State collected too much Medicaid tax from CAMC, Justices say

By Steve Korris | Dec 4, 2009

CHARLESTON – Collectors of state Medicaid taxes overcharged Charleston Area Medical Center by $198,269 for 1996 and 1997 and must pay the hospital back, the Supreme Court of Appeals has ruled.

The Justices on Nov. 23 reversed Kanawha Circuit Judge Jennifer Bailey Walker, who overruled the medical center's objection to the tax.

Walker improperly reclassified accounting entries from the employee health plan as gross receipts subject to taxation, the Justices wrote in an unsigned opinion.

They wrote that Walker ignored a clear and unambiguous provision of a 1993 law that authorized Medicaid taxes on gross receipts of medical providers.

They wrote that the provision requires medical providers to report the same gross receipts to state tax collectors that they report to federal tax collectors.

Legislators mandated consistency in accounting to prevent hospitals from having to keep multiple sets of books and apply multiple accounting methods, they wrote.

The dispute involved health care coverage that the medical center provided to employees in exchange for premiums it deducted from paychecks.

The medical center deposited the premiums in a trust along with monthly contributions from retirees.

The medical center declared the premiums as gross receipts and paid tax on them.

When an employee received care at an outside provider, the medical center paid the bill from the trust and the outside provider declared it as gross receipts.

When an employee received care "in house," the medical center withdrew nothing from the trust fund but tracked the cost as it would for any patient.

Accounting adjustments removed "in house" bills from accounts receivable, removing them as gross receipts in the process.

The state tax commissioner decided in 1998 that the medical center owed tax on the "in house" accounting entries, back to the initiation of the tax in 1994.

The state sought $537,456, plus $132,059 interest.

In 2001, a decision from an administrative law judge barred recovery for 1994 and 1995 under a statute of limitations.

The decision ordered payment of $198,269 for 1996 and 1997, plus $56,905 interest.

The medical center paid under protest and appealed to circuit court.

Walker affirmed the order last year.

"No explanation is given for the seven-year delay by the circuit court in issuing this decision," the Justices wrote.

They remanded the case to Walker so she can order the state to refund to the medical center the amount it paid under protest.

The hospital no longer offers the plan from the '90s, the Justices wrote, so the decision doesn't disturb current taxation.

Charles Lorenson of Charleston represented the medical center.

Katherine Schultz and Scott Johnson from the office of Attorney General Darrell McGraw represented the state.

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