Michigan physicians fighting 1% Medicaid tax plan

Washington -- Michigan Gov. Jennifer Granholm has proposed taxing physicians to raise Medicaid funds -- a relatively rare tactic that could become more common if a budget-cutting step offered by President Bush passes.

Under Granholm's plan, physician practices would be charged a 1% assessment on gross revenues. The move would raise an extra $96 million in state funding for the program, which covers one in seven of the state's residents at a total cost of about $7 billion a year. The state tax dollars would be augmented by $70 million in federal Medicaid matching funds.

The plan is laid out in the governor's 2006 budget proposal and would require the introduction and passage of new legislation.

The state would net about $40 million of the total raised by the new tax, and $120 million would go back to physicians in higher Medicaid reimbursement, according to T.J. Buckholz, spokesman for the Michigan Dept. of Community Health.

"We think it's a pretty good deal for the physicians," he said.

But the state's physicians don't agree.

It's a public program and should be funded by the public, said John MacKeigan, MD, president of the Michigan State Medical Society.

"Why should physicians fund Medicaid?" he asked.

A few states, including Kentucky, New Mexico and West Virginia, have tried imposing similar Medicaid taxes on doctors. But all three have stepped back from the approach because of physician resistance.

More commonly, states charge these assessments on other health care entities. In fact, Michigan currently levies a Medicaid fee on the state's hospitals, nursing homes and managed care firms.

For those institutions, paying the tax makes good economic sense, experts said. When they give the state that money, the state can get more federal matching funds. In turn, the state can pay the hospitals and nursing homes higher rates for their Medicaid patients.

Michigan officials hope the tax, and the increased reimbursement it produces, will encourage physicians to see more Medicaid patients. The state is experiencing significant physician shortages in many communities, Buckholz said.

That is in part due to low Medicaid payment. Currently, physicians are reimbursed on average about 61% of Medicare rates for seeing Medicaid patients. Under the tax proposal, that would go up to 78%. With that increase in profit margin, physicians could pay off the tax by making Medicaid patients 3.5% of their caseload, he said.

From the doctor perspective

But physicians in Michigan and elsewhere are unlikely to see it that way, because traditionally they don't have the type of relationship with the government that institutions do, said Joy Johnson Wilson, health policy director with the National Conference of State Legislatures.

"Hospitals and nursing homes would agree to it, but not doctors," she said. "Physicians just aren't funded by the states that much."

Unlike hospitals or nursing homes, for most physicians, seeing Medicaid patients is more akin to charity care than income, Wilson said.

In Michigan, reimbursement for specialists can be as low as 6% to 8% of what Medicare pays for some services and procedures.

"We're actually paying to see them," Dr. MacKeigan said. Physicians also are facing a temporary 4% cut to Medicaid reimbursement that the state is implementing to bridge a budget gap this year.

So while the state's calculations might work for some primary care physicians, Medicaid rates are so low for many specialists that it wouldn't matter how many Medicaid patients they saw -- they would still be losing money, he said.

For these physicians, increasing the number of higher-paying patients makes more sense than taking more Medicaid patients, he added.

Despite physicians' concerns, other states are looking at Medicaid taxes to help them avoid making deeper cuts into the program, which continues to grow and cost more money, experts said.

"Cutting Medicaid creates a vicious cycle," said Michigan's Buckholz. States are keenly aware that reducing state Medicaid spending means not only less access to health care for their citizens, but also less federal funding coming into the state economy.

Charges could be coming

Given that reality, a new federal plan actually could unintentionally nudge even more states to consider taxing physicians, experts said.

Currently, states can charge physicians, hospitals and others up to 6% of their net revenues without violating federal prohibitions designed to keep states from shifting money around to artificially boost Medicaid matching funds from the federal government.

In an effort to cut the budget, President Bush has proposed lowering that threshold to 3% starting next year. If passed, that change would reduce federal Medicaid funding by $231 million in 2006, everything else staying the same, according to the NCSL.

But such a move likely would spur states to try to expand Medicaid taxes beyond institutional providers to prevent the loss of federal matching funds, experts said. Physicians could become an inviting target, they said.

"If you reduce federal money, you need to raise funds somewhere else," said Matt Salo, director of health policy at the National Governors Assn., which opposes the change to the tax threshold as well as other attempts to cut the federal share of Medicaid spending.