Maine Hospital Association,

MEMORANDUM

TO: Senator Perry
Representative Watson
Members of the Taxation Committee

FROM: Mary C. Mayhew, Vice President of Government Affairs

DATE: April 29, 2009

RE: Testimony in Opposition to LD 1290 - An Act to Amend the Law Authorizing the Application of Service Charges to the Owners of Certain Real Property Exempt from Property Taxation

Senator Perry, Representative Watson and members of the Taxation Committee, my name is Mary Mayhew and I represent the Maine Hospital Association. We represent 39 acute care and specialty hospitals and their affiliates. Our acute care hospitals are nonprofit, community-governed organizations with more than 800 volunteer community leaders serving on the boards of Maine's hospitals. Maine is one of only a handful of states in which all of its acute care hospitals are non-profit.

With more than 25,000 full and part-time employees, hospitals are vital to Maine's economy. Hospitals are most often the largest employer in their communities. We are one of the largest employment sectors in the state and one of the few areas for growth.

We are opposed to LD 1290 which grants municipalities the authority to impose service charges on tax exempt organizations. We believe that it would amount to taxing one public service to pay for another public service.

Maine hospitals are sources of services very much in the public interest: operating in the public interest, free from the profit motive, and held in trust by citizens of the community. Any debate about the tax-exempt status of hospitals inevitably comes down to how one measures the benefit to the community of having a hospital and its services. Even the staunchest challengers of that exempt status accept that there is one tangible, dollar and cents measure: the amount of charity care rendered by the hospital. For that same time period hospitals provided more than $270 million in uncompensated care. But the public service value of a hospital to its community goes far beyond the provision of free care. Benefits such as public health education, support groups, subsidizing primary care and long-term care services in the community, prevention efforts, community education programs, physician residency programs that serve as a pipeline for physicians to locate in Maine are just a few such examples of community benefit.

The best efforts to measure community benefit have yielded only arbitrary measures that fail to measure the true value of services. Hospitals are nonprofit, tax-exempt, organizations precisely because they provide a myriad of substantial benefits to their communities. The point is that hospitals should not take a portion of the health care dollars entrusted to them - dollars they receive for services to the sick and injured - and pay them out to local government for other uses.

In an effort to meet the challenging health care demands of our communities, hospitals in Maine are providing a comprehensive array of health care services in order to preserve access to those services in their communities. Stepping in to fill gaps created when other providers are no longer able to financially provide those services or services such as public health that otherwise would be a local government obligation. In Maine our hospitals have become by default the public health infrastructure.

Again to ensure access to vital health care services, our hospitals employ 45% of all licensed physicians in Maine and 75% of all primary care physicians licensed in Maine. Because of the financial losses incurred by these practices, hospitals currently subsidize these practices by $70 million annually. Many of these hospital-owned physician practices are organized as outpatient departments of the hospital. These practices are still located out in the community but they must abide by the hospital's bylaws in terms of access to all regardless of ability pay. Additionally these practices must be clinically, financially and administratively integrated with the hospital. These practices must also abide by all of the same quality requirements of the hospital.

With all of the financial challenges confronting the health care delivery system, particularly the availability of health insurance and the growing number of uninsured Maine citizens, we are gravely concerned about the desire to impose taxes on hospitals and the implications for health care costs. For many Maine hospitals, their operating margins are paper-thin. For the last quarter of 2008, the average operating margin was .6% and there were 20 hospitals with negative margins. Obviously, these margins are continuing to erode based on the economy. Currently, we face MaineCare cuts in the biennial budget of more than $50 million annually. And we are owed more than $440 million for care provided to MaineCare patients dating back to 2005. Our current payments by the state are underfunded by an estimated $80 million annually and reimburse our noncritical access hospitals at approximately 76% of costs - though that will decrease with the latest proposed MaineCare cuts.

Based on the supplemental budget passed in January and the availability of federal stimulus monies, we are hopeful that our 2005 bills and some of the 2006 bills will be paid next week. The remaining payments for these outstanding bills owed by MaineCare to hospitals is still subject to legislative approval in the biennial budget. Hospitals currently pay a "hospital tax" of $70 million annually to the state under a tax & match program adopted by the Legislature to fund the state's MaineCare program. Most hospitals pay in far more tax than is returned through the "match."

Hospitals are also subject to significant IRS scrutiny to ensure that the management of their institutions is in keeping with their 501c3 status. Additionally, the Legislature adopted several years ago comprehensive legislation regarding non-profit corporations, which strengthened the Attorney General's investigative powers of non-profits, provided government oversight standards, established conflict of interest standards, and Attorney General oversight of mergers/conversion activities.

Our hospitals are committed to providing services to anyone in need regardless of their ability to pay. Efforts to tax hospitals will only result in greater costs to health care and threaten our ability to meet the health care needs of our communities. We appreciate the opportunity to share our comments with you today. I would be pleased to respond to any questions you may have. Thank you.

Advocacy