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Lawsuit claims Fayetteville hospital failed to pay $873,000 in taxes

by Dan Holtmeyer | July 19, 2016 at 1:00 a.m.

FAYETTEVILLE -- Physicians' Specialty Hospital owes the state $1.75 million for not contributing to a program that helps sustain Medicaid in Arkansas, the Department of Human Services claims in a lawsuit.

The lawsuit, filed July 5 in Washington County Circuit Court, claims the north Fayetteville hospital neglected to pay more than $873,000 in Medicaid assessment fees, also called provider taxes, from late 2012 until July 1. State law allows the department to double that amount and charge 10 percent interest if it isn't paid, according to the lawsuit.

Medicaid helps pay medical expenses for about 1 million mostly low-income or disabled people in the state, including many who are enrolled in private insurance with the program's money. Arkansas paid for less than a third of the $6 billion program in fiscal 2015, according to the Department of Human Services.

Since 2009, the state has charged dozens of hospitals up to 1 percent of their net revenue from patient care for a Medicaid assessment to help with the program. The tax collected $61.5 million in fiscal 2015, according to the department. The law exempts some "specialty" hospitals, such as the University of Arkansas for Medical Sciences and Arkansas Children's Hospital.

The money from the assessments goes toward the state's contribution to Medicaid. The more money Arkansas puts toward the program, the larger the match from the federal government, meaning the tax can actually help hospitals by leading to a larger reimbursement and offsetting the cost of treating Medicaid patients. A hospital treating a larger proportion of Medicaid enrollees benefits more from the tax as well.

John Everett, a Fayetteville attorney representing the hospital, said Physicians' Specialty gets back less than it pays, unlike others in the state, though he didn't have the exact amount on hand.

"It doesn't approach what the assessment is," he said Monday.

Act 562 of 2009, which created the tax, explicitly states it doesn't guarantee a hospital's reimbursement will equal or exceed its tax, but Everett said the question of fairness still applies.

"It's not really up the hospital whether you get more Medicaid patients or not," he said. "We're not being treated like every other similarly situated hospital."

All but one state uses a similar tax, according to the National Conference of State Legislators. The American Hospital Association praised the concept last year as essential to maintain patient access and coverage under Medicaid.

Arkansas recovered some of what Physicians' Specialty owes but "is unable to recoup the full amount," according to the lawsuit.

"Physicians' Specialty Hospital has argued that it too should be exempt from the law, but our legal counsel has determined that this hospital is required by law to pay its fair share of the assessments," Brandi Hinkle, a department spokeswoman, wrote in an email Monday. "We understand through public announcements that an out-of-state entity has bought a controlling interest in Physicians' Specialty Hospital, and this dispute may be resolved soon."

Northwest Health System announced in April it bought the hospital, its fourth in the area. Northwest is in turn owned by Tennessee-based Community Health Systems. Neither company is named in the lawsuit.

Physicians' Specialty employs dozens of doctors and offers care in sports and emergency medicine, spinal health and other areas, according to its website.

NW News on 07/19/2016

Print Headline: State sues hospital for fees

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