Colorado tax funds Medicaid expansion, hospital pay raise

As most states search for ways to limit Medicaid spending, Colorado is using a hospital tax to expand its program and increase hospital pay.

Colorado's tax on inpatient and outpatient revenue is expected to raise $1.2 billion in state and federal funds when fully implemented in fiscal year 2013. The money will be used to expand Medicaid eligibility to about 100,000 additional residents and increase hospital pay under Medicaid and the Colorado Indigent Care Program, a safety net program for state residents.

Colorado Gov. Bill Ritter signed the hospital tax into law in April 2009, but the state was not able to implement it without an approval from the Centers for Medicare & Medicaid Services, which granted one in early April of this year.

"This will pay off in both fiscal and personal health for our state and its residents and will be accomplished without additional costs to the general fund," Ritter said.

The tax on inpatient and outpatient care is expected to raise $600 million a year when fully implemented, drawing an additional $600 million in federal Medicaid funding for a total of $1.2 billion. The tax will apply retroactively to July 1, 2009, said Steven Summer, president and CEO of the Colorado Hospital Assn., which pushed for the legislation.

The hospital pay increases will reduce the need for hospitals to cost shift to account for uncompensated care, Summer said. Medicaid hospital pay will increase to 100% of Medicare rates in Colorado, up from at least 90%. Also, the Colorado Indigent Care Program's hospital pay will increase to 100% of hospital costs, up from 72%, according to an analysis by the nonpartisan Colorado Legislative Council.

When the expansion is fully implemented in 2012, the state's Medicaid program will cover about 50,000 more adults without children and about 43,000 more parents earning up to the poverty level. The state also will allow adults with disabilities and children in families earning up to 450% of the federal poverty level to buy Medicaid coverage.

The Colorado Medical Society supported the tax, which is part of broader changes to the state's health system, said Alfred Gilchrist, the medical society's CEO. For example, Gilchrist said, the state's Medicaid program soon will release a draft proposal for accountable care organizations, collaborations that reward physicians and hospitals for savings generated through care coordination. Summer said the medical society's support helped get the tax adopted.

At least 43 states have adopted some version of a hospital or physician tax, according to Dick Cauchi, health program director with the National Conference of State Legislatures.