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Originally published April 22, 2011 at 9:46 PM | Page modified April 22, 2011 at 10:40 PM

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Truth Needle: '$200-a-day hospital tax' ad is mostly false

Truth Needle: The Washington State Hospital Association is running a radio ad that claims the state Legislature is plotting a $200-a-day tax on hospital patients. The ad's claims are misleading at best.

Seattle Times political reporter

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The claim: The Washington State Hospital Association is running a radio ad that claims the state Legislature is plotting a $200-a-day tax on hospital patients. The ad says lawmakers are trying "to tax people who can't defend themselves ... children, the elderly and the sick." This tax, the ad says, will raise $250 million and amounts to "going after the defenseless to balance the state budget."

What we found: Mostly false

The hospital association has reason to be upset with the Legislature, which is reneging on a deal made last year to deliver hospitals more money.

But the ad's claims are misleading at best.

There is no proposal before the Legislature to create a $200-a-day hospital-patient tax, at least not in any common-sense meaning of the term. Any real tax increase would require a two-thirds vote of the Legislature, something that is unlikely in the current political climate.

What hospitals are really doing is trying to avoid budget cuts, at a time when every other state service is facing them.

The "tax" the hospitals are referring to was actually created last year — at the request of the hospitals themselves.

Here's how it worked: Hospitals believed they were underpaid by the state for services to patients on Medicaid, the federal-state health-care program for the poor. They thought about suing, but instead decided to approach the state with a more constructive idea.

Hospitals agreed to pay the state a per-patient "assessment" that would deliver $424 million to the state over two years.

But that was just a budgetary shell game. The assessment was used to puff up Washington's Medicaid program, making the state eligible for more federal Medicaid dollars.

The money was then sent back to the hospitals in the form of higher Medicaid payments — meaning they got back more than they paid in the assessments.

The arrangement helped hospitals avoid budget cuts in a year that many other state services were being hammered. In fact, the hospitals received a 17.5 percent boost in their inpatient Medicaid payment rates and a 42 percent boost in outpatient rates.

The deal helped ease the state budget shortfall, too, as hospitals agreed to let $50 million of the money go to the state general fund.

This year, the state faces a multibillion-dollar budget hole, meaning less money is available to keep paying hospitals what was agreed to last year. So the proposed state Senate and House budgets would cut Medicaid payments to hospitals by about $220 million.

It is those cuts, plus some related budget maneuvers, that hospitals are portraying as a tax increase. Their argument is that the state is taking the hospital assessments but no longer sending back as much money — in violation of the deal reached last year.

That means some of the hospital money is being used in lieu of other state funds that used to pay for medical services.

The switcheroo turns what was an assessment or fee into a tax, hospitals argue.

"If the money comes in and goes to a general purpose, it becomes a tax," said Leo Greenawalt, president of the hospital association, which is threatening a lawsuit if the Legislature goes through with its plans.

He said the hospitals will have no choice but to make up the budget cuts through higher patient bills or service reductions.

But the hospitals' argument is not getting much sympathy in Olympia, where budget writers are facing difficult choices everywhere.

"I understand that they are upset with the cut, but welcome to my world," said Sen. Karen Keiser, D-Kent, who chairs the Senate Health and Long Term Care Committee. "To keep that budget whole and uncut when we are cutting every other health service isn't fair."

"We're not increasing any taxes," said Rep. Ross Hunter, D-Medina, chairman of the House Ways and Means Committee. "We're cutting the rates paid to hospitals."

Another faulty part of the hospital ad is the suggestion that lawmakers are picking on the poor and defenseless.

One of the reasons legislators cite for rolling back hospital payments is to free up money to save the Basic Health Plan, which provides health insurance to the working poor. (The plan still faces deep cuts under the legislative budget proposals and would have been eliminated under Gov. Christine Gregoire's plan.)

The hospital association is a major lobbying force in Olympia. It has employed nine lobbyists this year, at a cost of more than $150,000 through March. That was the fourth-highest amount spent by any employer, behind only Boeing and a couple of other heavy hitters.

Again, it's understandable that hospitals feel betrayed. If they were running ads decrying budget cuts, they'd have no quarrel from the Truth Needle. But an ad talking about a menacing tax increase no doubt generates more outrage.

The ad urges listeners to call the legislative hotline, and lawmakers have been fielding calls from constituents who think their hospital bills are about to skyrocket.

While there is some factual basis for the hospital complaints — lawmakers are rewriting the deal they made last year — the radio ads go too far. Patients at hospitals won't see a new $200-a-day tax showing up on their bills. Hence, we rule the ad mostly false.

Even with the proposed cuts, the state will spend an estimated $3.7 billion over the next biennium on hospital services, including federal matching funds.

Greenawalt, the hospital association president, says the hospitals' big mistake was trusting the Legislature to stick to the deal struck last year.

"The dumb part is we did it. It's embarrassing," he said.

Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com

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