Hospitals concerned about call to pay gross receipts tax
While the health care industry has been one of New Mexico’s economic success stories in recent years, hailed for investments in facilities and job creation, many of its transactions have gotten a pass on the state gross receipts tax front.
But now the taxman may cometh.
Industry officials are closely monitoring several legislative initiatives, especially one that would close a loophole that exempts nonprofit and government hospitals and health care providers from paying state gross receipts taxes.
Their concern: a host of potential job and program cuts that could threaten hospital viability and patients’ access to care.
Hospital industry representatives say the bills essentially go too far, and they prefer that any taxation be ramped up gradually so they could plan better for the hit to their bottom lines.
The biggest change would be a
new requirement that nonprofit hospitals, such as those owned by Presbyterian Healthcare Services, and government-supported hospitals, like the University of New Mexico Hospital, start paying gross receipts taxes beginning July 1. Those types of hospitals do not currently pay the taxes, while investor-owned hospitals — such as those operated by Lovelace Health System — do pay.
House Bill 202, which passed Wednesday and is now pending in the Senate, contains the provision that would expand the gross receipts tax requirement. Doing so would generate more than $100 million in new revenue for fiscal year 2018, according to a legislative analysis.
It says the change would “correct a decades-old inequity in which differing levels of tax are imposed for the same services” depending on whether the hospital is nonprofit or a profitmaking venture. It acknowledged that the industry is one of the bright spots for job growth in New Mexico, but bringing nonprofit and government hospitals into the tax base would help the state meet the growing costs of the state’s Medicaid payments.
Most affected would be Presbyterian, which would provide about one-third of the projected revenue by virtue of its hospital system’s market share.
“We know the state is in dire straits, and we want to be part of the solution, but the impacts for (Presbyterian) would be negative, given the double whammy of more taxes and underfunded Medicare and Medicaid programs,” chief strategy officer Todd Sandman said. He said Medicare and Medicaid payments do not cover the cost of caring for those patients, and he expects that to continue.
He said a tax increase would affect expansion and construction of clinics and hospitals and reduce investment in health care services.
A hospital industry spokesman says making the tax change in July is too soon. It would especially hit rural facilities that already are operating on the thinnest of margins and would have no time to plan for it, said Jeff Dye, president and CEO of the New Mexico Hospital Association, which represents 40 hospitals across the state.
What’s missing in the discussion is recognition that a hospital is not like other businesses, Dye said. “We have the federal obligation of taking patients into emergency rooms regardless of ability to pay.”
Despite the expansion of Medicaid in the state covering low-income residents, Dye said hospitals of all sizes still absorb “large amounts” of financial losses for providing uncompensated care.
Dye said his analysis of the gross receipts tax change is more in the neighborhood of $155 million.
“This is in the context of Medicaid provider cuts of nearly $34 million that hospitals were hit with last July,” Dye said. Hospital investment in technology, data systems and equipment are costly but necessary in a heavily regulated industry.
“All of our member hospitals — both for-profit and investor-owned — have contributed greatly to the state’s economy, with payrolls and purchases of goods and services from countless vendors. We don’t think it’s wise to have an additional tax burden,” said Dye, adding that for-profit hospitals should not have to pay the gross receipts taxes, either.
However, HB 202 would not tax the full amount of gross receipts — it offers a new 60 percent tax deduction for all hospitals and health care practitioners, so that gross receipts taxes would be levied only on the remaining 40 percent of revenue. As currently worded, nursing homes, hospice organizations, pharmacists and nutritionists would not be eligible for the deduction.
Meanwhile, a separate measure by Rep. Jason Harper, R-Rio Rancho, seeks to widely overhaul gross receipts taxes in general. That bill would repeal almost all tax exemptions, including existing health care tax deductions and the tax break for nonprofit hospitals.
House Bill 412 then seeks to lower the state’s gross receipts tax base — from 5.125 percent to an estimated 2.7 percent — for all goods and services.
Harper said the fact some hospitals currently have to pay gross receipts taxes while others do not is “clearly unfair.”
“One of the keys to good tax policy is you don’t treat differently different entities within the same industry,” Harper said.