BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  3

DATE:  February 24, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER:  HBIC Substitute for HB–227

SPONSOR: House Business & Industry Committee

BILL SHORT TITLE: GRT Deduction for Receipts of all Licensed Healthcare Practitioners Paid by Managed Health Care Providers; Adjust State Shared Distribution to Municipalities from 1.225% to 1.24%.

CONFLICTS, DUPLICATES, COMPANIONS: See OTHER ISSUES AND IMPACTS for current list of health care taxation proposals. 

DESCRIPTION: The bill provides an immediate gross receipts tax deduction for receipts of doctors, osteopaths and most other licensed health care practitioners from services performed pursuant to a contract with a managed health care provider. The phrase used in the bill is “commercial portion of contact services.” The current 1.225% state shared gross receipts tax distribution to municipalities is increased to 1.24%.

EFFECTIVE DATE:  July 1, 2001

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:

		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
 FY 2002 	FY 2003	FY 2004   	     Impact     t     	             Affected          .             	
(8,000)	(9,300)	(9,900)	Recurring	General Fund	
(6,500)	(7,500)	(8,000)	Recurring	Local  Governments	
(14,500)	(16,800)	(17,900)	Recurring		
3,400	 4,000	 4,300	Recurring	Municipalities ( 1.24%)	
(11,400)	(13,300)	(14,200)	Recurring	Net General Fund	
(3,100)	(3,500)	(3,700)	Recurring	Net Local  Governments	

Full five-year estimate is included under “Other Issues” below. 1998 HCFA data show that 28% of physicians and other health practitioners total payments are received from Medicare and Medicaid. Of the remaining 72% an unknown portion is received from managed care providers (as opposed to conventional fee for service or capitation insurance plans, or the co-payments and deductible amounts under managed care schemes or private pay.) For the purpose of this estimate, assume 1/3rd of the 72% would be covered under the bill’s description.  See however OTHER ISSUES AND IMPACTS #2 for a rough reconciliation of this analysis and data supplied by proponents of the bill.

ADMINISTRATIVE IMPACT: minimal impact. Forms and instructions, taxpayer seminar materials and technical advice memoranda and training for auditors. This change can be implemented with existing resources.

OTHER IMPACTS AND ISSUES:

1.	Five-year impact
	FY 2002	FY 2003	FY 2004	FY 2005	FY 2006	
    General Fund	(8,000)	(9,300)	(9,900)	(10,600)	(11,300)	
    Local Governments	(6,500)	(7,500)	(8,000)	(8,500)	(9,100)	
        Total	(14,500)	(16,800)	(17,900)	(19,100)	(20,400)	
    Municipalities	3,400	 4,000	 4,300	 4,600	 4,900	
    Net General Fund	(11,400)	(13,300)	(14,200)	(15,200)	(16,200)	
    Net Local Government	(3,100)	(3,500)	(3,700)	(3,900)	(4,200)	
2.	
Gain and Loss in Millions	Revenue Loss	Revenue Gain	
Albuquerque	 5.37	 1.65	
Bernalillo County	 0.60	 0.00	
All Munis, ex Albuquerque	 7.09	 2.07	
All Counties, ex. Bernalillo	 1.05	 0.00	
	 14.11	 3.73	

3.	Municipal GRT base, adjusted for the loss of managed care gross receipts pursuant to this bill is about $25.2B for FY 2002. Assuming that the difference between the current 1.225% and the proposed 1.24% municipal shared distribution fully holds municipalities harmless leads to the conclusion that the total managed care payments statewide are about $145M, rather than the $264M assumed in this analysis. This would imply that only 9% of doctors and dentists receipts are paid by managed health care plans. This discrepancy should be resolved before this bill proceeds much further in the process.

4.	This bill provides tax benefits to physicians, osteopathic physicians, chiropractors, dentists or dental hygienists, physician assistants, doctors of oriental medicine, podiatrists, psychologists, RNs or LPNs, midwife practitioners, physical therapists, occupational therapists and respiratory care technicians. Optometrists, licensed massage therapists, non-PA emergency technicians and ambulance services, speech and auditory therapists and most home health care services are not included in the provisions.

