Source: http://leg.wa.gov/jlarc/taxReports/2018/BehavioralHealthServices/f/default.html
Timestamp: 2020-02-17 09:51:54
Document Index: 213239357

Matched Legal Cases: ['§ 3', '§ 1', '§ 6', '§ 3', '§ 1', '§ 80', '§ 6', '§ 502', '§ 501', '§ 12', '§ 10', '§ 5', '§ 59', '§ 2', '§ 1', '§ 104', '§ 105', '§ 2', '§ 8', '§ 2', '§ 38', '§ 4', '§ 748', '§ 1', '§ 2', '§ 2', '§ 2', '§ 3']

1. Government funding for behavioral health 2. Preference meets objectives 3. Changes in Medicaid management impact taxes 4. Number of beneficiaries will likely increase 5. Preference scheduled to expire in 2020 6. Applicable statutes
Government-Funded Behavioral Health Services
The preference increases the amount of funding available directly for behavioral health treatment. With recent changes in the state's management of Medicaid, more providers are likely to use the preference before it expires in 2020.
B&O tax deduction for government-funded behavioral health care
The preference allows two types of entities to deduct the amount of government funding spent on behavioral health services:
Health or social welfare organizations--nonprofits that provide mental health and chemical dependency services to patients (i.e. behavioral health) can deduct the amount of government funding they receive.
Behavioral Health Organizations (BHOs)--regional health care entities that contract with providers for government-funded behavioral health services can deduct the amount they pay to health or social welfare organizations.
The preference is scheduled to expire January 1, 2020.
Inferred public policy objectives met
The Legislature did not state a public policy objective when it passed this preference in 2011. JLARC staff infer two public policy objectives based on testimony to the Legislature when the legislation was passed.
Increase the amount of funding available for behavioral health services. Met. The preference reduces the amount of tax collected on government-funded behavioral health services so that more money goes directly to treatment.
Provide similar tax treatment for all entities that receive government funding for behavioral health services. Met. The preference allows privately run BHOs to deduct from B&O taxes the amount of government funding they spend on behavioral health services. It also allows health or social welfare organizations to deduct from B&O taxes the amount of government funding they receive from privately run entities.
Changes in Washington's management of Medicaid funding will affect how health care providers are taxed
The state is currently in the process of integrating Medicaid-funding of behavioral health services with physical health services. This will change how health care entities and providers are taxed. As a result, more providers -- in Pierce County and other parts of the state -- are likely to use the preference until it expires in 2020.
When the preference expires, more government funding for behavioral health services will be taxed, so less money may go directly to behavioral health service treatment.
Legislative Auditor's Recommendation: Determine whether to continue (policy decision)
The Legislature should determine whether to continue the preference. If the Legislature wants to continue the tax deduction for government-funded behavioral health care, it will need to take action. Otherwise, behavioral health will be treated the same as physical health services and providers will pay B&O taxes beginning in 2020.
The Commission endorses the Legislative Auditor's recommendation with comment. The preference should be continued because it supports mental health services that can prevent more serious and costly health issues.
The Committee strongly endorses the Citizen Commission recommendation to enact a new revised preference without allowing the preference to expire. Any gap in the preference would be a setback for the Legislature’s efforts to increase support for mental and behavioral health services at a critical time. Failure to act would also harm state policy on integration of behavioral and physical health services. Essentially, the Legislature would likely need to increase direct support for Behavioral Health Organizations by the same amount to avoid a cut in services. Therefore, the Committee recommends passage of a new deduction for government funded behavioral health services in the 2019 Session, with appropriate tax preference performance measures and review.
18-04 Final Report | Government-Funded Behavioral Health Services
1. Government funding for behavioral health
Preference is for two types of entities involved in government-funded behavioral health services
What is behavioral health and who pays for it?
Behavioral health services are treatments for mental health and substance use disorders. These include 24-hour crisis services, residential treatment services, in-patient and out-patient services, group treatment, and medication management and monitoring.
About 85 percent of government funding for behavioral health care in Washington State is from Medicaid. This is a health program paid for by the state and federal government, and is available to those who meet income and other eligibility requirements.
The remaining 15 percent of government funding pays for behavioral health services that are not covered by Medicaid. These include crisis hotlines and services provided while people are in jail, which are available for both Medicaid and non-Medicaid patients.
