43 hospitals sue Barbour and Medicaid over tax

Published 4:59 pm Friday, September 22, 2006

The Mississippi Hospital Association and 43 hospitals filed a lawsuit Thursday against Gov. Haley Barbour and the Division of Medicaid, asking the Hinds County Chancery Court to declare a tax on hospital revenues to be unconstitutional.

Changes in federal rules require that Mississippi come up with $90 million to ensure hospitals don’t lose $270 million in federal Medicaid money this year. Barbour’s solution was to begin taxing hospitals, which the state did earlier this month.

Barbour’s decision to levy the $45 million tax drew criticism from both lawmakers and hospital administrators. The lawsuit, which represents only one side of a legal argument, said the tax is unconstitutional.

Barbour spokesman Pete Smith said the governor was not surprised by the lawsuit, but had not seen it and could not comment on specifics.

“We think the statute is plain and the Division of Medicaid has the authority to adjust the assessment,” Smith said.

Sam W. Cameron, president of the Mississippi Hospital Association, said in a news release: “This lawsuit was necessary not only to protect the constitutional rights of Mississippi hospitals, but also to protect the financial integrity of our state’s health care system. The tax, if allowed to go forward, will impose an extreme burden on many Mississippi hospitals.”

The tax plan would allow Medicaid to levy a tax on the gross revenue of the state’s hospitals. The plan would generate money needed to sustain half of the state match for federal funds. The other $45 million would come from state money appropriated by the Legislature in 2007, under Barbour’s proposal. Lawmakers have not said whether they’ll agree to the governor’s plan.

“The additional tax burden will require many hospitals to lay off employees and cut valuable services,” Cameron said.

Cameron said the hospitals thought they had reached a compromise with the governor in August when Barbour issued a letter saying he would submit an alternative proposal to the federal government for approval.

However, the tax was implemented Sept. 1, and the Cameron said the hospitals were left with little choice but to sue in hopes of halting the Oct. 20 tax collection date.

Medicaid is a federal-state program that provides health coverage for the needy, aged, blind and disabled and for low-income families with children. It serves about 747,900 Mississippians, roughly a quarter of the state’s population.

Barbour has said Medicaid has a $90 million budget shortfall because the federal government is stopping Mississippi and other states from using a complicated funding formula that had allowed the states to receive more federal money. The $90 million has been provided through an assessment on the University of Mississippi Medical Center and other publicly owned hospitals.

For every $1 Mississippi puts into Medicaid, the federal government puts in almost $3. So, a $90 million shortfall in state funding translates into a loss of $270 million in federal money — $360 million total.