Physician Tax Plan Prompts Debate in Michigan

Michigan physicians are divided over efforts by Gov. Jennifer Granholm (D) to pass a physician tax that would help increase payments to Medicaid providers in the state.

Under the governor's proposal, a 2.28% gross receipts tax would be levied on all physicians in the state. The tax would raise $96 million, which would then be put into the Medicaid program and would increase the amount of matching funds the program received from the federal government.

“In that scenario, the state keeps $40 million, and then the $56 million left would be paired with Medicaid matching dollars, so we can return $125 million to providers, bringing up to Medicare rates our physicians who've long complained that Medicaid [reimbursement] rates were too low,” said T.J. Bucholz, spokesman for the Michigan Department of Community Health in Lansing.

In the case of physicians who have at least 3.5% of their practice revenue coming from Medicaid, “they will get more back in terms of Medicaid reimbursement” than they paid into the system in taxes, he noted.

But the Michigan State Medical Society (MSMS) isn't buying it. “Inherent in that is an underlying current of a lot of trust, and for those of us who have paid attention to legislative and gubernatorial activities in the state over the last decade, a track record of trust is one that needs to be earned. People have a lot of questions about that,” said Gregory Forzley, M.D., who is a member of the society's board of directors.

For instance, “when they introduced the state lottery, it was going to benefit K-12 education programs and colleges in the state, but it appears they used the lottery money in place of other governmental funding,” said Dr. Forzley, a family physician in Grand Rapids. “So when they come with a similar-sounding proposal in a system already fraught with cutbacks and underfunding, most people say, 'I don't believe you when you say you are going to put safeguards in.'”

But Stephen DeSilva, M.D., president of Michigan Doctors Making a Difference, said that some of these problems could be overcome. For example, the law could be written so that “when the federal matching funds go away, the tax would automatically sunset,” he said.

Dr. DeSilva, an orthopedic surgeon, noted that similar tax assessments in the state have worked very well for hospitals, pharmacies, and nursing homes. “It would work well for physicians, but it's difficult to overcome the knee-jerk reaction to taxes as well as the paranoia about how the state will use the money.”

He acknowledged that his own 750-member practice group at Wayne State University in Detroit would have a lot to gain if the proposal became law, since about 20% of the group's patients are on Medicaid.

“In Michigan, Medicaid pays $22 per work unit, and Medicare pays almost $38 per work unit, so you can see it's a big increase,” Dr. DeSilva said. “For our group, it would mean an extra $30 million to our bottom line.”

But the main reason to support the program is that it would improve access for Medicaid patients, Dr. DeSilva said. “Right now, they either go without or use the emergency room for primary care, because very few physicians are willing to see patients at that very low reimbursement rate,” he said. “If you look in the 50 states, there is a direct correlation between access to physician office practices and the ratio of Medicare to Medicaid reimbursement. In states where the ratio approaches [1:1], access is usually good, but as rates fall, access usually falls as well. In New York and New Jersey, which are near the bottom, almost no physician will see a Medicaid patient.”

Like Dr. DeSilva, Dr. Forzley said he thinks the Michigan Medicaid program needs fixing, but he doesn't think a physician tax is the way to do it. “There are some areas where we can get more creative,” he said. For example, “a long time ago, a lot of studies showed that if you provide people with transportation to their physician, they stay out of the hospital. It's worth it to look at those experiments out there and see how we can make a broader effort to touch rural and urban populations most effectively.”

“We're willing to work with the governor on trying to create a solution, and we don't think a tax is the best solution,” he added. That may mean using a Band-Aid approach–such as the cut in Medicaid rates currently in place in the state–while all parties work on a long-term fix, he said.

Michigan is not the only state to have considered provider taxes. Outgoing Washington Gov. Gary Locke (D) also proposed such a tax in January, but Christine Gregoire (D), the current governor, did not include it in her budget proposal, nor has the state legislature moved to implement it.

Physician concerns about taxing providers actually reflect issues revolving around Medicaid copayments, said Diana Ewert, senior manager for state government relations at the American Academy of Family Physicians. These are proposals in which “if you contract with the state to provide Medicaid services … they would require you to take the patient, whether or not the patient pays the copay, and the state will still deduct the copay on other end because you should have collected it,” she explained. “That makes the losing proposition of taking Medicaid patients even more critical, which we believe will impact the safety net and result in less access.”

Ms. Ewert expressed concern regarding states enacting legislation such as provider taxes to increase federal Medicaid matching funds–a strategy known as intergovernmental transfers (IGTs)–for the coming fiscal year. She noted that the federally chartered commission on Medicaid will be looking at all financing mechanisms, including IGTs, in a preliminary report due to Congress on Sept. 1. The goal is to cut $10 billion from Medicaid over the next 5 years.

“If states are depending upon IGTs to offset Medicaid costs and for some reason that doesn't come through, that may put states in an untenable situation,” she said.