Behavioral Health Organizations (BHOs) subcontract with providers who treat patients
In most regions, Washington currently distributes state and federal funding for behavioral health services through Behavioral Health Organizations (BHOs). These entities are located in designated geographic areas around the state to manage funding for mental health and substance use treatment.
The state provides each BHO a fixed amount of public money and the BHOs must provide access to the following:
A full-range of behavioral health services for all Medicaid-eligible individuals.
Crisis services for any person, regardless of whether they are eligible for Medicaid.
Additional services to non-Medicaid eligible individuals if other funding, such as federal grants or local revenue, is available.
Health or social welfare organizations provide behavioral health services
BHOs subcontract with mental health and substance use disorder treatment providers in their local areas to provide these services. These include health or social welfare organizations.
Statute defines a health or social welfare organization as either a nonprofit entity with eight or more board members who are not paid employees, or a corporation sole. The organization must provide specific health or social welfare services, such as:
Mental health, drug, and alcohol counseling and treatment
These organizations must follow other legal requirements in addition to providing certain services.
Exhibit 1.1: Preference applies to money flowing through BHO to health or social welfare organizations
Source: JLARC staff analysis of RCW 82.04.4277.
2. Preference meets objectives
Preference enacted to increase the amount of funding available directly for behavioral health treatment, and provide consistent tax treatment to those receiving government funds
B&O tax preference for entities involved with government-funded behavioral health services
This preference provides a business & occupation (B&O)A tax on gross income earned from business activities tax deduction for government-funded behavioral health services (i.e., mental health or chemical dependency services) that are provided by a health or social welfare organization.
Two different types of entities may claim the deduction:
A Behavioral Health Organization (BHO)One of nine designated entities that distributes government funding to behavioral health providers may deduct the amount it pays to the health or social welfare organization for providing behavioral health services to patients.
The health or social welfare organizationA nonprofit entity or a corporation sole that provides specific health or social welfare services, such as mental health and substance abuse treatment and family counseling may deduct the amount it receives for providing the services.
Two inferred objectives met
The Legislature did not state a public policy objective when it passed this preference in 2011.
JLARC staff infer two public policy objectives based on testimony to the Legislature when the legislation was passed.
Inferred objective met: Preference provides similar tax treatment for all BHOs and providers of government-funded behavioral health services
Before 2008, all BHOs were government entities and were not subject to B&O tax. In 2008, Pierce County stopped serving as the BHO for its region and DSHS selected a private, for-profit entity to take its place. Unlike the governmental BHOs, this entity (Optum Pierce) and its contracted providers were subject to B&O tax.
With the preference, privately run BHOs are able to deduct some of their expenses and are taxed similarly to government-run BHOs, which do not pay tax.
Further, all health or social welfare organizations may deduct B&O taxes for the amount of government funding they receive for behavioral health services, regardless of whether the money comes from a government or private entity. Prior to this preference, only health and social welfare organizations that received money directly from a government entity (RCW 82.04.4297) could deduct B&O taxes.
This results in similar tax treatment for any entity that distributes or receives government-funding for behavioral health.
Inferred objective met: Preference increases the amount of government funding available directly for behavioral health treatment by reducing the tax
As of May 2018, Optum Pierce was the only privately-run BHO in Washington, and the only BHO that claimed the deduction. Health or social welfare entities that receive government funding from Optum Pierce can claim the deduction as well. The deduction reduces B&O tax thereby increasing the amount of government funding available for patient services.
Circumstances are unique to Washington's tax structure
The objectives for this preference are unique to Washington and the B&O tax. In states with an income tax, nonprofit providers are generally exempt from paying income tax. Further, when entities receive funding that they distribute to others, that funding is typically not considered income.
3. Changes in Medicaid management impact taxes
Recent changes in Washington's management of Medicaid funding will affect how entities are taxed
Until 2016, Washington financed and delivered its Medicaid-funded behavioral health services separately from its physical health services. Now the state is in the process of integrating both behavioral and physical health. Under the new model, all Medicaid funding will be distributed from the Health Care Authority to privately run Managed Care Organizations (MCOs) for both physical and behavioral health services. About 85 percent of government funding for behavioral health comes from Medicaid.
New entities will manage government funding for behavioral health
Before integration, government funding for physical and behavioral health care was managed separately by the following types of entities:
MCOs managed Medicaid funding for physical health services. These entities are privately run for-profit and nonprofit organizations.
