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Hospital CEO: Tax better than other options
Jenny Davidson, right, a nurse in the neonatal intensive care unit at Northeast Georgia Medical Center, checks Brody Kelley while Brody’s mother, Sarah Kelley, watches. - photo by Tom Reed

A proposal for a 1.4 percent tax on Northeast Georgia Health Systems’ revenues is better than the alternatives, the hospital’s president said.

As state lawmakers have spent the past three months scrounging for ways to fill holes in the state’s budget, hospitals have been a repeated target.

There were proposals by the governor to cut Medicaid reimbursements for physicians and remove an exemption that kept nonprofit hospitals from paying sales taxes. Another plan proposed a 1.6 percent tax on hospital revenues.

Each time, hospital groups bucked.

But over the weekend, state hospital groups brokered a deal with leaders of the Senate and House of Representatives, and on Tuesday, a key House committee approved a plan that would mean a 1.4 percent tax on hospital revenues beginning July 1.

The plan is expected to raise about $175 million.

Jim Gardner, president and chief executive officer of Northeast Georgia Health Systems in Gainesville, said hospitals agreed to the tax under the stipulation that the tax would sunset in three years. Lawmakers would not raise the tax rate during that period, and they would make an effort to avoid cuts to Medicaid.

“I have faith it’s going to happen,” Gardner said. “We’ll see.”

Gardner, who is involved with the Georgia Hospital Association, said the change of heart was a question of “being good corporate citizens” in trying to help lawmakers plug a gaping budget hole.

The impact on Northeast Georgia this year will be approximately $2.6 million, Gardner said. That number is expected to grow to $3 million in 2010 and $3.5 million and 2011.

“As tough as it is to swallow that sort of additional payment ... the only other option was to accept the governor’s most recent proposal of a 10.25 percent across-the-board Medicaid rate cut and the repeal of the state sales tax exemption for not-for-profit hospitals,” Gardner said. “These latter two issues would frankly have been catastrophic to hospitals across the state.”

Hospitals had opposed the initial plan for a 1.6 percent tax, which was expected to bring in roughly $300 million to Georgia’s strained coffers. Last month, health care professionals balked at the proposal, instead backing a measure that would boost the tax on cigarettes.

Rural health providers were especially vocal, since most of the state’s 34 indigent care providers are located in those areas, which have long struggled financially and are hurting even more in the current economic climate.

The governor countered with a plan to slash Medicaid reimbursements to hospitals by 10.25 percent if they did not support the hospital tax. The sobering number sent all sides to the negotiating table.

The deal struck over the weekend was an effort to minimize the damage the state’s budget deficit could have on the state’s hospitals, Gardner said.

“It really boiled down to having to make some tough decisions,” said Gardner.

Since 57 percent of Northeast Georgia Health Systems patients are either on Medicaid or Medicare, Gardner said the hospital won’t be able to pass the tax on to its customers.

“Close to 70 percent of the patients that we treat here on a daily basis, we have no price elasticity with them whatsoever,” said Gardner. “The federal government tells us what they’re going to pay us for Medicare patients, and Medicaid, the state tells us what they’re going to pay for the care of Medicaid patients.”

Paying the tax will mean an “operational adjustment” in the hospital, Gardner said. He said staff and supplies comprise 70 percent of the hospital’s costs. Business as usual isn’t possible even with the better of alternatives.

“We’re just going to have to take a look at everything we do and why we do it, and figure out how to become — over the course of three years, in essence — $9 million more efficient,” Gardner said. “... At this juncture, I can’t tell you what I’m going to do.”

The Associated Press contributed to this report.

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