Michigan physicians are divided over efforts by Gov. Jennifer Granholm (D) to pass a physician tax that would help increase payments to Medicaid providers in the state.

Under the governor's proposal, a 2.28% gross receipts tax would be levied on all physicians in the state. The tax would raise $96 million, which would then be put into the Medicaid program and would increase the amount of matching funds the program received from the federal government.

“In that scenario, the state keeps $40 million, and then the $56 million left would be paired with Medicaid matching dollars, so we can return $125 million to providers, bringing up to Medicare rates our physicians who've long complained that Medicaid [reimbursement] rates were too low,” said T.J. Bucholz, spokesman for the Michigan Department of Community Health in Lansing.

In the case of physicians who have at least 3.5% of their practice revenue coming from Medicaid, “they will get more back in terms of Medicaid reimbursement” than they paid into the system in taxes, he noted.

But the Michigan State Medical Society (MSMS) isn't buying it. “Inherent in that is an underlying current of a lot of trust, and for those of us who have paid attention to legislative and gubernatorial activities in the state over the last decade, a track record of trust is one that needs to be earned. People have a lot of questions about that,” said Gregory Forzley, M.D., who is a member of the society's board of directors.

For instance, “when they introduced the state lottery, it was going to benefit K-12 education programs and colleges in the state, but it appears they used the lottery money in place of other governmental funding,” said Dr. Forzley, a family physician in Grand Rapids. “So when they come with a similar-sounding proposal in a system already fraught with cutbacks and underfunding, most people say, 'I don't believe you when you say you are going to put safeguards in.'”

But Stephen DeSilva, M.D., president of Michigan Doctors Making a Difference, said that some of these problems could be overcome. For example, the law could be written so that “when the federal matching funds go away, the tax would automatically sunset,” he said.

Dr. DeSilva, an orthopedic surgeon, noted that similar tax assessments in the state have worked very well for hospitals, pharmacies, and nursing homes. “It would work well for physicians, but it's difficult to overcome the knee-jerk reaction to taxes as well as the paranoia about how the state will use the money.”

He acknowledged that his own 750-member practice group at Wayne State University in Detroit would have a lot to gain if the proposal became law, since about 20% of the group's patients are on Medicaid.

“In Michigan, Medicaid pays $22 per work unit, and Medicare pays almost $38 per work unit, so you can see it's a big increase,” Dr. DeSilva said. “For our group, it would mean an extra $30 million to our bottom line.”

But the main reason to support the program is that it would improve access for Medicaid patients, Dr. DeSilva said. “Right now, they either go without or use the emergency room for primary care, because very few physicians are willing to see patients at that very low reimbursement rate,” he said. “If you look in the 50 states, there is a direct correlation between access to physician office practices and the ratio of Medicare to Medicaid reimbursement. In states where the ratio approaches [1:1], access is usually good, but as rates fall, access usually falls as well. In New York and New Jersey, which are near the bottom, almost no physician will see a Medicaid patient.”

Like Dr. DeSilva, Dr. Forzley said he thinks the Michigan Medicaid program needs fixing, but he doesn't think a physician tax is the way to do it. “There are some areas where we can get more creative,” he said. For example, “a long time ago, a lot of studies showed that if you provide people with transportation to their physician, they stay out of the hospital. It's worth it to look at those experiments out there and see how we can make a broader effort to touch rural and urban populations most effectively.”

“We're willing to work with the governor on trying to create a solution, and we don't think a tax is the best solution,” he added. That may mean using a Band-Aid approach–such as the cut in Medicaid rates currently in place in the state–while all parties work on a long-term fix, he said.

Michigan is not the only state to have considered provider taxes. Outgoing Washington Gov. Gary Locke (D) also proposed such a tax in January, but Christine Gregoire (D), the current governor, did not include it in her budget proposal, nor has the state legislature moved to implement it.

Physician concerns about taxing providers actually reflect issues revolving around Medicaid copayments, said Diana Ewert, senior manager for state government relations at the American Academy of Family Physicians. These are proposals in which “if you contract with the state to provide Medicaid services … they would require you to take the patient, whether or not the patient pays the copay, and the state will still deduct the copay on other end because you should have collected it,” she explained. “That makes the losing proposition of taking Medicaid patients even more critical, which we believe will impact the safety net and result in less access.”

Ms. Ewert expressed concern regarding states enacting legislation such as provider taxes to increase federal Medicaid matching funds–a strategy known as intergovernmental transfers (IGTs)–for the coming fiscal year. She noted that the federally chartered commission on Medicaid will be looking at all financing mechanisms, including IGTs, in a preliminary report due to Congress on Sept. 1. The goal is to cut $10 billion from Medicaid over the next 5 years.

“If states are depending upon IGTs to offset Medicaid costs and for some reason that doesn't come through, that may put states in an untenable situation,” she said.

