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Hospitals Seeking $1.00 a Pack Tax on Cigarettes for New Revenues

SBJ.com Staff Report

March 22, 2010 - Georgia hospitals contributed more than $36 billion to the state’s economy in 2007, according to a recent report released by the Georgia Hospital Association (GHA), the state’s largest hospital trade association, an increase of $6 billion in three years.

In 2004, hospitals contributed $30 billion, according to GHA. The report also shows that hospitals in the state employ more than 144,000 full- and part-time workers. Using a standard Georgia employment multiplier, which estimates the total employment attributable to hospitals, the hospitals therefore are contributing 288,000 Georgia full time jobs.

Additionally, GHA’s report shows that Georgia hospitals had direct expenditures of close to $15 billion. This number, when merged with an economic output multiplier, shows the total economic impact to be more than $36 billion, according to GHA president Joseph Parker.

The output multiplier, developed by the United States Department of Commerce’s Bureau of Economic Analysis, considers the “ripple” effect of direct hospital expenditures on other sectors of the economy, such as medical supplies, durable medical equipment and pharmaceuticals. Economic multipliers are used to model the resulting impact of a change in one industry on the “circular flow” of spending within an economy as a whole.

“Georgia hospitals are known as the guardians of health care in our communities but they are also essential in helping protect the economic health of their communities,” said Parker. “Although some people may not think of hospitals as economic engines, they are among the largest employers in their communities, generating millions of dollars to those areas on an annual basis.”

Hospitals’ importance to community health and the state’s economy, however, does not necessarily guarantee a permanent existence for all of them. In 2007, even before the country’s economic downturn hit, 48 percent of Georgia hospitals lost money, including 62 percent of all rural hospitals in the state, he states.

“While costs are rising rapidly, payments to hospitals are plummeting at a greater pace,” Parker explained. “Government payers such as Medicare and Medicaid continue to ratchet down payments to hospitals while at the same time, hospitals are treating more uninsured patients than ever.”

In fact, the study found that in 2007, Georgia hospitals provided more than $1.3 billion in uncompensated care — an increase of about $100 million from the previous year.  With the state’s unemployment rate at more than 10 percent contributing to more than 1.7 million uninsured Georgians — roughly 18 percent of the state’s population — the ability for hospitals to recoup those losses is dwindling. 

“In the past, hospitals have relied heavily on privately-insured patients to recover some of the losses sustained from care provided to uninsured patients,” said Parker.

“Unfortunately, the number of Georgians with private insurance is shrinking leaving hospitals with a growing uninsured population and a Medicaid system that pays hospitals about 84 cents for every dollar spent on caring for Georgia’s Medicaid recipients.” 

In the current legislative session, Georgia hospitals are faced with two damaging Medicaid-related proposals, according to GHA. A plan to tax hospitals’ net patient revenues by 1.6 percent to fund Medicaid or a 16.5 percent across-the-board Medicaid rate cut.  According to Parker, if either plan is passed, the economic damage to the state will be substantial.

                                                GHA’s Legistlative Solution

“When you consider the fact that 50 percent of all payments to hospitals goes to pay employee salaries and benefits, there’s no way you take hundreds of millions of dollars our of the system and avoid the huge negative impact on Georgia’s hospital workforce,” Parker said.  “That’s why hospitals are urging our elected officials to consider raising Georgia’s low cigarette tax by a dollar a pack to discourage behavior that drives up Medicaid costs and provide the state a desperately-needed new revenue source.”

The hospital economic impact report also measures hospitals’ direct economic contributions to Georgia’s working families. Using a “household earnings multiplier,” the study determines that hospitals generate more than $14 billion in household earnings in the state. The household earnings multiplier measures the increased economic contributions from households employed directly or indirectly by hospitals through daily living expenditures.