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Taxing Health Care?

As the state budget stalemate drags into its second month, news reports have begun quoting individuals close to the process who indicate that negotiators are “making progress” and “narrowing their differences.”

That’s a good thing, because a late budget delays funding for a wide range of important programs. Two health care-related examples would be appropriations to fund the medical student loan forgiveness program and the newly enacted statewide controlled substances database.

At this point, no one can say what the eventual final product will look like, but it is interesting to note that legislative leaders have linked a deal on the budget to action on other non-budget issues, including pension reform and liquor privatization. Governor Wolf vetoed liquor and pension bills earlier this year, and it wouldn’t be surprising to see some degree of legislative acquiescence on Wolf’s tax increase proposals in return for a gubernatorial change of heart on liquor and pensions. We shall see.

Another issue that could be linked to a budget deal is property tax reform. Reducing or eliminating the tax burden on homeowners is one area where Gov. Wolf and the Republican-controlled House and Senate are in general agreement.

However, they all have different ideas about how to fund and provide that relief, and resolving those differences could conceivably be linked to budget issues.

Hopefully you’re still with me, because here’s why this is important to health care providers. All three of the leading property tax reform proposals (Wolf, House Republican and Senate Republican) would generate revenue to offset lost property tax dollars by raising the state sales tax.

The key difference is that the House Republican initiative (HB 504) simply raises the existing sales tax, while Wolf’s proposal and the leading Senate Republican bill (SB 76) would both raise the sales tax and expand it to cover previously tax-exempt services.

SB 76 is complex but very specific. It uses something called the NAICS to identify services that would be subject to taxation. “NAICS” is defined as the 2012 North American Industry Classification System developed by the Federal Office of Management and Budget.

While there does not appear to be a specific authorization to tax routine physician visits or services, the bill would authorize the taxation of a long list of other health care-related services. Here’s a not necessarily complete list of those services, along with their corresponding NAICS code number, in case you want to look them up yourself.

