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Hospitals face loss of $2M if tax exemption dies

Pardee and Park Ridge hospitals would lose a combined total of more than $2 million if they start paying sales tax on supplies they buy and both are fighting a longer term threat to their finances from a proposal to deregulate the opening of new surgical clinics, the hospitals said.

North Carolina hospitals are always on guard against threats during the legislative session and have generally had success playing defense and offense in the General Assembly. But this year hospitals face threats on several fronts, including a bill by state Sen. Tom Apodaca that would allow physicians to open surgery practices without going through the certificate of need process in current law.
“I was disappointed to see Tom leading the way on this issue,” Pardee CEO Jay Kirby said in an interview last week. “You’ll hear that it is a way to level the playing field. But as you look at ambulatory surgery centers and look at the payer mix of free-standing surgery centers owned by physicians and hospitals, the payer mix is much different in the free-standing center than it is in the hospital. Someone shows up in our ER, whether they’re off the street or whether they’re Bill Gates, we have to treat them. Can’t turn them away. We cast a broad safety net for this county. We just think ‘leveling the playing field’ is another way of saying cherry picking.”
Park Ridge also said it opposed the repeal of the CON and another law written to protect hospitals from antitrust action, called a certificate of public advantage, or COPA.
“Like hospitals around the state, Park Ridge Health has serious concerns about potential changes to CON and COPA laws,” Graham Fields, assistant to the president at Park Ridge Health, said in a statement. “Park Ridge Health opposes the proposed changes to these laws and the unintended consequences of potentially decreasing patient access and increasing costs.”
If they were able to take patients with commercial insurance and turn away those with Medicaid and Medicare, the surgery centers would channel to hospitals the lower-paying cases plus those not covered at all.
“The patient that doesn’t fit the financial model ends up at the hospital,” Kirby said. “It’s been said that this will not hurt the two hospitals in Henderson County. Nothing could be further from the truth.”
Apodaca said the CON bill would force the free-standing surgery clinics to treat non-payers, too. “They’re going to have to see indigent care patients, the same percentage” as hospitals, he said.
Across the country, in a trend toward market-based health care solution, he said, states are repealing certificate of need requirements.
“Most places are getting rid of it,” he said. “The businesses people and Wall Street Journal say it increases medical cost because it reduces competition.”

Sales tax exemption

The hospitals also object to a tax overhaul pending in the Legislature that would eliminate non-profit hospitals’ exemption from sales tax. The change, Kirby said, would cost Pardee $1.4 million a year.
“I don’t know what folks have against hospitals but you want to repeal CON and you want to change the sales tax,” he said. He cast the issue as one of jobs, pointing out that elected officials are eager to attend announcements about job creation. “But what the community doesn’t see is when sales tax issues like this come to bear, when CON repeal legislation goes in, they don’t understand that this is clearly about jobs. … So you do the math — $1.4 million divided by $60,000 is 23 jobs. In an environment where we’re talking about jobs, jobs, jobs, we’re also hammering the second and third largest employers in the county.”
“To be fair to Tom, clearly he’s got different issues,” he added. “His plate is the long-term prosperity of the state of North Carolina. I understand that and I appreciate that. But I’ve been hired by 15 men and women from this county to guide Pardee Hospital for its long-term prosperity and the single biggest threat to Pardee’s future right now is the repeal of the CON.”
Park Ridge said the sales tax exemption repeal would cost the Fletcher hospital $900,000 a year.
“Park Ridge Health reinvests every dollar earned after expenses into our community in strategies to improve the health of our region,” Fields said. “Proposed changes in sales tax refunds would profoundly impact Park Ridge Health and other not-for-profit organizations.”
Apodaca said the hospital sales tax exemption is just one piece of a larger puzzle legislators are struggling with when it comes to raising money and trimming costs.
Much of the state’s spending growth ties back to Medicaid, where enrollment is skyrocketing. Apodaca blamed the Affordable Care Act for channeling insurance applicants into the federal insurance program for the poor and disabled. Because they’re nonprofits, hospitals also are exempt from paying property tax.
“When Pardee or Mission or even Park Ridge buy property it takes it off the property tax rolls,” he said. “When Park Ridge bought that whole block (the old Four Seasons Cinema) it took it off the property tax rolls. Our tax law is Swiss cheese. There’s so many loopholes and we’ve just got to get it straight so we know what we have.”
“People keep saying ‘rural hospitals are in trouble and this is going to kill rural hospitals,’” he said. “Well, small hospitals have been going out of business for 20 years and it’s not because of CON and it’s not because we didn’t expand Medicaid.”