Plummeting Tax Revenues Target Medicaid Reimbursement
by Steve Katz and Liora Farkovitz
As reported on the Caretech Group Budgetwire Blog, tax revenue for the first quarter of 2009 compared to the same period of 2008 is down significantly for the state and for the nation as a whole. Second quarter tax revenue dropped at a greater rate than the first quarter based upon an analysis conducted by the Rockefeller Institute. Even though the recession may indeed be coming to a close, tax revenues will not recover in NY in the near future.
The Governor put the public on notice in the spring that the 2009-2010 Budget will have a short fall. The proposed Medicaid cuts or approximately $500 Million is an early warning for next year’s budget. The projected three year shortfall of $50 Billion makes Medicaid an obvious target and nursing homes may indeed be the bullseye. When we consider the potential impact that Universal Health Care will have upon our industry, the looming challenges are daunting.
As the universal coverage debate rages, federal cuts to Medicare ($1.05 Billion plus other cuts to help finance universal coverage) and Medicaid for nursing homes will be our reality. Although nursing homes struggle with inadequate Medicaid reimbursement cuts to Medicaid reimbursement for nursing homes has been protected to some extent because it has increased even in years where tax revenues have not.
For many NY nursing homes, Medicaid is the source of most of their revenues. What happens to Medicaid will have a major impact on an industry that is already showing significant financial strain. There are many studies and reports that document the precarious nature of the nursing home industry in New York. A thorough presentation was included in the final report of the Berger Commission, updated annually by trade associations like NYSAHSA. Clearly the industry is on the precipice.
Revenue for the Medicaid program comes from taxes collected. The recent State Revenue Report, July 2009 No.76, published by the Rockefeller Institute of Government (www.rockinst.org) reviews tax collections for the States and reports them for the first quarter of 2009. The following table summarizes tax revenue collection information contained in the report for New York State:
Analysis of First Qtr 2009 Tax Revenue (in millions):
% Change NY -17%
% Change US -12%
Source: State Revenue Report July 2009, No. 76, The Rockefeller Institute, by Boyd and Dadayan
According to the report, the decline in tax revenue from one year to the next is the worst on record. As previously mentioned, the Rockefeller Institute examination of tax revenue shows that the second quarter was worse than the first quarter, for the US as a whole and for New York State. The negative impact on New York is greater than the average for the rest of the country, reflecting the impact that the decline in the Financial/Banking sector has had on the State.
Review of the tax revenue and Medicaid spending trends shows that until now, increases in nursing home spending have not been aligned with tax revenues. According to latest analysis from the Rockefeller Institute, the Second Quarter Decline in Tax Revenue is poor as well. Nationally the decline in tax revenue was 16%; in New York it was 22%. While the impact of recession may have been mitigated for nursing homes in the past, it is likely that the industry may not be as fortunate in the next year. (Source: Health Care Expenditures of Provider Medicaid Summary Tables 1980-2004 Final, 02/09 Testimony by Richard F. Daines, MD, Commisioner NYS Department of Health Joint Leg Budget Hearing 2009-2010 State Budget, Addendum, 2/2/2009, NYS Division of Budget, Enacted Budget Financial Plan 4/28/2009.)
The data suggest that NYS nursing homes have been protected from the true impact of the vagaries of tax collection. Such protection may not be possible given the state of the NY economy and the national health care agenda, which is not focused on long term care and nursing homes. The recession has had a significant impact on one of the major sources of tax revenue in New York; the financial and banking sector. The reduction in this sector of the State’s economy will have an ongoing impact on tax revenues. It is unlikely that Medicaid spending will continue to grow or be unaligned with tax revenues. Nursing homes should expect rates to either remain at current levels or be reduced.
It is hard to imagine that our industry has been protected; yet when one compares tax revenue and Medicaid reimbursement this conclusion is obvious. The next fiscal year will see reimbursement cuts that we have never had to cope with. Such times require aggressive and creative solutions.