Behavioral Health Organizations (BHOs) managed Medicaid and non-Medicaid funding for behavioral health services. They contracted with local providers to deliver services to patients.
After integration is completed, Medicaid funding for physical and behavioral health will be managed together:
MCOs will be responsible for managing Medicaid funding for physical and behavioral health. They will contract with local providers to deliver services to patients.
Behavioral Health-Administrative Service Organizations (BH-ASOs) will manage non-Medicaid funding for behavioral health services instead of BHOs. These services are available to all individuals, regardless of insurance status or income level. They include crisis hotlines and services provided while people are in jail.
Integration will impact how health care entities and providers are taxed
This tax preference currently applies to BHOs and health or social welfare organizations that provide behavioral health services. The integration of behavioral and physical health management will change how health care entities are taxed.
MCOs are responsible for managing Medicaid funding for health care services. They are not eligible for this preference because they do not meet the current definition of a BHO. Unless they qualify for other tax preferences, MCOs must pay B&O tax on the funding they receive for behavioral health services.
BH-ASOs are a new type of entity not included in the current definition of a BHO. These organizations owe tax on the funding they receive unless they are government entities and already tax-exempt, or they qualify for other preferences.
Health or social welfare organizations that receive money from MCOs or BH-ASOs continue to be eligible for this preference. More of these providers are likely to claim the preference because more of them will receive money from privately run entities (MCOs or BH-ASOs).
Exhibit 3.1: Integration will change how government funding for behavioral health is managed
Before integration, BHOs distribute Medicaid and Non-Medicaid Funding for Behavioral Health.
After integration, funding will flow through for-profit MCOs and BH-ASOs, which may be for-profit or government entities.
Medicaid funding for physical health is taxed
Entities that manage or receive Medicaid funding for physical health services must pay B&O tax on the money they receive. Other deductions exist for some specific types of providers, such as public and nonprofit hospitals and community health centers, but there is no general deduction for physical health care services.
4. Number of beneficiaries will likely increase
More providers likely to use the preference as the state integrates Medicaid-funded behavioral and physical health care
Direct beneficiaries include one BHO and health or social welfare organizations
The preference is available to Behavioral Health Organizations (BHOs) and to health or social welfare organizations providing behavioral health services to patients. The direct beneficiaries are:
BHOs that receive government funds for behavioral health:
As of May 2018, Optum Pierce in Pierce County is the only privately run BHO in Washington, and the only one that claimed the deduction.
The other seven BHOs are government entities and do not owe income tax under existing law.
Health or social welfare organizations that provide behavioral health services:
Providers that receive government money from Optum Pierce would pay tax without this preference.
Providers in the North Central and Southwest regions have already transitioned to an integrated managed care system and would pay tax without this preference. As more regions integrate, more providers are likely to claim the preference when they receive funding from privately-run Managed Care Organizations (MCOs) or Behavioral Health-Administrative Service Organizations (BH-ASOs).
Providers that receive payments directly from a government-run entity are already eligible to deduct B&O tax under existing law (see RCW 82.04.4297).
JLARC staff estimate beneficiaries saved $3.6 million in 2018
JLARC staff estimate $3.6 million in beneficiary savings in fiscal year 2018 and $10.9 million in the 2017-19 biennium. This estimate is based on data available in Pierce County. It assumes the same proportion of funding goes to qualified providers in each region. It also assumes every qualified provider claims the deduction. The estimate may include providers who are eligible for other deductions on the same income, such as the deduction for hospitals and community health centers (see RCW 82.04.4311).
Exhibit 4.1 Estimated Beneficiary Savings
2017 -2019 Biennium
Source: JLARC staff analysis of taxpayer deduction data and BHO expenditure data from DSHS.
By 2019, most health or social welfare organizations will be in integrated regions working with privately run health care entities
As more regions integrate Medicaid-funded behavioral and physical health care, qualified providers in integrated regions will be more likely to receive funding through private entities such as Managed Care Organizations and BH-ASOs. As a result, more providers will rely on this preference. BHOs will no longer exist so there will be no BHOs using the preference.
Exhibit 4.2: As regions integrate, more providers will receive funding through private entities
Source: JLARC staff analysis of Health Care Authority Data.
Medicaid patients who receive behavioral health treatment are indirect beneficiaries of the preference. Since providers and BHOs can deduct B&O tax from the funds they receive, more money is available directly for behavioral health treatment. The preference also benefits some non-Medicaid patients who receive government-funded behavioral health services.
