New taxes in New Jersey target doctor services

Ambulatory surgery centers and elective cosmetic procedures are being subjected to new state taxes in New Jersey, and doctors across the state are wondering if the measures might lead to more taxes on physician services in the future.

The measures, which were approved as part of the state budget earlier this summer, will impose a 3.5% tax on ambulatory care centers based on their gross revenue and a 6% tax on gross receipts from cosmetic procedures. The money collected will be doled out to hospitals as increased subsidies for the charity care.

Doctors say they had little warning and that the taxes were pushed through at a pace that defies general government bureaucracy. They're wary of being future tax targets.

"This sets up a precedent that you can tax me for anything you want to," said S. Manzoor Abidi, MD, a neurologist in Maple Shade and president of the Medical Society of New Jersey. "This is an important issue to physicians in New Jersey, but I think it has major implications to physicians all over the country. I'm sure other states are going to watch this closely."

The irony is thick as well, Dr. Abidi said. Hospitals are getting a bump in subsidies for charity care, but the taxes are mainly coming from physicians, who provide the charity care at the hospitals and usually go uncompensated for that work, he said.

Sean Hopkins, senior vice president of health economics for the New Jersey Hospital Assn., said hospitals have been looking to the state Legislature to help cover more of the care they provide for uninsured patients. Hospitals provided $778 million in documented charity care in 2002 and $813 million in 2003, but state payments have remained stagnant at $381 million, he said. The new taxes will generate an additional $202 million for hospitals, he said.

Dr. Abidi said the medical society is working to reverse the legislation or find some other solution, which could include reimbursing or assigning tax credits to physicians who provide charity care.

"What is so unfair is hospitals calculate the amount of charity care and include physician services, but physicians are never reimbursed," Dr. Abidi said. He said he does not hold any ownership interest in an ambulatory surgery center.

Kathy Bryant, executive director of the Federated Ambulatory Surgery Assn., based in Alexandria, Va., said New Jersey is not the first state to impose a tax on ambulatory care centers, though other states have seen mixed results. But the American Society of Plastic Surgeons called New Jersey "the first state to explicitly tax surgical procedures in the country."

The ambulatory care tax, which does not cover facilities licensed to hospitals in the state, will apply to facilities with more than $300,000 in annual revenue. The maximum a facility will be required to pay is $200,000, but officials said by factoring the tax before costs are subtracted, the state could push some facilities farther into debt. The state is scheduled to collect its first quarterly payment -- based on 2003 receipts -- Oct. 1.

Meanwhile, patients will be further burdened by the 6% tax on cosmetic surgeries, doctors said. The tax, which went into effect Sept. 1, will disrupt plastic surgeons, dermatologists and other physicians who perform elective surgeries, and it also could cause them to lose business.

"The joke is how New York drivers come to New Jersey for cheaper gas, but now patients are going to drive to New York to get their Botox done for less," said Chris Sciales, MD, a dermatologist in Livingston, N.J., and past president of the Dermatological Society of New Jersey. "The tax can be very significant on big-ticket items."

The tax also will force some offices to adjust their computer systems to accommodate the extra charge and additional accounting, though Dr. Sciales said that is only a minor issue for his office.

But there are bound to be discussions regarding what is elective and medically necessary, forcing physicians to engage state officials in a way normally reserved for HMOs. A mastectomy would be considered medically necessary, Dr. Abidi said, but would reconstructive surgery for the breast?

"They're taxing the medical profession at a time when we already are being taxed by liability insurance, we're seeing declining reimbursements and we're finding we have to pay employees more," Dr. Abidi said. "This is another insult."