Hospital Tax will Increase Hospital Costs by $208 Million

By Oregon Association of Hospitals and Health Systems,

A recently completed financial analysis has determined that Oregon hospitals will face almost $400 million in losses over the next two years under the 2009-2011 budget proposal presented to Oregon lawmakers by Governor Ted Kulongoski.  The 2009-2011 “Governor’s Recommended Budget” (GRB) proposes a new 4-percent tax on hospital services, with the tax revenue and corresponding federal match being used to cover all of the costs of providing insurance coverage through the Oregon Health Plan (OHP) to 100,000 adults. At the same time, the GRB proposes to reduce Medicaid payments to Oregon hospitals by almost 10 percent.

The study was conducted for the Public Policy Committee of the Oregon Association of Hospitals and Health Systems (OAHHS), by Health Management Associates (HMA), an independent national research and consulting firm specializing in complex health care program and policy issues.  HMA’s analysis found that Oregon’s 25 largest hospitals will lose more than $200 million annually under the proposed 4-percent hospital tax, coupled with reduced Medicaid payments.

“Despite claims by some policymakers that this taxing scheme will more than offset hospital’s tax liability, the HMA study found that the decrease in hospital’s uncompensated care, even when coupled with the increase in newly enrolled OHP members, simply does not come close to offsetting this tax,” said Jim Diegel, CEO of Cascade Healthcare Community and Chair of the OAHHS Public Policy Committee.  As an example, HMA’s analysis shows that St. Charles Medical Center, Bend would lose more than $10 million a year as the result of this tax.  “That’s an impact we can simply not absorb today,” said Diegel.

While Oregon’s 32 small and rural hospitals would benefit modestly under the proposal, they have collectively announced their strong opposition to the proposed hospital tax  “We’re deeply concerned,” said Jim Barnhart, Chair of the OAHHS Small and Rural Hospital Committee and CEO of Peace Harbor Hospital in Florence. “The impact of these losses will extend to communities like ours as those hospitals being taxed provide essential support and referral services to small and rural hospitals like Peace Harbor. All of Oregon’s small and rural hospitals rely on these larger institutions to sustain the system of hospital care in Oregon.  Thus, as their current struggles are exacerbated by the negative impacts resulting from the proposed new tax, they in turn may have to begin to limit the services they offer our communities.”

Andy Davidson, president and CEO of OAHHS noted that the governor’s budget proposal could not have come at a worse time.  “On the one hand, our communities need us more than ever,” said Davidson.  “On the other hand, Oregon’s hospitals are facing the perfect storm as they are struggling with the dramatic effects of the deepening recession, including historic declines in patient volumes, a significant decline in community philanthropy, investment income losses of as much as 50 percent in some cases and an increase in the number of patients unable to pay their bills.  This has resulted in internal budget restrictions, reductions in various services and unfortunately, well over a thousand fewer jobs at hospitals across the state.”   A website ( has been developed by the association to compile the measures Oregon hospitals are taking to respond to the crisis.

“We believe in and share the goals of expanding insurance coverage to more Oregonians, but the hospital tax simply does not work as a sustainable funding mechanism,” Diegel shared. “We continue to be willing to be a part of any solution for our state’s critical health care needs, but the approach must be broad based and sustainable to serve our state’s most vulnerable citizens into the future.  The Board of Trustees has directed the association to work with other key stakeholders to develop a mechanism for achieving our shared goal: Expanding OHP coverage to more adults and covering more children.”

Specific findings of the HMA study include*:

* Net loss to 25 DRG hospitals: $208 million per year;
* Net benefit to 32 A & B hospitals: $11 million per year;
* Net loss to all of Oregon’s 57 community hospitals: $197 million per year.

*The net impact to each hospital was calculated by adding the cost of the new tax to the reductions in hospital payments, then adding the benefit associated with an increase in OHP enrollment of 100,000 adults and 80,000 additional children.

About OAHHS:  Founded in 1934, the Oregon Association of Hospitals and Health Systems (OAHHS) is a statewide, nonprofit trade association that works closely with local and national government leaders, business and citizen coalitions, and other professional health care organizations to enhance and promote community health and to continue improving Oregon’s innovative health care industry.

In addition to 57 acute care hospitals, OAHHS membership includes 10 health systems and related health plans, 16 affiliated allied organizations and 32 associate members representing health care consulting and other service companies.

About HMA:  Founded in 1985, with a clear mission to deliver high quality research and consulting services in the ever-changing health care field, HMA has grown to ten offices serving a wide range of public and private clients throughout the US. With offices located in four of the six most populous states in the country, HMA staff are close to public program offices, and well-informed regarding policy changes, new initiatives, and business opportunities. As former public officials in these communities, HMA staff members are often consulted, and called upon to provide research, analysis, and evaluation of the complex programs to which they have committed their careers.


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