5. Preference scheduled to expire in 2020
The expiration of the preference may reduce government funding for behavioral health services
The preference is currently scheduled to expire on January 1, 2020.
When this preference expires, some of the funding for behavioral health services will be taxed.
Health or social welfare organizations will be subject to tax on the Medicaid funds they receive from privately-run Managed Care Organizations (MCOs). They will also be taxed on the non-Medicaid funding they receive from privately-run Behavioral Health-Administrative Service Organization (BH-ASO).
MCOs and privately-run BH-ASOs will be taxed on the government funding they receive to manage behavioral health services.
Some providers may qualify for other deductions on the income they receive for behavioral health. For example, health or social welfare organizations that meet the definition of Community Health Centers may claim a deduction under RCW 82.04.431.
Without the preference, health or social welfare organizations, MCOs and non-government BH-ASOs will be taxed the same way as those that receive government funding for physical health services.
6. Applicable statutes
Deductions—Health and social welfare organizations—Mental health or chemical dependency services. (Effective January 1, 2018, until January 1, 2020.)
RCW 82.04.431
(1) The term "health or social welfare organization" means an organization, including any community action council, which renders health or social welfare services as defined in subsection (2) of this section, which is a domestic or foreign not-for-profit corporation under chapter 24.03 RCW and which is managed by a governing board of not less than eight individuals none of whom is a paid employee of the organization or which is a corporation sole under chapter 24.12 RCW. Health or social welfare organization does not include a corporation providing professional services as authorized in chapter 18.100 RCW. In addition a corporation in order to be exempt under RCW 82.04.4297 must satisfy the following conditions:
(g) The director of revenue must have access to its books in order to determine whether the corporation is exempt from taxes within the intent of RCW 82.04.4297 and this section.
[ 2011 1st sp.s. c 19 § 3; 2008 c 137 § 1; 1986 c 261 § 6; 1985 c 431 § 3; 1983 1st ex.s. c 66 § 1; 1980 c 37 § 80; 1979 ex.s. c 196 § 6.]
RCW 71.24.025 (as amended by 2018 2ESHB 1388, effective July 1, 2018)
(21 "Emerging best practice" or "promising practice" means a program or practice that, based on statistical analyses or a well established theory of change, shows potential for meeting the evidence-based or research-based criteria, which may include the use of a program that is evidence-based for outcomes other than those listed in subsection (20) of this section.
(23) "Licensed physician" means a person licensed to practice medicine or osteopathic medicine and surgery in the state of Washington.
(24) "Licensed or certified service provider" means an entity licensed or certified according to this chapter or chapter 71.05 RCW or an entity deemed to meet state minimum standards as a result of accreditation by a recognized behavioral health accrediting body recognized and having a current agreement with the department, or tribal attestation that meets state minimum standards, or persons licensed under chapter 18.57, 18.57A, 18.71, 18.71A, 18.83, or 18.79 RCW, as it applies to registered nurses and advanced registered nurse practitioners.
(25) "Long-term inpatient care" means inpatient services for persons committed for, or voluntarily receiving intensive treatment for, periods of ninety days or greater under chapter 71.05 RCW. "Long-term inpatient care" as used in this chapter does not include: (a) Services for individuals committed under chapter 71.05 RCW who are receiving services pursuant to a conditional release or a court-ordered less restrictive alternative to detention; or (b) services for individuals voluntarily receiving less restrictive alternative treatment on the grounds of the state hospital.
(26) "Mental health services" means all services provided by behavioral health organizations and other services provided by the state for persons who are mentally ill.
(27) Mental health "treatment records" include registration and all other records concerning persons who are receiving or who at any time have received services for mental illness, which are maintained by the department of social and health services or the authority, by behavioral health organizations and their staffs, or by treatment facilities. "Treatment records" do not include notes or records maintained for personal use by a person providing treatment services for the department of social and health services, behavioral health organizations, or a treatment facility if the notes or records are not available to others.
(28) "Mentally ill persons," "persons who are mentally ill," and "the mentally ill" mean persons and conditions defined in subsections (1), (10), (36), and (37) of this section.
(29) "Recovery" means the process in which people are able to live, work, learn, and participate fully in their communities.
(30) "Registration records" include all the records of the department of social and health services, the authority, behavioral health organizations, treatment facilities, and other persons providing services for the department of social and health services, the authority, county departments, or facilities which identify persons who are receiving or who at any time have received services for mental illness.
