Nursing Home Provider Tax

Topic:
TAXATION (GENERAL); NURSING HOMES;
Location:
NURSING HOMES;


May 3, 2004		2004-R-0386
NURSING HOME PROVIDER TAXES

By: Robin K. Cohen, Principal Analyst

You asked for an update of OLR Report 2003-R-0864. You also want to know (1) if any of the states that impose these taxes exempt homes that have few, if any, Medicaid patients and (2) whether the Centers for Medicare and Medicaid Services (CMS) is no longer granting the waivers needed to exempt these homes, as has been claimed by the state's nonprofit nursing home trade group.

In OLR Report 2003-R-0864, we reported that 31 states had laws establishing provider taxes and assessments. Since then, Utah has adopted a tax and Colorado has repealed one. (OLR Report 2004-R-0399 describes Utah's tax.)

SUMMARY

It appears that of the 31 states that we found with statutorily prescribed nursing home provider taxes, only North Carolina has received a federal waiver to exempt certain homes from the tax. Some states have tried to get such waivers (which minimize the negative impact on homes that have few or no Medicaid residents) and have been denied or have withdrawn their requests when CMS has made it clear it would deny them. (CMS must approve all provider taxes, thus allowing states to claim additional federal financial participation, but must grant waivers to state whose taxes go beyond the federal parameters.) As of this writing,

five states have waiver applications pending with CMS to allow exemptions similar to North Carolina: Indiana, Iowa, Massachusetts, Ohio, and Oregon.

Although CMS has assured us that it continues to entertain waiver proposals and will grant them if they comply with federal rules, several state officials we spoke with indicated that they believe provider taxes in general may be targeted for elimination at the federal level. According to Toni Fatone of Connecticut's for-profit nursing home trade group, CMS has approved three additional taxes within the last three weeks alone.

STATES WITH PROVIDER TAX LAWS

Table 1 presents the 31 states that have enacted provider tax laws. Some states require the taxes to be deposited into special funds, the proceeds of which may only be used to enhance Medicaid reimbursements to nursing homes. Some prohibit the nursing homes from passing the cost of the tax on to their residents, while others explicitly allow it. Some of the taxes are subject to legislative sunset; others are ongoing. The taxes range from a low of $365 per year per patient bed day in Ohio, to almost $3,500 per year per bed in North Carolina and Vermont.

