Legislative Action                                                                        

Suburban Republicans face
dilemma on continuing hospital tax

By MICHAEL HAWTHORNE

Flush from a string of legislative victories during the past three months, leaders of the Republican-controlled General Assembly are finding that the remaining issues on their agenda aren't going to come easy.

More than anything, an intraparty struggle over Gov. Jim Edgar's proposal to renew the state's controversial taxes on hospitals and other health-care providers could threaten the May 26 adjournment date set by GOP legislative leaders. Edgar has rankled House Speaker Lee Daniels and Senate President James "Pate" Philip, suburban Republicans who are under pressure from hospital officials in their area to scrap the provider tax.

The tax on hospitals, nursing homes and centers for the developmentally disabled is projected to raise $727 million in state and federal funds next year to help bankroll Medicaid, the $5.7 billion health-care program for the poor. Edgar argues Republican lawmakers wouldn't like the alternatives, such as tightening eligibility requirements for Medicaid-paid stays in nursing homes and eliminating prescription drug grants.

"Our budget hinges on it," Edgar's budget director, Joan Walters, said of the provider tax after unveiling the governor's $33 billion spending plan for the year that begins July 1. Edgar noted he also ruled out another politically unpalatable alternative: raising income taxes.

Daniels and Philip, like most other suburban legislators, are opposed to renewing the provider tax after the June 30 expiration date because suburban hospitals receive little in return. The bulk of the proceeds go to inner-city and rural hospitals where most Medicaid patients are treated.

The General Assembly first imposed the provider tax in 1991 to boost the amount of money paid to hospitals that care for these patients. At the time, Illinois' Medicaid reimbursement rates were among the lowest in the nation, prompting several providers to file lawsuits against the state.

The tax was seen as a way to help keep financially troubled facilities open following a rash of closings around the state during the late 1980s. The most financially troubled hospitals also happen to care for large numbers of Medicaid patients. For instance, Medicaid patients constituted an average of 44 percent of the patient population at 23 hospitals considered by the state Department of Public Aid to be financially threatened in 1992. Meanwhile, Medicaid recipients accounted for just 15 percent of the patients at wealthier hospitals.

University of Chicago researchers Lawrence Joseph and Henry Webber note the provider tax provides a political advantage over other tax increases because it's generally hidden from consumers. "Few hospital patients notice, for example, if there is a small tax on their hospital bill, especially since for most consumers the vast majority of their bill is funded through health insurance," Joseph and Webber wrote in a recent study of Medicaid spending.

Still, the Illinois Hospital and Health Systems Association estimates the tax adds $200 to every inpatient hospital bill. "Paying for health care by taxing hospitals is like paying for education by taxing teachers," said Ken Robbins, president of the hospital group.

But if the provider tax isn't extended, Edgar warns, it would leave a major hole in the budget and give hospitals another headache by increasing the backlog of unpaid Medicaid bills. (The debt already is projected to be a whopping $1.2 billion next year.)

Moreover, Edgar is proposing to eliminate payments that help support emergency rooms and rural hospitals. And he wants to continue a reimbursement rate freeze imposed last year.

"This is the worst possible scenario from the hospital perspective," said David Harris, senior vice president for governmental affairs at the Illinois Hospital and Health Systems Association. The hospital group wants lawmakers to eliminate the tax altogether, or continue the so-called "add-on" payments for treating additional Medicaid patients. If the taxes are renewed without adjustments, as Edgar is proposing, the group estimates 15 to 20 of the state's 227 hospitals could close.

Edgar has challenged lawmakers to come up with an alternative that doesn't cut funding in other areas, such as education and prisons.

Daniels and Philip are searching for money to replace the tax or cut the assessment rate, which currently is pegged at 1.88 percent of adjusted gross revenues of hospitals, nursing homes and centers for the developmentally disabled. The leaders have authorized their budget negotiators to go through Edgar's spending plan and look for areas where cuts can be made.

"The providers have the ability to shut this place down," said Sen. Steven Rauschenberger, an Elgin Republican and chairman of the Senate Appropriations Committee. "But you have to realize our caucus' top priority is paying off old bills. That might mean tough medicine for a lot of folks."

Republicans also don't want the spring session to drag past the end of May because they won't have enough votes to pass a budget without Democratic input if they go into overtime. Under the Illinois Constitution, it takes a three-fifths vote in each chamber for the budget to pass in overtime, rather than the simple majority required during the regular session.

The GOP would need at least three Democratic votes in the Senate and seven in the House after May 31. But Republican leaders desperately want to avoid giving that bargaining power to House Minority Leader Michael Madigan and Senate Minority Leader Emil Jones, both Chicago Democrats.

"We're going to get out of here on time, period," said Sen. Stanley Weaver, an Urbana Republican and top Philip lieutenant."I think we can work out our differences. But they [hospital executives] are going to have to suffer just like everybody else." *

Michael Hawthorne is Statehouse bureau chief for the Champaign-Urbana News-Gazette.