(31) "Research-based" means a program or practice that has been tested with a single randomized, or statistically controlled evaluation, or both, demonstrating sustained desirable outcomes; or where the weight of the evidence from a systemic review supports sustained outcomes as described in subsection (20) of this section but does not meet the full criteria for evidence-based.
(32) "Residential services" means a complete range of residences and supports authorized by resource management services and which may involve a facility, a distinct part thereof, or services which support community living, for persons who are acutely mentally ill, adults who are chronically mentally ill, children who are severely emotionally disturbed, or adults who are seriously disturbed and determined by the behavioral health organization to be at risk of becoming acutely or chronically mentally ill. The services shall include at least evaluation and treatment services as defined in chapter 71.05 RCW, acute crisis respite care, long-term adaptive and rehabilitative care, and supervised and supported living services, and shall also include any residential services developed to service persons who are mentally ill in nursing homes, residential treatment facilities, assisted living facilities, and adult family homes, and may include outpatient services provided as an element in a package of services in a supported housing model. Residential services for children in out-of-home placements related to their mental disorder shall not include the costs of food and shelter, except for children's long-term residential facilities existing prior to January 1, 1991.
(33) "Resilience" means the personal and community qualities that enable individuals to rebound from adversity, trauma, tragedy, threats, or other stresses, and to live productive lives.
(34) "Resource management services" mean the planning, coordination, and authorization of residential services and community support services administered pursuant to an individual service plan for: (a) Adults and children who are acutely mentally ill; (b) adults who are chronically mentally ill; (c) children who are severely emotionally disturbed; or (d) adults who are seriously disturbed and determined solely by a behavioral health organization to be at risk of becoming acutely or chronically mentally ill. Such planning, coordination, and authorization shall include mental health screening for children eligible under the federal Title XIX early and periodic screening, diagnosis, and treatment program. Resource management services include seven day a week, twenty-four hour a day availability of information regarding enrollment of adults and children who are mentally ill in services and their individual service plan to designated crisis responders, evaluation and treatment facilities, and others as determined by the behavioral health organization.
(35) "Secretary" means the secretary of the department of health.
(36) "Seriously disturbed person" means a person who:
(37) "Severely emotionally disturbed child" or "child who is severely emotionally disturbed" means a child who has been determined by the behavioral health organization to be experiencing a mental disorder as defined in chapter 71.34 RCW, including those mental disorders that result in a behavioral or conduct disorder, that is clearly interfering with the child's functioning in family or school or with peers and who meets at least one of the following criteria:
(38) "State minimum standards" means minimum requirements established by rules adopted and necessary to implement this chapter by:
(i)Delivery of mental health and substance use disorder services; and
(i) Licensed or certified services providers for the provision of mental health and substance use disorder services; and
(39) "Substance use disorder" means a cluster of cognitive, behavioral, and physiological symptoms indicating that an individual continues using the substance despite significant substance-related problems. The diagnosis of a substance use disorder is based on a pathological pattern of behaviors related to the use of the substances.
(40) "Tribal authority," for the purposes of this section and RCW 71.24.300 only, means: The federally recognized Indian tribes and the major Indian organizations recognized by the director insofar as these organizations do not have a financial relationship with any behavioral health organization that would present a conflict of interest.
[ 2016 sp.s. c 29 § 502; 2016 sp.s. c 29 § 501; 2016 c 155 § 12. Prior: 2014 c 225 § 10; 2013 c 338 § 5; 2012 c 10 § 59; 2008 c 261 § 2; 2007 c 414 § 1; 2006 c 333 § 104; prior: 2005 c 504 § 105; 2005 c 503 § 2; 2001 c 323 § 8; 1999 c 10 § 2; 1997 c 112 § 38; 1995 c 96 § 4; prior: 1994 sp.s. c 9 § 748; 1994 c 204 § 1; 1991 c 306 § 2; 1989 c 205 § 2; 1986 c 274 § 2; 1982 c 204 § 3.]
Legislative Auditor recommends determining whether to continue the preference (policy decision)
The Legislature should determine whether to continue this preference. If the Legislature wants to continue the tax deduction for government-funded behavioral health care, it will need to take action. Otherwise, behavioral health will be treated the same as physical health and providers will pay B&O taxes beginning in 2020.