Michigan physicians are divided over efforts by Gov. Jennifer Granholm (D) to pass a physician tax that would help increase payments to Medicaid providers in the state.

Under the governor's proposal, a 2.28% gross receipts tax would be levied on all physicians in the state. The tax would raise $96 million, which would then be put into the Medicaid program and would increase the amount of matching funds the program received from the federal government.

“In that scenario, the state keeps $40 million, and then the $56 million left would be paired with Medicaid matching dollars, so we can return $125 million to providers, bringing up to Medicare rates our physicians who've long complained that Medicaid [reimbursement] rates were too low,” said T.J. Bucholz, spokesman for the Michigan Department of Community Health in Lansing.

In the case of physicians who have at least 3.5% of their practice revenue coming from Medicaid, “they will get more back in terms of Medicaid reimbursement” than they paid into the system in taxes, he noted.

But the Michigan State Medical Society (MSMS) isn't buying it. “Inherent in that is an underlying current of a lot of trust, and for those of us who have paid attention to legislative and gubernatorial activities in the state over the last decade, a track record of trust is one that needs to be earned. People have a lot of questions about that,” said Gregory Forzley, M.D., who is a member of the society's board of directors.

For instance, “when they introduced the state lottery, it was going to benefit K-12 education programs and colleges in the state, but it appears they used the lottery money in place of other governmental funding,” said Dr. Forzley, a family physician in Grand Rapids. “So when they come with a similar-sounding proposal in a system already fraught with cutbacks and underfunding, most people say, 'I don't believe you when you say you are going to put safeguards in.'”

But Stephen DeSilva, M.D., president of Michigan Doctors Making a Difference, said that some of these problems could be overcome. For example, the law could be written so that “when the federal matching funds go away, the tax would automatically sunset,” he said.

Dr. DeSilva, an orthopedic surgeon, noted that similar tax assessments in the state have worked very well for hospitals, pharmacies, and nursing homes. “It would work well for physicians, but it's difficult to overcome the knee-jerk reaction to taxes as well as the paranoia about how the state will use the money.”

He acknowledged that his own 750-member practice group at Wayne State University in Detroit would have a lot to gain if the proposal became law, since about 20% of the group's patients are on Medicaid.

“In Michigan, Medicaid pays $22 per work unit, and Medicare pays almost $38 per work unit, so you can see it's a big increase,” Dr. DeSilva said. “For our group, it would mean an extra $30 million to our bottom line.”

But the main reason to support the program is that it would improve access for Medicaid patients, Dr. DeSilva said. “Right now, they either go without or use the emergency room for primary care, because very few physicians are willing to see patients at that very low reimbursement rate,” he said. “If you look in the 50 states, there is a direct correlation between access to physician office practices and the ratio of Medicare to Medicaid reimbursement. In states where the ratio approaches [1:1], access is usually good, but as rates fall, access usually falls as well. In New York and New Jersey, which are near the bottom, almost no physician will see a Medicaid patient.”

Like Dr. DeSilva, Dr. Forzley said he thinks the Michigan Medicaid program needs fixing, but he doesn't think a physician tax is the way to do it. “There are some areas where we can get more creative,” he said. For example, “a long time ago, a lot of studies showed that if you provide people with transportation to their physician, they stay out of the hospital. It's worth it to look at those experiments out there and see how we can make a broader effort to touch rural and urban populations most effectively.”

“We're willing to work with the governor on trying to create a solution, and we don't think a tax is the best solution,” he added. That may mean using a Band-Aid approach–such as the cut in Medicaid rates currently in place in the state–while all parties work on a long-term fix, he said.

Michigan is not the only state to have considered provider taxes. Outgoing Washington Gov. Gary Locke (D) also proposed such a tax in January, but Christine Gregoire (D), the current governor, did not include it in her budget proposal, nor has the state legislature moved to implement it.

Physician concerns about taxing providers actually reflect issues revolving around Medicaid copayments, said Diana Ewert, senior manager for state government relations at the American Academy of Family Physicians. These are proposals in which “if you contract with the state to provide Medicaid services … they would require you to take the patient, whether or not the patient pays the copay, and the state will still deduct the copay on other end because you should have collected it,” she explained. “That makes the losing proposition of taking Medicaid patients even more critical, which we believe will impact the safety net and result in less access.”

Ms. Ewert expressed concern regarding states enacting legislation such as provider taxes to increase federal Medicaid matching funds–a strategy known as intergovernmental transfers (IGTs)–for the coming fiscal year. She noted that the federally chartered commission on Medicaid will be looking at all financing mechanisms, including IGTs, in a preliminary report due to Congress on Sept. 1. The goal is to cut $10 billion from Medicaid over the next 5 years.

“If states are depending upon IGTs to offset Medicaid costs and for some reason that doesn't come through, that may put states in an untenable situation,” she said.