During the chaotic final moments of this year’s first special legislative session, Louisiana lawmakers scrambling to raise money suspended a number of health care-related tax exemptions.
Most of those tax breaks were reinstated during the second special session. But an exemption for one-time use medical devices, such as pacemakers, stents and syringes, was left out of the cleanup bill, leaving in place a costly—and arguably illegal—new tax for providers, Business Report details in a feature from its current issue.
For example, explains Louisiana Hospital Association President and CEO Paul Salles, a patient’s heart transplant is exempt from taxation, but the heart valve is not.
“Some of these newly taxable items are substitutes for some of the things that are exempt,” he says. “You might be on the transplant list, but we may have to put a heart device in temporarily while you’re waiting for your heart.”
Salles says he doesn’t think lawmakers meant to create this situation, and he has been meeting with them to explain the impact. But there’s no hope for a legislative solution until next year.
Jones Walker is representing hospitals to challenge the legality of the tax. They’re arguing that the state constitution bans charging sales taxes on medicine, while a state statute classifies one-time use medical items as medicine for the purposes of taxation.
If left in place, new taxes eventually will lead to higher prices, Salles says. But in the short term, hospitals have no way to pass along those costs. Prices paid by insurers are set by contract, and providers can’t renegotiate until the agreements run out.
Hospitals can apply for refunds for their Medicare-covered items, which officially are not taxable, but most don’t have accounting systems that connect specific patients to specific items on an invoice.
So for now, they pretty much have to eat the new costs. The LHA doesn’t have an estimate of how much money is at stake, but expects it to be in the millions annually.
“For some of the larger networks that we’re working with, the numbers are eye-popping,” says Jay Adams, a tax attorney with Jones Walker. “Some of our clients are paying multiple hundreds of thousands of dollars a month in new taxes based on this one issue.”
Small hospitals and clinics aren’t spending at that level, but the tax “could really, severely impact their ability to care for their community,” Adams says.
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