5.	This continues a trend over the last decade of removing medical and hospital services from the gross receipts base.  Cutting base by an industry this large, however, does shift a noticeable amount of tax burden to the remaining taxpayers. 

6.	
Bill Number and Sponsor	Description	FY 2002 Fiscal Impact	FY 2003 or Full Year Impact	
HB–202 (Foley)	Immediate, 100% gross receipts tax deduction for licensed health practitioners (local impact).	(33,300)	(36,300)	
HBIC Sub for HB – 202, 253 & 370	Five-year phased-in 100% GRT deduction for receipts of deduction for licensed health practitioners (local impact)..	(6,000)	(13,700)	
HB–227 (Knauer)	Three-year phased GRT deduction for receipts of doctors and osteopaths (local impact)	(7,500)	(16,700)	
HBIC Sub for HB-227	Immediate, 100% gross receipts tax deduction for receipts of all licensed health care providers from managed care providers; adjust 1.225% state shared distribution to municipalities to 1.24% (small local impact)..	(19,400)	(22,500)	
HB –253 (Hobbs)	Immediate, 50% GRT deduction for licensed health practitioners (local impact).	(15,100)	(17,500)	
HB–370 (Sanchez)	Five-year phased-in 100% GRT deduction for receipts of doctors and osteopaths (local impact).	(4,700)	(10,400)	
SB –568 (Smith & Altamirano) & HB-745 (Silva)	Personal or corporate income tax credit for amounts of GRT paid on the provision of physician’s services (no local impact).	(42,000)	(45,900)	
HB-778 (Hobbs)	Income tax credit for GRT paid by physicians and other health practitioners. (no local impact)	(62,000)	(67,900)	
SB-5 (Cisneros)	This is the interim Revenue Stabilization and Tax Policy Committee’s compromise. Three-year, phased-in, 100% GRT deduction for receipts of most licensed healthcare practitioners (local impact). 	(11,100)	(24,800)	
SB – 341 (Carraro)	100% immediate deduction for receipts of nursing homes and residential care facilities, doctors and osteopaths, as well as the remaining receipts of for-profit hospitals; allowing local option authority for cities and counties to make up the revenue. (local impact, but makeup authority for local option granted). 	(61,000)
total loss	(70,500)
total loss	
		(39,200)
net loss after local makeup tax	(15,200)
net loss after local makeup tax	
SCORC Sub for SB-568	Immediate, 100% gross receipts tax deduction for receipts of all licensed health care providers from managed care providers; adjust 1.225% state shared distribution to municipalities to 1.24% (small local impact)	(19,400)	(22,500)	

Minor Health Care Taxation Reform Bills
Bill Number and Sponsor	Description	FY 2002 Fiscal Impact	FY 2003 or Full Year Impact	
HB-94 (Lujan)	Gross receipts tax deduction for federal military “TRICARE” managed care health insurance. (local impact).	(244)	(265)	
HB-326 (Stewart) & SB‑582 (Ingle)	Immediate, 100% gross receipts tax deduction for nursing homes licensed by the Department of Health. (local impact)	(5,700)	(6,200)	
HB-357 (Heaton) & HB‑441
	Prohibiting provision in contracts between a health care provider and a health plan that does not permit the provider to pass on the burden of the gross receipts tax imposed on the provider.	0	0	
HB-442 (Wright)	GRT deduction for prosthetic devices -- restricts the definition of “prosthetic device” to exclude artificial hands and feet, dacron veins and arteries, artificial hips, cornea replacement, pacemakers, dental implants, etc. By prohibiting the deduction for prosthetic devices that do not replace a limb, this proposal is a tax increase.	Indeterminate	Indeterminate	
HB-452 (Stell) & SB-191 (Smith)	GRT credit for for-profit hospitals -- a hospital licensed by the Department of Health may claim a credit against gross receipts tax in an amount equal to 3.275% of the hospital’s taxable gross receipts. (no local impact)	(4,000)	(4,400)	
HB-580 (Sandoval) & SB-195 (Altamirano)	Extends 1998’s Medicare B deduction for doctors and osteopaths and 2000’s expansion to Medicare B receipts of hospices to podiatrists (local impact).	(74)	(81)	
SB-347 (Gorham)	GRT deduction for Medicare-B payments to home health agencies (local impact).	(92)	(100)