Article by Erik Smith. Published on Wednesday, May 11, 2011 EST.

Nursing Home Maneuver Challenged on Senate Floor – and Upcoming Hospital Fight Could Blow Big Hole in Budget

Lt. Gov. Brad Owen: Budget’s fate is in his hands.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, May 11.—Tricky high-stakes challenges that threaten to unravel lawmakers’ budget plans have begun to play out on the Senate floor, and for those who watch these things closely it is one of the tensest moments of this year’s legislative session.

            Sen. Janea Holmquist-Newbry, R-Moses Lake, kicked things off Tuesday by demanding a ruling from Lt. Gov. Brad Owen on a scheme to leverage more federal Medicaid matching money for nursing homes. Advocates for the bill have tried to redraft it in a way to make it bulletproof – but there’s still room for argument. And if Holmquist wins, the proposal is most likely a dead duck.

Meanwhile a similar battle with far more significant implications for the state budget is likely to play out in the next few days. There the subject is an almost-identical Medicaid-matching-fund scheme for hospitals that the Legislature approved last year. Legislative budget-writers want to raid the money and use it to balance the budget. A challenge on that one is inevitable when the hospital bill comes to the Senate floor. An adverse ruling would be a $261 million budget-buster.

“This is one of the key bills that are needed this year in passing the budget,” declared House Ways and Means Chairman Ross Hunter, D-Medina when the hospital bill squeaked through the House Monday, 52-44.

            So right now, Owen is going over the arguments on the Holmquist challenge and all Olympia is watching. You have to wonder how many people are holding their breath.

            Medicaid Money the Issue

What the two issues have in common is that they hinge on a hugely complicated mechanism that many states use in order to goose additional Medicaid funding from the federal government. The way it works is this:

The state imposes a tax on a class of providers that get state Medicaid money – hospitals in the one case and nursing homes in the other. So the state has to pay more money when it pays bills for Medicaid patients. But since the federal government pays at least half the Medicaid bill, the feds pay more, too. And then the state can turn around and give the extra money back to hospitals and nursing homes.

            At least, that’s how it’s supposed to work. Last year lawmakers approved one of those arrangements for hospitals – what they called a “hospital safety net assessment.” Hospitals came to them with the idea, as a way to make up for the deep cuts that the Legislature has made in reimbursement rates. They would pay a bed tax of up to $200 a day, but they’d get at least double the money back. It was either that or a lawsuit, they said. And if the feds were willing to pay the money, why not take it?

            The problem was this. Lawmakers are billions of dollars short again this year. And after they passed the hospital tax last year they commissioned a study that suggested hospitals are getting perhaps a tad bit more money out of the arrangement than the Legislature legally had to provide. So the proposal on the table this year would shunt a big share of the proceeds back to the state general fund.

            Hospitals are saying that’s dirty pool. “You’re converting a tax that they agreed to, that benefited themselves and the state, into a tax that simply benefits the state,” state Hospital Association lobbyist Len McComb told the Senate Ways and Means Committee Tuesday.

            Nursing Homes Want Same Deal

            There’s something funny about the story. Over the last month the hospitals have taken out ads on the radio to denounce the Legislature, they’ve blasted budget-writers all over the Internet, and hospital officials are flooding lawmakers’ offices with angry phone calls. They call it a massive betrayal and a way to stick it to folks who can’t fight back.

            Yet this year the state’s for-profit nursing homes are asking for the same deal. They’re pushing a bill that would create a “nursing home safety net assessment.” It also creates a bed tax, leverages federal Medicaid money, and shunts it back to the nursing homes. But based on the hospital experience, it looks like they could be sure of the money only until the next time the Legislature meets.

            The whole thing leaves a sour taste in some lawmakers’ mouths. State Rep. Bill Hinkle, R-Cle Elum, said he wonders whether promises mean anything. It wasn’t exactly easy passing that hospital bill last year, he said, and the only way to get votes was to swear up and down that the money would never be diverted. During the House debate on this year’s hospital bill, HB 2069, Hinkle recalled the promises he had to make last time.

