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Hospital Provider Program: Fee or tax?
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If we don’t renew it and therefore forgo the federal match dollars, what impact will it have on our state’s hospitals?

If we don’t renew it and still try to draw down federal dollars, what impact will it have on our state’s budget?

Will the legislature vote in favor of renewing it?

These are just a few of the questions surrounding Georgia’s Hospital Provider Program, also known as the “hospital tax”, “hospital provider fee” or “hospital bed tax.”

The hospital provider fee is used to draw down Medicaid dollars from the federal government to be used in the state’s Medicaid program.

In Georgia, for every 35 cents the state spends on Medicaid, the federal government puts in 65 cents.

Currently, the hospital provider fee works like this:

1. Most hospitals pay 1.45 percent of their net patient revenue to the state in the form of a hospital provider fee. While some, such as trauma hospitals, pay a decreased fee, federal law requires that any fees or taxes used to draw down Medicaid dollars be equally assessed and not target any one group, therefore almost all hospitals pay the fee. These fees can only be used to draw down federal funds. It is estimated that about $235 million will be collected under this fee in fiscal 2013.

2. With the federal government matching these funds at a 35/65 percent rate, the $235 million draws down an additional $450 million dollars resulting in a $685 million addition to the state’s budget.

3. Some of the initial provider tax receipts (about $230 million) are paid back to the hospitals in the form of increased payments for Medicaid services. For those hospitals that accept Medicaid patients, they see a reimbursement add-on of 11.88 percent. This makes those hospitals that accept more Medicaid patients “winners” in this formula. Those hospitals that do not accept Medicaid patients or accept fewer Medicaid patients are labeled “losers” in this formula since they do not benefit as much from the increased reimbursement.

4. The remaining funds (about $450 million) are used to support general Medicaid expenses such as nursing home care, hospital care and pharmacy.

When the hospital provider fee was started in 2010, it was used to fill a $600 million shortfall in Medicaid in the FY2011 budget. It was passed with a three-year sunset provision meaning that, unless extended by the legislature during the next session, it will expire on July 1, 2013, and the state will have a $685 million shortfall in the FY2014 budget.

If the fee is not extended, the state will have to make a decision — do we search an already stressed budget in order to come up with the necessary funds to draw down the federal Medicaid dollars, or do we forgo the federal matching dollars altogether?
Either way, the results would not be pleasant.

Currently, even with the hospital provider fee in place, the state is projecting a $400 million shortfall for Medicaid in FY2014. Having to come up with the funds to draw down the federal Medicaid matching funds will cause this shortfall in the budget to grow even larger, making cuts in other areas of the budget that are already tight necessary.

If we choose to bypass the federal Medicaid matching funds altogether, the result could be disastrous to some of our state’s hospitals that depend on Medicaid funding, perhaps causing some to have to close their doors.

So why not just extend the fee and be done with it?

Not so fast, say some. After all it’s not a fee, it’s actually a tax.

As a freshman state senator in 2010, I remember vividly the heated debate regarding this issue. Even today, the state Senate is still feeling the fracturing effects of this issue.

Adding more intrigue to this issue is the letter released last week by Grover Norquist, president of Americans for Tax Reform, who identified the fee as a tax and said any legislator voting in favor of it would be breaking their promise not to vote for a tax increase.

Is it a fee or is it a tax?

One thing’s for certain — difficult decisions lie ahead for the state Legislature in 2014.

State Sen. Buddy Carter, R-Pooler, can be reached at 404-656-5109. You can connect with him at or on Twitter @Buddy_Carter.

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