Legislators May Repeal NY Lab Surcharge Tax

NY lab association’s repeal efforts prove that labs can create public outcry for change

CEO SUMMARY: After two years of concerted effort, laboratories in New York are optimistic that state legislators will finally repeal an 8.18% surcharge tax on clinical laboratory tests. The significant insight behind this story is how laboratories educated patients about the surcharge. The response was a public deluge of phone calls and letters to elected officials, the governor, and regulatory agencies.

LABORATORIES IN NEW YORK are optimistic that the laboratory tax surcharge will be lifted from outpatient testing this year.

“From the governor’s office and the assembly we are getting assurances that the 8.18% lab test surcharge will be dropped,” said Thomas Rafalsky, President of the New York State Clinical Laboratory Association (NYSCLA). “The uncertainty about when the measure is actually voted upon comes from the shifting political battles between the Governor, the Assembly and the Senate on other legislative issues.”

Hospital Funding Reform

Three years ago New York’s state legislature passed a bill to reform the way hospitals in the state were funded. Called the Health Care Reform Act for 1996 (HCRA), it became law on January 1, 1997. An 8.18% tax surcharge on outpatient laboratory testing became attached to the bill in its final days before passage, leaving insufficient time for clinical laboratories to get it deleted from the final bill.

“Clinical laboratories were never part of the prior hospital funding scheme,” recalled Rafalsky. “Nor did they benefit from either the former funding arrangements or the reformed hospital funding plan.”

“That is why NYSCLA was surprised to learn that, beginning January 1, 1997, all outpatient lab testing would be assessed an 8.18% tax surcharge,” he explained. “This was definitely a financial hit to clinical laboratories.

“First, the labs had to collect and remit the surcharge payment from patients,” noted Rafalsky. “Second, insurance plans and third party payers arbitrarily rammed reimbursement decreases onto the labs to recoup the amount of lab tax surcharge that they were responsible to pay.

“Further, if the patient did not pay the surcharge, the state Department of Health took the position that the laboratory was guarantor of the surcharge and responsible for its payment,” noted Rafalsky. (See TDRs, December 16, 1996 and July 14, 1997.)

NYSCLA filed a lawsuit in late 1996 seeking injunctive relief from the surcharge. But the courts ruled that legislative action was the proper venue to redress this grievance, causing NYSCLA to change its strategy.

100,000 Patient Bills Daily

“Labs in New York send out 100,000 patient bills per day,” observed Rafalsky. “So we had member labs begin stuffing flyers into their patient bills. These flyers educated patients about the lab test surcharge and asked them to contact their elected representative.

“This strategy worked far better than we had hoped,” he continued. “More than 1,000 calls per day flooded the governor’s office, the Department of Health and offices of individual senators and assemblymen. We definitely got their attention.”

According to Rafalsky, lawmakers responded quickly with amendment bills to repeal the lab test tax surcharge. “At one point, all 35 Republican senators sponsored the Senate’s bill, noted Rafalsky.

Here’s where things got frustrating for NYSCLA’s member labs. Political differences on other matters between the governor, the assembly, and the senate in late 1997 and into 1998 kept pushing the lab test surcharge onto the back burner.

“We’ve gotten repeated assurances from various individuals inside the governor’s office and the assembly that the lab surcharge will not happen again,” said Rafalsky. “HCRA sunsets at the end of this year. This makes it easier for the legislature to simply not include the lab test surcharge as they rewrite the next version of this law.”

NYSCLA’s impending success at getting a bad law changed demonstrates that clinical laboratories have the potential for substantial legislative success, but only if they work in concert.

Working Together

Recent progress on efforts in Congress to raise the amount of reimbursement by Medicare for Pap smear screening further demonstrates benefits that accrue when laboratories and pathologist work together.

Taken collectively, legislative initiatives by clinical laboratories in both New York’s state legislature and the United States Congress indicate that the lab industry has sufficient clout to effect change.

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