Zack Hutchins
Director of Communications

For Release — November 15, 1999

New Public Policy Institute report calls for rethinking
'The Tax New Yorkers Pay to Train Other States' Doctors'

Click here to read the full report.

ALBANY— New York State's one-of-a-kind $2.7 billion in annual surcharges to subsidize hospital costs drive up the cost of health care for all New Yorkers and undermine the state's economic competitiveness, a new report argues.

These so-called "HCRA surcharges" expire at the end of December; hospital interests are lobbying the Legislature to extend or even increase them. But the report, which was released today by The Public Policy Institute, the research affiliate of TheBusiness Council, notes that the surcharges were intended all along to be a temporary,transitional measure. It recommends that the Legislature carefully rethink them.

The report, The Tax New Yorkers Pay to Train Other State's Doctors, affirms that New York needs a strong hospital sector. But it notes that no other state imposes anything like these surcharges, and that teaching hospitals flourish in states without them.

Under the Health Care Reform Act (HCRA) adopted in 1996, New York imposed a total of $2.7 billion a year in surcharges on employer-provided health insurance and on hospital bills (taxes, in effect), and surcharges on Medicaid payments to hospital (taxes on taxes, in effect). These funds are used to provide almost $1.4 billion in annual subsidies to teaching hospitals, under the so-called "graduate medical education" program (GME). They also pay for hospital care for the indigent and for other subsidy programs.

Under the GME program, New York trains over 15 percent of the nation's physicians, even though it has only about 6.8 percent of the nation's population. Half of these New York-trained doctors then go on to practice in other states; they make up 45 percent of New Jersey's doctors, 34 percent of Connecticut's and 21 percent of Florida's, among others.

"Given the $1.385 billion annual cost of the GME program," the Institute's report notes, "this little gift to New Jersey, Connecticut, Florida and the like is costing us about $700 million a year."

With respect to the bad debt, charity care and other subsidies funded by the HCRA taxes, the report notes "the use of these funds has not been audited in more than 10 years." Even hospital managers "admit that the easy availability of the state money has made them lax in their collection efforts."

In other states, the report notes, support for teaching hospitals is negotiated with health insurers and other payers, who willingly pay higher rates for the special services and greater expertise available in such hospitals.

"New York's hospitals can make a successful transition to a system in which doctor training costs are negotiated with payers, rather than mandated by the state just as they have already made a successful transition to a system in which the rest of their rates are negotiated," the report says.

"And if taxpayer support is needed for charity care, New York can afford it provided we know that this, and only this, is really what we're paying for."

The report says that hospital interests are lobbying for an extension or expansion of these surcharges using a "Chicken Little" strategy, in which they are "suggesting that any change in the taxes could almost mean the end of hospitals as we know them."

But in fact, the report notes, hospital profits in New York State jumped $150 million in the very first year of deregulation and hospital employment has grown by some 5,200 (or 1.6 percent) since HCRA took effect.