January 25, 2001

St. Paul, Minnesota--As the Minnesota legislature considers repealing the 1.5 percent tax on health care services, HMOs may see a golden opportunity to make unjustified cuts in fees paid to providers for the provision of patient services.

According to Citizens' Council on Health Care (CCHC), Minnesota legislators want health plans to cut payments to providers if the MinnesotaCare provider tax is repealed. However, in a detailed report published by CCHC last year, CCHC found no evidence that health plan payments to providers between 1993 and 1999 ever included the provider tax.

"The state departments responsible for compliance and enforcement have virtually no evidence that the health plans ever paid the tax to providers, yet because the health plans will supposedly no longer be required to pay the tax, the plans have assured the legislature that they will cut fees paid to doctors and dentists," Twila Brase, president of CCHC.

"Without proof that they ever paid the tax as required by law, there should be no state-mandated reduction in fees paid to providers," she adds.

CCHC, a Minnesota-based health care policy organization, contends that legislators do not yet understand that the mechanism which was placed in law to ensure that health plans and insurers were the actual payers of the tax, not providers, was poorly written and never enforced. Because doctors and hospitals are required by law to actually write the check to the Minnesota Department of Revenue, these providers paid the tax whether or not health plans reimbursed them for the cost.

To eliminate concerns that providers and health plans may pocket the savings they receive as a result of no longer paying the provider tax, legislators supporting the repeal are striving to assure the public that the savings will be captured and passed on to consumers in lower health care bills.

In response to these concerns,Michael Scandrett, executive director of the Minnesota Council of Health Plans, told the House Taxes Committee meeting Tuesday(1/23/01), that the provider tax legislation "would require health plans to reduce the fees to providers."

Lack of Evidence

However,according to the CCHC report on the provider tax which was published in February 2000, Distribution, Utilization and Impact of the MinnesotaCare Provider Tax, the Minnesota Departments of Commerce and Health which are responsible for monitoring and enforcing the pass-through of the provider tax on to health plans and insurers reported to CCHC that they have received no funding to perform compliance and enforcement activities.

The only documentation of compliance required by the departments is a single written statement from the health plans. For example, Medica sent the following signed statement to the Minnesota Department of Health in 1999:

"Medica certifies, to its best knowledge, information and belief, that it is in compliance with Minnesota Statutes Section 295.582(a) for the calendar year ended December 31, 1998. Medica passes the tax through by adjustments in its provider fee schedules."

In addition, the financial section of annual reports submitted to the Department of Health by health plans shows no itemization of the provider tax. The line for itemization of the tax was empty in the 1998 annual reports submitted by Blue Plus, Medica, HealthPartners, and PreferredOne Community Health Plan, and examined by CCHC. According to the CCHC report, a Certified Public Accountant in the health department believes there is no data on the report because the tax is not paid directly to the Department of Revenue and therefore "needs no direct accounting."

Many contracts between health plans and providers actually prohibit itemization of the tax, according to testimony taken at recent House hearings on the provider tax. As a result, according to the February 1997 edition of Minnesota Medicine, a publication of the Minnesota Medical Association:

"Large plans bury the tax in their overall payment to providers so it is impossible to tell whether or not they pay the tax."

Thus far, several committees in the Minnesota House of Representatives have heard and approved two different provider tax bills, one to repeal the tax completely and a second to temporarily suspend the provider tax, using only tobacco funds to fund the programs and initiatives currently dependent on provider tax revenue.

"Legislators should not allow health plans to use a repeal of the provider tax as an opportunity to cut their financial obligations to doctors, dentists, and hospitals, especially when there is no evidence that health plans ever paid the tax," says Brase.

She adds, "Patients rely on these services, and when health plan payments are insufficient, the services, the providers, or both will no longer be available."

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