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F I S C A L I M P A C T R E P O R T

SPONSOR Jennings

ORIGINAL DATE

LAST UPDATED

1/26/07

2/22/07 HB

SHORT TITLE Unpaid Health Service Gross Receipts Credit

SB 187

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($9,000.0)

Recurring General Fund

($6,000.0)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 187 creates a gross receipts tax credit for doctors and osteopathic physicians in the

amount of 100 percent of the value of unpaid qualified health care services provided while on

call to a hospital.

The value of qualified services will be the amount charged for the services and may not exceed

130 percent of the reimbursement rate for the services under the Medicaid program.

To qualify for the credit, medical services must remain unpaid after ninety days from the date of

billing and must meet the following criteria: the services must have been provided to a person

without health insurance or whose health insurance would not cover the services who was not

eligible for Medicaid. The services must also not be reimbursable under a program established in

the Indigent Hospital and County Health Care Act (Chapter 27, Article 5 NMSA 1978).

The effective date of these provisions is July 1, 2007.

Senate Bill 187 – Page

2

FISCAL IMPLICATIONS

A study by the Legislative Health and Human Services Committee entitled, “House Bill 955:

Comprehensive Study on Health Care and Health Care Costs in New Mexico," stated that in

2002, the New Mexico Hospital Association reported total uncompensated care of $209 million.

Growing that figure by 7 percent per year, the rate of medical inflation, yields an estimate of

$313.7 million total uncompensated care in FY08. Assuming 15 percent of this base qualifies for

the credit created in this bill, the credit’s gross receipts tax base will be $47 million.

Estimating the fiscal impact of this credit is difficult since no specific data is available on the

share of health care receipts attributable to physicians on-call at hospitals. Physicians will be

allowed to claim the full value of qualified uncompensated services against gross receipts tax

liability. Total estimated gross receipts tax collections from the health industry are expected to be

about $150 million in FY08. About $100 million of this will be attributable to receipts of

physicians and hospitals. Assuming that 15 percent of these receipts are provided by physicians

that are on-call, total claims for the credit will be about $15 million. This fiscal impact analysis

assumes the credit created in Senate Bill 187 is nonrefundable (see Technical Issues). The cost of

a refundable credit would be $47 million, as detailed in the preceding paragraph.

About 60 percent of this $15 million impact is expected to impact the general fund, while the

remaining 40 percent will impact local governments. The fiscal impact is expected to grow by

about 7 percent per year.

SIGNIFICANT ISSUES

According to DOH, the New Mexico Medical Society identified reducing gross receipts taxation

on health services and reducing the burden of uncompensated care for indigent patients as areas

of concern for health practitioners in New Mexico. This bill addresses these concerns by

allowing physicians to reduce gross receipts tax liability in proportion to the amount of

uncompensated care they provide.

According to DOH, about 21 percent of New Mexicans are uninsured. In 2002, the National

Center for Health Workforce Analysis documented that 32.5 percent of New Mexicans live in

areas with a shortage of primary health care professionals. Currently, 31 of New Mexico’s 33

counties are designated as health professional shortage areas for primary care physicians.

LFC notes that while individual credits against the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

LFC notes that receipts of health practitioners have historically grown faster than receipts of

other industries. Removing receipts from high-growth sectors from the gross receipts tax base

makes it more difficult for tax revenue to keep pace with inflation.

The bill will reduce local government gross receipts tax collections. Many of New Mexico’s

local governments are highly dependent on gross receipts tax revenue.

Senate Bill 187 – Page

3

PERFORMANCE IMPLICATIONS

According to DOH, Senate Bill 187 is consistent with goals one and six in chapter two of the

FY08 Comprehensive Strategic Health Plan. Goal one relates to increasing the number of health

care providers through recruitment and retention strategies, while goal six relates to improving

health care and human services by investing in workforce development and infrastructure.

ADMINISTRATIVE IMPLICATIONS

TRD reports that up to 3 FTE will be required to process the credit because thousands of claims

will have to be processed manually. Instructions and publications will require revision and

taxpayers and employees will require education.

Determining the allowable credit will require a high level of audit and compliance efforts. TRD

auditors will need to determine maximum reimbursement rates, whether a doctor was on-call,

whether services were performed in a hospital rather than a physician’s office, whether the

service recipient was eligible for Medicaid, and whether 90 days has passed since billing.

REATIONSHIP

Senate Bill 187 relates to House Bill 958, which provides the same credit for unpaid medical

services but phases the credit in over three years.

TECHNICAL ISSUES

The bill does not clarify whether or not the gross receipts tax credit created is refundable or not.

TRD reports that in the absence of refundability language it will be presumed to be

nonrefundable. If this presumption is successfully challenged, credit claims could be as large as

the entire gross receipts tax base for the credit, which was estimated to be $47 million (see Fiscal

Implications).

The bill does not clearly define the terms “on-call" or “hospital."

DOH recommends clarifying the definition of “qualified health care services" to limit the credit

to uncompensated care provided in hospital clinics and emergency rooms by physicians with

staff privileges.

TRD suggests adding a recapture provision in the event that a physician receives payment for

services after claiming the credit.

TRD notes that Section 7-9-67 NMSA 1978 allows taxpayers reporting on an accrual accounting

basis to claim a deduction for uncollectible receipts. The bill would allow physicians that report

on an accrual basis to request a deduction and claim the credit, while cash basis physicians

would only be eligible for the credit.

SS/csd