Updated: Will Hospitals Be Taxed to Prop Up Medicaid?

Talk has resumed in the Senate — albeit quietly — about a so-called quality assurance fee, a revenue generator that would effectively tax hospitals to prop up the state’s cash-strapped Medicaid program.

"There's a quiet discussion going on, though nothing has been formally proposed," said Sen. Steve Ogden, R-Bryan, the chairman of the Senate Finance Committee. "It should be considered." 

But state leaders suggest Texas hospitals would largely have to be on board in order to get them to seriously consider this source of new revenue. John Hawkins, senior vice president with the Texas Hospital Association, said he’s expecting a proposal for a quality assurance fee soon — but with so many existing unknowns in Medicaid funding at the Legislature, a sign-off from the hospitals is unlikely to happen in the next six weeks.

“It’s going to be difficult to get consensus,” Hawkins said. “I know we’re trying to come up with revenue. But it’s a very complex thing that will take a while to model and technically pull off.”

And even if the hospitals decided to support such a fee, it’s unclear whether Senate lawmakers can move on it; constitutionally, new revenue bills must originate in the House, where lawmakers have flatly rejected new revenue options.

Many states use quality assurance fees, or "enrollment" fees, as a way to generate dollars needed to draw down a federal match and supplement Medicaid rates. The Center for Public Policy Priorities estimated in January that such a fee in Texas could generate nearly a billion dollars that could be used to hike Medicaid rates and expand coverage to the uninsured.

Still unclear is whether state lawmakers would use such revenue to raise Medicaid rates from current levels, or to simply defray expected cuts. Texas Medicaid providers are facing a 10 percent rate cut as a result of the current budget shortfall.

And in any case, the problem for hospitals, Hawkins said, is that the fee creates winners and losers. Hospitals in states with such fees traditionally have paid the same tax rate on their gross receipts regardless of their payer mix. That means hospitals with large Medicaid populations would get a good deal; they’d more than make up their tax with boosted Medicaid reimbursements. Hospitals with fewer Medicaid patients, on the other hand, would take a hit.