Property tax proposal piles one more worry on Texas' rural hospital districts

Squeezed by Medicare cuts and a growing number of uninsured patients, rural hospital districts in Texas are worried that the Legislature’s property tax reform package could rock small health care providers or force them to scale back services.

Some hospital executives see the legislation — which aims to slow the rate of property tax revenue growth — as potentially the latest in a series of government-inflicted blows that has left many of the state’s rural providers insolvent or with precarious balance sheets. Since 2010, Texas has led the nation in rural hospital closures — more than a dozen in the last decade — and the state simultaneously has the country’s greatest population of uninsured residents.

“We're the only hospital in the county and have an adjacent county that doesn't even have a hospital. We're critical to providing services to this part of Texas,” said Ted Matthews, chief executive of Eastland Memorial Hospital nearly 100 miles west of Fort Worth. “When you truly get to the rural areas of Texas and you have financial limitations on what we can do out here,” he said, the property tax reform efforts “could very well close some rural hospitals.”

Not all hospitals have taxing authority; the property tax reform package — a top priority for state leaders — applies only to those that can levy them. Further, the lower chamber's version of the legislation would exempt most rural hospitals, which have levies under $15 million. The Senate's bill would let voters in small districts decide if they want certain reforms to apply.

Hospitals are reimbursed for their services by private insurers and by government programs like Medicaid, Medicare and state grants, some of which could be eliminated. Local property and sales taxes help plug financial gaps and can be critical to covering the cost associated with treating poor or uninsured patients brought to hospitals’ emergency rooms, hospital officials said.

“No hospital can control that,” said Russell Tippin, head of a medical center in Andrews County. “Our doors are open all the time, and our duty is to take care of people regardless of their ability to pay.”

Erecting a hurdle to raise tax revenue would be “detrimental — I hate to use the word 'catastrophic,'” Matthews said, especially with a dozen rural hospitals already on financial “life support.”

Currently, municipalities and special taxing districts can raise up to 8 percent more property tax revenue each year on existing properties before voters can petition for an election to approve the tax rate. Under the reforms, the trigger would be lowered to 2.5 percent revenue growth — a reflection of lower inflation rates — and the ratification election would become automatic.

Proponents of the reform bills say they provide needed relief to homeowners and are an overdue correction to a property tax system that is confusing and unfriendly to taxpayers. But hospital executives say their districts differ from cities and counties because they have less control over their costs. About a dozen of the state’s nearly 140 hospital districts brought in more than $15 million in tax revenue in 2017.

“We work so hard and are good stewards of our taxpayer dollars,” Matthews said. “We are more than willing to discuss an amount with legislators, something that they're comfortable with and something that we're comfortable with, because we cannot afford to have any additional rural hospitals close.”

Although Eastland has lowered its tax rates some years in an effort to be “good stewards,” Matthews said, it hasn't been immune from the industry pressures that have led other medical facilities to go belly up.

The facility has 52 beds but staffs 36 because of a change in federal admitting requirements.

After the government slashed the rate it reimburses care for Medicaid patients, the hospital had to stop delivering babies — leaving mothers to travel one hour to the nearest obstetrics ward.

And as Matthews considers how the health care system would cope with heightened financial uncertainty, he worries it might take longer for severely injured patients to receive advanced care. Because facilities are certified to treat different levels of trauma, complex cases are often transferred to metropolitan areas, but they can be stabilized or initially treated at hospitals like Eastland.

The facility, which primarily treats geriatric patients, services a 120-mile stretch of Interstate 20, including a particularly dangerous length near Ranger Hill.

Leisha Elrod, the hospital's human resources director, said officials anticipate raising $366,000 through property taxes this year and $471,000 through sales tax revenue — enough to cover a little less than three weeks of the facility’s expenses, which run near $40,000 a day.

State Sen. Paul Bettencourt, a Houston Republican and champion of the legislation, said Texas hospitals already receive some protection through the property tax system. Yearly increases in a hospital district's uncompensated care costs, Bettencourt’s office said, are used to determine the district's effective and rollback tax rates for the next year — allowing districts, in some cases, to levy more to cover those costs.

"No change is planned or proposed” in the new legislation, he said.

Still, state Rep. Brooks Landgraf, R-Odessa, said he thinks there is an “X-factor when it comes to hospitals” that differentiates them from other government entities: They have to eat the costs associated with uncompensated care, an expense that is out of their control.

“It’s somewhat difficult to budget for,” said Landgraf, who represents the West Texas county serviced by Tippin’s hospital. “Paying for uncompensated care is not an extravagance for the hospitals,” and their portion of residents’ tax bills is often dwarfed by those used for school districts.

“If hospitals continue to be included in the property tax reform bill,” which he supports but thinks could be improved, “I think we have to look at other reimbursement streams for hospitals,” Landgraf said.

Rural hospitals are under "so much pressure"

At the Permian Regional Medical Center, Tippin, the chief executive, harbors similar concerns about the cost of covering uncompensated care. But he says urban counties, where property values are consistently rising, are in a different situation than West Texas, where the local economy is intimately tied to the boom and bust of oil prices.

When the price of oil is down, “everybody’s hurting,” he said. When it’s up, “everybody’s got insurance.”

In the decade Tippin has headed the facility, the financial outlook for hospitals has become increasingly bleak. Commercial insurance companies only negotiate to decrease their reimbursements, Tippin said. Medicaid and Medicare rates “never go up; they only go down.” Proposals to strip hospitals from protection against some patients’ lawsuits could gain steam.

“They want to pay us less, want to pay us less, then turn around and want to make us liable for more, liable for more, liable for more, liable for more,” said Tippin. “And then, at the same time, restrict a way that we can raise more funds to help cover all that” — the property taxes.

Several years ago, voters in Andrews County approved a bond package that let the hospital construct new facilities. Built in the 1960s, the hospital had sewage leaking through the ceilings, Tippin said. So he and other hospital officials went to the Rotary Club and spoke to retired teachers — “we worked it and worked it for months and months until it came time for the election and we were successful.”

Because it was time-consuming and unrelated to his day-to-day management of the hospital, Tippin hoped campaigning for the bond would be a once-in-a-lifetime event.

Champions of the reform measure say one of the key tenets is that it requires approval from voters — some of whom have testified before lawmakers about their difficulty affording increasing property tax payments. Other proponents say the bills wouldn’t prohibit municipalities and hospital districts from raising revenue, only require that they receive voter approval before levying 2.5 percent more than the year before.

Between 2013 and 2017, the bulk of hospital districts set tax rates between $0.01 and $0.40 per $100 in value, according to data compiled by a rural hospital association. Several drew levies of less than $300,000 a year.

The Andrews County district, where Permian Regional is based, saw its tax levy increase from $18 million in 2013 to $20 million in 2017, with some of the revenue used for debt service. But Tippin said he worried the tax reforms would put a financial strain on hospital districts like his.

“When you look at these communities that have hospitals that are closing, I think they're getting so much pressure from the insurance companies, from uncompensated care, from the lack of tax support, they have no choice but to close,” he said. “They can't keep their payroll. They can't keep the lights on. And unfortunately for the people in those communities, that means delayed care. It means worse outcomes, and in some cases, it means the difference between life and death.”