cuts than first proposed – the budget is a problem. All hospitals should have a bottom line of two or three percent a year so they can fund the necessary upgrades in equipment and physical plant.

CGH has been fortunate to have had a positive bottom line in each of the last four years, but in every case it is less than one percent. Enough to get by. But not what we should be earning as we make the longer term investments in patient care. The new state budget does nothing to help. It merely hurts us less than it could have.

In this difficult environment, CGH has had a constant friend in Senator DeFrancisco. He is interested in what we do, he has expressed support when needed, and he has secured additional state funds when it helps.

Thank you, Senator DeFrancisco.


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[1] I wrote about the “The worrisome state and federal budgets” in my family letter of March 10, 2007. For a copy, go to www.cgh.org/cghfamily

[2] In the weeks since budget passage, there has been a lot of talk in government and health care circles about who won and who lost the budget battle. Health care spending was particularly contentious this year with statewide advertising by SEIU 1199 and Greater New York Hospital Association, as well as advertising by the Governor himself. According to Crain’s Health Pulse, April 12, 2007, the Governor’s campaign manager said the budget includes $1 billion in health care cuts of the $1.3 billion initially proposed, or 77%. The Governor’s office considers the budget battle “a success.”