  • 541611Medical office management consulting services or consultants 
  • 541711Biotechnology research and development laboratories or services in the medical sciences 
  • 541712Medical research and development laboratories or services (except biotechnology research and development) 
  • 561110Managing offices of physicians and surgeons 
  • 561110Managing offices of professionals (e.g., dentists, physicians, surgeons) 
  • 561110Medical office management services 
  • 621999Medical care management services (unless provided by a nonprofit organization
  • 621999Medical case management services (unless provided by a nonprofit organization
  • 621610Home care of elderly, medical (unless provided by a nonprofit organization
  • 621610Home health agencies (unless provided by a nonprofit organization
  • 621610Home health care agencies (unless provided by a nonprofit organization
  • 621610Home nursing services (except private practices) (unless provided by a nonprofit organization
  • 621610Hospice care services, in home (unless provided by a nonprofit organization
  • 621610Nurse associations, visiting (unless provided by a nonprofit organization
  • 621610Nursing agencies, primarily providing home nursing services (unless provided by a nonprofit organization
  • 621610Visiting nurse associations (unless provided by a nonprofit organization
  • 621910Air ambulance services (unless provided by a nonprofit organization
  • 621910Ambulance services, air or ground (unless provided by a nonprofit organization
  • 621910Emergency medical transportation services, air or ground (unless provided by a nonprofit organization
  • 621910Rescue services, air (unless provided by a nonprofit organization
  • 621910Rescue services, medical (unless provided by a nonprofit organization
  • 621991Blood banks (unless provided by a nonprofit organization
  • 621991Blood donor stations (unless provided by a nonprofit organization
  • 621991Eye banks (unless provided by a nonprofit organization
  • 621991Organ banks, body (unless provided by a nonprofit organization
  • 621991Organ donor centers, body (unless provided by a nonprofit organization
  • 621991Placenta banks (unless provided by a nonprofit organization
  • 621991Plasmapheresis centers (unless provided by a nonprofit organization
  • 621991Sperm banks, human (unless provided by a nonprofit organization
  • 621999Blood pressure screening facilities (unless provided by a nonprofit organization
  • 621999Blood pressure screening services (unless provided by a nonprofit organization
  • 621999Employee drug testing services (unless provided by a nonprofit organization
  • 621999Health screening services (except by offices of health practitioners) (unless provided by a nonprofit organization
  • 621999Hearing testing services (except by offices of audiologists) (unless provided by a nonprofit organization
  • 621999Medical care management services (unless provided by a nonprofit organization
  • 621999Medical case management services (unless provided by a nonprofit organization
  • 621999Pacemaker monitoring services (unless provided by a nonprofit organization
  • 621999Physical fitness evaluation services (except by offices of health practitioners) (unless provided by a nonprofit organization
  • 621999Smoking cessation programs (unless provided by a nonprofit organization
  • 621999Stop smoking clinics (unless provided by a nonprofit organization
  • 623110Convalescent homes or convalescent hospitals (except psychiatric) (unless provided by a nonprofit organization
  • 623110Group homes for the disabled with nursing care (unless provided by a nonprofit organization
  • 623110Homes for the aged with nursing care (unless provided by a nonprofit organization
  • 623110Homes for the elderly with nursing care (unless provided by a nonprofit organization
  • 623110Hospices, inpatient care (unless provided by a nonprofit organization
  • 623110Nursing homes (unless provided by a nonprofit organization
  • 623110Rest homes with nursing care (unless provided by a nonprofit organization
  • 623110Retirement homes with nursing care (unless provided by a nonprofit organization
  • 623110Skilled nursing facilities (unless provided by a nonprofit organization
  • 623210Group homes, intellectual and developmental disability (unless provided by a nonprofit organization
  • 623210Homes with or without health care, intellectual and developmental disability (unless provided by a nonprofit organization
  • 623210Hospitals, intellectual and developmental disability (unless provided by a nonprofit organization
  • 623210Intellectual and developmental disability facilities (e.g., homes, hospitals, intermediate care facilities), residential (unless provided by a nonprofit organization
  • 623210Intellectual and developmental disability homes (unless provided by a nonprofit organization
  • 623210Intellectual and developmental disability hospitals (unless provided by a nonprofit organization
  • 623210Intellectual and developmental disability intermediate care facilities (unless provided by a nonprofit organization
  • 623210Intermediate care facilities, intellectual and developmental disability (unless provided by a nonprofit organization
  • 623220Alcoholism rehabilitation facilities (except licensed hospitals), residential (unless provided by a nonprofit organization
  • 623220Convalescent homes or hospitals for psychiatric patients (unless provided by a nonprofit organization
  • 623220Drug addiction rehabilitation facilities (except licensed hospitals), residential (unless provided by a nonprofit organization
  • 623220Halfway houses for patients with mental health illnesses (unless provided by a nonprofit organization
  • 623220Halfway houses, substance abuse (e.g., alcoholism, drug addiction) (unless provided by a nonprofit organization
  • 623220Homes for emotionally disturbed adults or children (unless provided by a nonprofit organization
  • 623220Homes, psychiatric convalescent (unless provided by a nonprofit organization
  • 623220Hospitals, psychiatric convalescent (unless provided by a nonprofit organization
  • 623220Mental health facilities, residential (unless provided by a nonprofit organization
  • 623220Mental health halfway houses (unless provided by a nonprofit organization
  • 623220Psychiatric convalescent homes or hospitals (unless provided by a nonprofit organization
  • 623220Residential group homes for the emotionally disturbed (unless provided by a nonprofit organization
  • 623220Substance abuse (i.e., alcoholism, drug addiction) halfway houses (unless provided by a nonprofit organization
  • 623220Substance abuse facilities, residential (unless provided by a nonprofit organization
  • 623311Assisted-living facilities with on-site nursing facilities, Continuing care retirement communities, and Retirement communities, continuing care (unless provided by a nonprofit organization
  • 611310Medical schools (Non-tuition and non-housing related charges) 
  • 624190Alcoholism counseling (except medical treatment), nonresidential (unless provided by a nonprofit organization
  • 812191Diet centers, non-medical, Weight loss centers, non-medical 
  • 812199Hair replacement services (except by offices of physicians)

You’ll note that many of these services are only taxable if operated on a for-profit basis. Nevertheless, taxing for-profit health care services still drives up the cost of health care, which most people would agree is already too high.

An additional problem with the bill as it relates to physicians is the requirement that the tax on services is to be collected by the “vendor.” “Vendor” is defined on page 43 of the bill as follows:

  • “Any person maintaining a place of business in this Commonwealth, selling or leasing tangible personal property, or rendering services, the sale or use of which is subject to the tax imposed by this chapter but not including any employee who in the ordinary scope of employment renders services to his employer in exchange for wages and salaries.”

This means that a health care provider who provides a targeted service would be required to collect the tax from the purchaser of that service (i.e. patient). This simply does not work in the health care arena.

Unlike retail sales and most other professional services, health care providers are generally not paid by their patients, but by a third party payer well after the date of service. And, the amount actually paid by an insurer differs significantly from the amount charged by a physician.

Further, some reimbursements are retroactively denied by payers, months or years after the service has been provided. What happens if the tax is collected and then the payment for service is retroactively denied?

For all of these reasons, we have made it clear that PAMED opposes any property tax reform measure that authorizes a tax on health care services. As you can imagine, we’re monitoring the budget discussions closely because of the possibility that a budget deal could be tied to agreement on property tax legislation.

Stay tuned. We promise to keep you informed on any new developments as the process moves forward.

As always, you can reach me with comments or questions at schadwick@pamedsoc.org or (717) 558-7814. Or, if you’d like to share your thoughts more broadly, feel free to leave a comment below.​

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