Table 1: Nursing Home Provider Taxes

*State*	*Amount of Tax*	*Exempt Nursing Homes*	*Other Features*
Alabama	$999.96 annually per bed; 6% aggregate cap	Facilities owned, operated by, or operated under an exclusive contract with state or any state agency; facilities for the developmentally disabled.	Tax only effective if federal financial participation is available. Tax monies can be used by Medicaid agency to enhance Medicaid payments.
Arkansas	$5.25 per patient day	Prayer-based facilities	Quality assurance fee deposited into separate account in the Medicaid Program Trust Fund. Account is exempt from budgetary cuts. Funds may only be used to reimburse additional costs paid to nursing homes under state's Medicaid reimbursement system. No guarantee that funds paid in by home returned at same or higher level. Homes prohibited from listing fee as separate charge on patient bills.
Georgia	Maximum of 6%	None	Requires that it be applied uniformly. State denied waiver for non-Medicaid homes. Went ahead with flat tax for all homes. Funds deposited in segregated account in existing Indigent Care Trust Fund.
Illinois	$1.50 per licensed bed day	None	No fee can be passed on to patients. Fees are deposited into Long Term Care Provider Fund.
Indiana	Quality assessment (amount unspecified)	Original law (2003) not applicable to homes with less than 25% Medicaid utilization rate or less than $750,000 in annual Medicaid revenue. 2004 legislation adds continuing care retirement communities (CCRCs), Medicare-only facilities, facilities with less than $750,000 in total annual revenue, Indiana Veterans' Home to exemptions.	State must seek CMS approval, through waiver. Tax expires on August 1, 2005. State has submitted its plan and waivers to CMS.
Iowa	6% maximum	Homes with Medicaid utilization less than 10% and state-operated homes	Three-tiered quality assurance assessment: 0% for homes with <10% Medicaid; $.50 per non-Medicare patient days for homes with 10% or greater but < 42.5% utilization or those with 10% or higher Medicaid patient days and annual Medicaid patient days of 22,000 or more; $4.70 per non-Medicare patient day for homes with Medicaid utilization of 42.5% or higher and < 22,000 annual Medicaid patient days. State submitted waiver of uniformity and state plan amendment request.
Kentucky	2% of gross revenues	Charitable providers certified by Revenue Cabinet	None
Louisiana	$10 per bed day	None	Law null and void without availability of federal matching funds.
Maine	6% of annual net operating revenue	None	Tax effective 7/1/02, and contingent on approval of Medicaid plan amendment.
Massachusetts	$10.08 per non-Medicare patient day	2003 law directed state to seek uniformity waiver to mitigate impact on nonprofit CCRCs and residential care facilities.	2003 law specified use of funds, including (1) using 2002 base year costs; (2) enhanced payment rates, (3) rate add-on for wages, hours, benefits, and other direct care staff costs; and (4) capital expenditure adjustments.
Michigan	$2.20 per licensed bed, up to 6% of industry revenue	None	Five-year tax, terminating in 2007. Funds deposited into Medicaid Nursing Home Quality Assurance Assessment Fund and used to increase per diem Medicaid reimbursements. CMS denied state attempt to get a variable rate to help low-Medicaid homes for failing to meet hold harmless requirement.
Minnesota	2% of gross revenues	None	None
Mississippi	$4 per licensed bed day	Law permits state to apply for waiver to exempt nonprofit, public, charitable, or religious assessments.	Assessments deposited into Medical Care Fund.
Missouri	$7.30 per licensed bed day (state has asked CMS for $1.12 increase)	None	None
Montana	$4.50 utilization fee (to increase to $5 on July 1, 2004)	None	30% of funds go into General Fund, with other half deposited into special revenue fund. Law prohibits homes from placing fee on patient bills. Funds must be used to increase the average price paid for Medicaid nursing homes services above the FY 2003 level under price-based reimbursement.
Nevada	6% of total annual gross revenues (less charitable contributions)	State-owned or –operated homes.	State must establish a uniform rate per non-Medicare patient day. Fees deposited into Quality of Nursing Care Fund
New Hampshire	Up to 6% of aggregated net revenues (non-Medicare)	None	Monies deposited into Nursing Facility Trust Fund. State withdrew its uniformity waiver application.
New Jersey	6% of aggregate annual revenues (excluding Medicare)	None	High- and low-Medicaid census homes pay $1 per patient day based on non-Medicare patient days. Remaining homes pay per diem assessment based on dividing total statewide maximum assessment less amount paid by homes paying $1 assessment. State may collect assessments only if federal government approves. State must seek uniformity waiver. All of monies deposited in General Fund but earmarked to continue paying homes at 2003 levels or higher and continued applicability of rate rebasing and bed hold payment methodologies. A portion of funds used for grants to provide funds for homes to recruit and retain staff, among other things.
New York	6% (excluding Medicare revenues)	Firemen Home	Tax or exclusions null and void if federal financial participation jeopardized.
North Carolina	2-tiered—$9.50 per non-Medicare day on homes with < 48,000 total bed days; $3.00 per day on all homes with > 48,000 total bed days.	CCRCs with nursing home beds	State recently received CMS broad-based and uniformity waivers. State retains ability to impose flat tax.
Ohio	$1 per bed per day	If the state gets waiver of broad-based requirement: (1) three specifically named homes and (2) certain charitable homes exempt from state property taxes. Portions of hospitals certified as nursing facilities, county nursing homes, district homes, or intermediate care facilities for the mentally retarded.	State may limit number of exempt homes; fee cannot be passed on to nursing home residents. State submitted waiver request.
Oklahoma	6% of gross receipts	None	Taxes and federal reimbursements go into Nursing Facility Quality of Care Fund and are used for a variety of things, including additional money to homes and a study of state's reimbursement methodology. Law contains hold harmless language and is rendered null and void if CMS does not approve matching federal funds.
Oregon	6% of annual gross revenues	Oregon Veterans' Home, CCRCs, homes identified as having Medicaid patient census exceeding census level established by Department of Human Services.	Tax sunsets on January 2, 2008. Law includes hold harmless language. Requires state to seek waivers from CMS. Taxes and federal reimbursement go into Long Term Care Facility Quality Assurance Fund and must be used for enhanced Medicaid payments to homes, including, (1) biennial re-basing, (2) inflation adjustments in odd-numbered years, and (3) continuation of additional payments for complex medical needs residents. State requested broad based waiver. Preliminarily told that CCRCs could be exempt group but no final decision from CMS as of 4/28/04.
Pennsylvania	6%	None	Law includes hold harmless language. Requires that funds (assessments and federal financial participation, and interest) be put into restricted account in General Fund and appropriates money to be used to maintain and increase Medicaid payments to nursing homes.
Rhode Island	6% of gross revenues for services provided on and after 10/1/03	None	Tax exists only as long as federal financial participation available.
Tennessee	$2,225 per year per licensed bed	None	Tax proceeds deposited in general fund. Nursing homes prohibited from billing tax as separate charge but permitted to adjust rates to defray tax costs. Tax suspended if federal financial participation reduction threatened. Tax expires 2005.
Utah	$5 per day (6% of gross revenues)	None	Begins July 1, 2004. Law creates a restricted account in General Fund into which assessments are deposited. Monies must be used to increase Medicaid reimbursement to homes.
Vermont	$3,388.25 annually, per bed	None	None
Washington	$6.50 per patient day	State-operated homes, public hospital district-operated homes, nursing homes with no or disproportionately low numbers of Medicaid –funded residents.	“Quality maintenance fee” can be withheld by exempt homes pending CMS final action on waiver. State must add cost of fee to the nursing home component rate allocation. Fee expires when federal matching funds substantially reduced or if CMS imposes sanction related to fee.
West Virginia	5.5%	None	2004 bill attempted, but ultimately failed, to increase tax to 5.95%.
Wisconsin	$75 per calendar month per licensed bed	None	None

