Taxing the hospitals in Ohio

In my fifty years of life the word radical has had an number of connotations. As a college student in the 80's the word meant those who stuck close to the root and really understood what things were about due to their grounding in simple basics. In the 90's the word disappeared from my life, but maybe that is because I was stuck on those simple basics and everyone else looked at me as a radical. Now that we have reached the 21st Century, radical seems to popularly mean anyone who doesn't look like he or she plays well with others. I do play well with others, I just don't think all the games are worth playing.

I have been notified in the last month, that the non-profit hospital where I earn my money is being taxed by the State Government, and in my simple understanding of what is supposed to be right and wrong according to the law, this is wrong.

So here are the games as I understand them. The actual Ohio budget provision for getting money out of the hospitals is a franchise fee, not a tax. However, the basis for evaluating the fee is what is spent by the hospital. This general theory is not inconsistent with governmental rights to exercise franchise fees at a very low percent to support administrative costs of business activity. Commerce requires regulation, and the more activity in the hospital, the more regulation. The State is responsible for many governance issues (in this case, especially those related to Medicare), and supposedly needs to charge a fee for these tasks.

The fundamental problem is that historically hospital activity is non-profit activity, not money making activity, and is supported by private funds. Thus, the State's role in regulation was supposed to be well worth the nominal cost because the State had no capacity to do what the hospital did, and the benefit to everyone was greater than if the hospital did not exist and thus did not require State supervision. I have worked in both State and private institutions and I know that the State cannot operate what the private sector can when it comes to health care.

A Franchise fee indicates an expectation of profit. It is the price like a value added tax that allows the governmental entity supervising a community to get something when people in that community are spending a lot and the government feels it will have extra duties because of the service or product. The fee is supposed to be commiserate with expected governmental expense to serve whatever is coming into the community through the purchase of the service or product. When you evaluate the source of monetary income for hospitals, how is it increasing governmental obligations? The hospitals themselves are objecting to this concept of taking from the community and are trying to remind the State that they provide jobs and income taxes to the governmental entities around them and direct taxing (which is how they see these fees) is going to prevent a lot of useful activity that would do the community good.

What this really looks like is a desire on the part of government to get a part of the money that has been protected from them by non-profit enterprise. When I survey the downfall of our institutions of health, I clearly see that people who saw the money these thrifty, care-controlled rather than profit-controlled institutions had, they set out to get it, and now not just the entrepreneurs with their fancy new health care products, but even the government wants a piece of what used to be protected for the truly disenfranchised.

So let's investigate the particulars of this money grab. The State really could have made advances on legal changes for non-profit investment if they thought non-profit activities were a charade for profit, but they didn't, so it looks like something else is involved.

As was mentioned before, Medicare kept getting kicked around in this game. It had a place, a factor in the agreements and bargains. Now I do not claim to have inside information on any one's purpose, but looking at it as a spectator, this is what will happen. The State increases Medicare payments to the hospitals, the hospitals pay a franchise fee back to the State, and the State ends up getting Medicare money back in its general coffers. The only entity that benefits from this is the State. Medicare never covers all of a hospital's cost (a tribute to the old belief that hospitals were non-profit and were expected to have supplemental income to cover the rest of the cost.) The hospitals, as has been pointed out by many others, will lose more money by doing more Medicare business even if a little more of the costs are covered. The Medicare system does not benefit from the State increasing coverage payments, because Medicare, as was earlier discussed, cannot be seen as having unlimited resources. The limitations of Medicare have to be accepted by the private and public users of the system. But the State will benefit, because Medicare money will pass through the system and contribute to their general fund.

Now I like my State, I don't really want it to go down in health care history as the Enron-Madoff of creative health care stealing. I seriously doubt anyone followed the fishing line to its inevitable conclusion, but at this point, at least the amount of expense the hospitals spend on Medicare has to be eliminated from the franchise fee basis for the tax to be even close to ethical, and possibly to even be legal.

The Ohio Hospital Association, the group that informed me of what was happening, also holds that the hospital's franchise bases should subtract the amount of uncompensated expenses they offer rather than taking a percentage fee on services they are never paid for. That the OHA even has to ask this is an indication that the government has forgotten what the purpose of a private, non-profit hospital is to the government's capacity to function. Hospitals are the whipping post of unfunded mandates in that they are told they are legally liable for all kinds of things they will never be paid for. As a psychiatric nurse in a State that has closed most of its institutions for the chronically mentally ill and developmentally disabled, I am daily made aware of what the private hospitals have to do to make up for things the State refuses to do. For the State, which has been closing these institutions for twenty years to suddenly decide that this unreimbursed care must be taxed is a slap in the face to the groups that have been trying hold the safety net under the cracking system.

And the final request of the OHA is that the tax rate (franchise fee according to the governor) be decreased from 1.61% to 1.5%. If the institutions involved have evaluated the situation and realized that State activity has also received unfunded mandate by Federal activity and are willing to contribute a "franchise fee" the percent is very important. The percent has to reflect something the hospitals can manage. These groups are not making money (remember that Medicare reimbursement is at about 85% of cost), they may be like your rich uncle who has money, but they are also "sending everyone to college" like the rich uncle does, and when the money is gone, the service will be gone also. Every week more doctors refuse to take new Medicare patients, or drop out of the reimbursement system entirely. Services are not like products where the product will go on with robots whether the people work or not. If the care providers are not happy, many will stop providing. While things are changing between the government and private, non-profit institutions, if the government does not listen and keep them happy, the government has the most to lose. Remember, the government can not cease to exist, but the institutions can. Don't imagine that things will be better if they are forced out. Give them the rate reduction.

Simple basic principle: non-profit means non-taxed. Don't tax the hospitals. If life has changed enough in the world of health care regulation that hospital activity really is a stress on the government, make sure the hospitals are happy with the franchise fee, or else have them pay for governmental services that they have to have to exist. But above all, don't take the Federal government's money by passing it through non-profit private institutions.