Feds Axing State Taxes on Medicaid Providers

Article excerpt

Medicaid programs in more than half the states are facing an awful prospect. They may have to curtail their services to the needy, and in one state at least, there's even talk of a shutdown of the system.

The cause of the crisis is a federal-state struggle over who's to pay for the relentless advance of Medicaid costs, projected to reach $115 billion in fiscal 1992. The chief culprit is health-care inflation, according to a recent task force report from the Department of Health & Human Services and the Office of Management and Budget.

Federal mandates that have expanded Medicaid eligibility have not helped. Nor has the 1990 Omnibus Budget Reconciliation Act, which calls for manufacturers' rebates on drugs--but also opens up restrictive Medicaid formularies.

Sharing the burden: To cope with the ballooning tab for Medicaid, 27 states have adopted a device to have the federal government bear more of the burden. It works this way:

Because the Medicaid law requires the feds to "match" state funds for the program, some states realized that by increasing their own funding, they would pull in more money from Washington. These states adopted "voluntary" contributions from their Medicaid providers or a tax on providers, with monies funnelled to health care for the poor. The arithmetic can be especially favorable to poorer states that may draw close to $3 from the federal treasury for every $1 raised within the state.

Alabama is a case in point. Federal mandates added more clients to the Medicaid rolls and loosened up the restrictive drug formulary, thus adding to the state's costs. The rebates the state receives from drug manufacturers (under OBRA) "aren't really offsetting the increases in costs in the program," said Mitchel Rothholz, executive director, Alabama Pharmaceutical Association.

Alabama's way out: Voluntary contributions from hospitals serving large numbers of indigent patients. In January 1991, it switched to a tax on providers, which for pharmacies comes to 10 cents on every outpatient prescription. For every dime collected, "30 cents comes back from the federal government," said Rothholz.

(At the same time, the dispensing fee has been raised to $5. …