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Hospitals to pay $250 million tax under House budget

The state budget proposed by House leaders Wednesday includes a new $250 million annual tax on hospitals to help fund the state’s big and growing Medicaid program.

Hospitals objected after Governor Charlie Baker first proposed the levy without an end date in his budget proposal in January. But House leaders are calling for the tax to be phased out after about five years, a change that was enough to get the Massachusetts Hospital Association on board.

The trade group lobbied lawmakers in recent days, asking them to make the tax temporary.

“Without this, it would have been impossible to support,” said Timothy F. Gens, executive vice president of the association. “This puts us in a situation where it’s much more feasible to support the tax.”


The tax — or assessment, as administration officials call it — was included in Baker’s budget as a mechanism for obtaining federal matching funds for the state’s Medicaid program, known as MassHealth.

The tax revenue would be redistributed among hospitals, which are reimbursed by the state for providing care to MassHealth patients. But some hospitals would benefit from that revenue while others would not. In general, hospitals with higher shares of MassHealth patients would gain from the tax while hospitals with fewer MassHealth patients would lose.

Administration officials say the new revenue is important as they work to restructure the MassHealth program to accountable care models, which encourage health care providers to stick to a budget while coordinating patient care. State officials are seeking federal money to help finance the MassHealth program over the next several years and move the program to accountable care models.

MassHealth, which provides health coverage for about 1.8 million poor and low-income people, is the most expensive state program, accounting for about 40 percent of state spending, or about $14.7 billion in the fiscal year ended June 30.


“MassHealth believes increasing the existing assessment to maximize federal revenue will aid in the transition into an Accountable Care Organization (ACO) model of care and value-based payments,” spokeswoman Michelle Hillman said in a statement.

The proposed $250 million tax would increase what hospitals pay the state government to $415 million a year, according to the industry’s trade group.

State Representative Brian S. Dempsey, the House budget chief, said the new assessment is an important way for the state to gain federal funding for MassHealth but agreed with the hospital industry that the payments should be temporary.

“We want to see how it plays out,” Dempsey said, “but we think it’s an important strategy to leverage additional funds.”

The House budget calls for the tax to begin Oct. 1, 2016, and end July 1, 2022.

After the House released its budget Wednesday, administration officials said they generally were not opposed to making the provision temporary.

Gens, of the hospital association, said he was still concerned that the tax, when it’s redistributed, will result in “winners and losers,” with some hospitals gaining money but others losing.

“We’ll be working to see if there are ways to make the proposal more workable, but we’re optimistic,” he said.

The budget still must be debated and approved by the House and Senate and signed by the governor. The next fiscal year begins July 1.

Joshua Miller of the Globe staff contributed to this report. Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.