            “It was like getting a tooth pulled every time,” he said. “I lost votes every time we ran that by. I was told that if this money goes anywhere towards the general fund, it will be gone. So let it be a lesson to you, Mr. Speaker, and to anybody else here, that we will never make a promise in black and white that we will keep. Or that we can’t break, let’s say that. We can clearly break them because we’re doing it again.”

            Is Two-Thirds Vote Required?

            A challenge to this year’s hospital and nursing-home bills could be mounted in either the House or the Senate, but the fight finds its natural forum in the upper chamber. That’s because the final say in the House is that of Democratic House Speaker Frank Chopp, an obviously partisan player. But in the Senate, the presiding officer is Lt. Gov. Brad Owen, an independently elected state official who may be a Democrat, but who has been known throughout his career for a cussedly independent streak, and who has won a reputation for impartial rulings from the dais.

            The question in both challenges is whether a two-thirds vote of the Legislature is required. Under Initiative 1053, approved by the voters last year, a two-thirds vote of the House and Senate is required for any tax increase. That makes them practically impossible to pass, because Republican votes would be needed, and Republicans say they just won’t vote for taxes. In other words, an adverse ruling kills them.

            So are they tax increases?

            Tricky Legal Arguments

            There is a subtle distinction involved in that question that probably wouldn’t make a bit of difference to anyone ten feet removed from the Capitol. To the uninitiated, a tax is a tax. But by the Legislature’s definition, if an assessment benefits only the entity that pays it, then it’s a “fee.” In that case, only a majority vote is required.

            And here’s how the argument plays out in the two cases.

            Where the nursing homes are concerned, Holmquist-Newbry is arguing that it is a tax because there are two nursing homes in this state that will have to pay the tax but don’t take Medicaid patients. So their money will go elsewhere. “I believe it is a tax and not a fee, because there are going to be two facilities at least that will be paying in but will be receiving no benefit,” Holmquist-Newbry said.

            The two nursing homes are Garden Terrace Alzheimer and Kindred Hospital in Seattle. There are a few other private-pay-only nursing homes, but they’re covered by one exemption or another in the bill.

            Why get so worked up about two nursing homes when the overall bill means millions of dollars in new federal money to bail out the state’s entire nursing home system?

            Holmquist-Newbry says Senate Bill 5581 is a just plain bad idea. The feds could yank the money at any time. The Obama administration is threatening to clamp down or even stop Medicaid-goosing arrangements like the hospital and nursing assessments. So if the rug gets pulled out from under the state, nursing homes could file lawsuits to force it make to up the difference. “We haven’t done very well on those,” she said.

            Behind it all is a lobbying battle between the non-profit nursing homes, which don’t fare as well under the proposal, and the state Health Care Association, which represents the for-profit nursing homes. It should be noted that the Health Care Association rewrote the bill before it hit the Senate floor to avoid another point of challenge. Originally it raised nursing home taxes to a level that generated an extra $30 million for the state general fund. Now it doesn’t. So at least that one doesn’t have much bearing on the overall budget.

            Hospital Challenge Slightly Different

            The challenge in the hospital case hinges on a somewhat different argument, because it is based on a tax that already has passed the Legislature. The state constitution says that when the Legislature imposes a tax, the law has to spell out the purpose for which it is being levied. Everything seemed clear enough last year, when the money all went to hospitals.

            Lawmakers can always change the law. But the way the argument goes, if they change the law, that makes it something entirely new. And since a big chunk of the proceeds would go the general fund, that makes it a tax, not a fee.

            At least one senator has said he will be happy to raise the challenge if the hospital association asks. So that challenge appears certain.

            If anything, the hospital challenge has even more support on the Republican flank than the one regarding the nursing homes.

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