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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

1/28/08

1/31/08 HB

SHORT TITLE Clinical Lab Services Gross Receipts Credit

SB 347

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(475.1)

(1,032.1) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

TriCore Reference Laboratories

Responses Received From

Taxation and Revenue Department (TRD)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

Senate Bill 347 creates a new phased-in gross receipts tax credit against the state gross receipts

tax for receipts from services provided by a not-for-profit clinical laboratory for which payment

is not received. In FY09, the credit will be equal to 33 percent of the value of unpaid services. In

FY10 the credit will increase to 67 percent and in FY11 and beyond the credit will equal the

entire value of unpaid services.

The value of unpaid services will be the amount charged for the services but limited to 130

percent of the reimbursement rate for services under the Medicaid program. To qualify for the

credit, clinical laboratory services must remain unpaid after one year 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, and 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.

The effective date of these provisions will be July 1, 2008.

Senate Bill 347 – Page

2

FISCAL IMPLICATIONS

TriCore Reference Laboratories estimates uncompensated care that would be eligible for the

proposed credit totaled $1.3 million in calendar year 2006. That figure is expected to grow by

about 7 percent per year for a total of $1,540.5 thousand in FY09 and $1,648.3 thousand in

FY10. The table below illustrates that the fiscal impact of the proposed credit will grow rapidly

over the next few years as the credit is phased in to 100 percent of the value of unpaid services.

The entire fiscal impact will impact the general fund.

Value of unpaid

Services

% Credit Total Credit

CY06

1300.0

FY07

1345.5

FY08

1439.7

FY09

1540.5

33%

475.1

$

FY10

1648.3

67% 1,032.1

$

FY11

1763.7

100% 1,648.3

$

FY12

1887.1

100% 1,763.7

$

Source: LFC Files

SB347: Estimated Fiscal Impact of Clinical Labs

Unpaid Services Credit

SIGNIFICANT ISSUES

The proposal would bring tax relief to certain clinical labs for the value of uncompensated

services they provide. However, the proposal also reduces the incentive for these businesses to

undertake collection efforts, since amounts they do not collect will increase their credit.

LFC research found only one taxpayer, TriCore Reference Laboratories, operating in New

Mexico on a not-for-profit basis. TriCore’s business is split into two branches. One branch

services inpatient needs in hospitals so would not be eligible for the proposed credit. The other

branch services the commercial market. TriCore’s commercial labs are not located in hospitals or

physician offices, so they would be eligible for the proposed credit.

Representatives of TriCore report that services are often provided without compensation in the

following types of scenarios:

•

If a specimen is collected at physician’s office or nursing home and submitted to the lab

without correct or complete insurance information;

•

If a test is ordered without the proper diagnosis code or ordering code;

•

If a test is ordered that is not reimbursed by Medicaid or Medicare;

•

If a patient does not inform the lab that they have insurance until after the date by which

insurance must be billed has passed.

LFC notes that while individual credits, deductions and exemptions from 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.

Senate Bill 347 – Page

3

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.

ADMINISTRATIVE IMPLICATIONS

It is expected that TRD will be required to process credit claims 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 services were performed

in a hospital or in a physician’s office, whether the service recipient was eligible for Medicaid,

and whether one year has passed since billing.

TECHNICAL ISSUES

The bill does not define “not-for-profit." The bill should be amended to reference federal tax

code.

As written, the uncompensated receipts of a for-profit clinical laboratory or a not-for-profit

laboratory located within a physician’s office or in a hospital will not qualify for the proposed

credit. Amendment would be required if this is not the intent of the bill.

The bill does not explicitly state whether the proposed credit will be refundable. TRD generally

assumes that credits are not refundable if statute does not explicitly dictate that they are, but the

fiscal impact of the bill could be much larger if the credit is interpreted to be refundable.

POSSIBLE QUESTIONS

Is there a tax policy argument why the small subset of clinical laboratories that are not-for-profit

and are not located in a physician’s office or hospital should receive preferential tax treatment.

SS/mt:bb