Minnesota cuts Medicaid pay, phases out doctor tax

The budget compromise that restarted Minnesota's government includes provisions that both help and hurt physicians' bottom lines.

Minnesota Gov. Mark Dayton on July 20 signed the state's two-year budget for fiscal 2012-13, ending a state government shutdown that began July 1 over sharp disagreements about spending between Dayton, a Democrat, and the Republican-controlled Legislature.

The health system reform law's coverage expansions allowed the Legislature to phase out a 2% tax on physician revenues originally enacted to support a state health insurance program. The phaseout begins in 2014, and the tax disappears in 2019.

Revenues from the tax, which has been in effect since 1992, originally supported MinnesotaCare, a health insurance program for individuals who did not qualify for Medicaid and whose employers did not offer affordable private health coverage. But state lawmakers frequently have used the revenues to boost the state's general fund.

"Minnesota physicians have fought hard for the repeal of the provider tax, and we are relieved that lawmakers are finally acknowledging that a selective tax on the sick is the wrong way to fund health care programs," said Minnesota Medical Assn. President Patricia Lindholm, MD.

However, lawmakers also enacted a series of cuts to physician and hospital Medicaid fees. These include fee-for-service Medicaid cuts of 3% to physicians and 10% to most hospitals, both beginning on Sept. 1, 2012. The hospital cuts will be reduced to 5% at facilities that lower patient readmissions to specified levels. The budget measure also reduces Medicaid managed care and MinnesotaCare fees by between 2% and 10% for certain populations.

"We expected cuts, and it appears lawmakers attempted to minimize them," Dr. Lindholm said. "But the bottom line is that [Medicaid] is already underfunded, and additional cuts will cause financial hardships for some clinics and result in either reduced access or cost-shifting."

In 2010, the state cut Medicaid pay by 7% for all Medicaid services except for primary care. The newest reductions would be on top of that.

Although the budget does not reduce eligibility for Medicaid or MinnesotaCare, it enacts a voucher system for part of the latter program. Approximately 8,000 enrollees earning between 200% and 250% of the federal poverty level will receive vouchers, adjusted for age, to help buy private insurance. The state medical society does not oppose the approach but is concerned that the vouchers may not be large enough to buy adequate health insurance.

Dayton was unable to persuade state GOP lawmakers to increase state income taxes by 2% on millionaires, but in exchange Republicans in the Legislature gave up on measures to ban stem cell research funding and limit abortions, among other priorities.

"The budget agreement I reached with Republican legislative leaders last week was a true compromise: No one was happy with it," Dayton said in a July 24 statement.

The overall health budget for Minnesota also is a compromise, according to the state medical association. It includes $12.4 billion in total health and human services spending for 2012-13, which is more than in the previous budget but still less than the projected increase in costs over the next two years.