RECENT DEVELOPMENTS

North Carolina

Recently, North Carolina became the first state to receive CMS approval to impose a two-tiered tax, with a smaller amount paid by homes with a large number of total bed days (Medicaid, self-pay, but not Medicare). The state also exempts continuing care retirement communities (CCRCs) from the tax.

For the state to proceed with the tax, CMS had to grant it waivers of both the uniformity and broad based requirements in the federal regulations. Broad based taxes are those that are imposed on all health care items or services or on the providers of these items and services. Uniformity is shown when a tax is imposed uniformly within a class of providers, in this case nursing homes. Finally, the tax must not hold any taxpayer harmless for the cost of the tax. The state was able to show this through a complex statistical analysis.

Colorado

Colorado passed a nursing home assessment in 2003. The law prohibited the state from collecting the assessment from a group of facilities, which required the state to seek a CMS broad based waiver. CMS turned it down as it clearly had the effect of holding these particular homes harmless, which federal regulations prohibit. Moreover, the state faced an almost certain lawsuit by the industry since the state constitution prohibits the collection of any new taxes without voter approval even though the statute called it an assessment.

Earlier this year, the state legislature repealed the tax.

Other States

Nebraska's legislature held a public hearing earlier this year on a Nursing Facility Quality Assurance Tax bill. But the bill's sponsor asked the Revenue Committee to hold the bill, in part because the bill included a three-tiered rate structure which would most certainly meet CMS opposition. For example, homes with Medicaid census of 26% or less would have been exempt from the tax. The legislature adjourned sine die on April 15, 2004. Maryland's legislature has likewise considered provider taxes, most recently in 2004, but has failed to enact one.

Massachusetts presently has a flat tax of $10.06 per bed day, but it just submitted a waiver request to CMS to allow it to charge about half that amount to CCRCs.

The District of Columbia had a provider tax in the mid-1990s that included exemptions for CCRCs, among other entities. But the tax was subject to sunset. According to the district's deputy director of Medicaid, the executive branch is exploring the possibility of a new tax, but without exemptions.

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