Skagit County Pub. Hosp. Dist. No. 1 v. State Of Wash. Dep't Of Revenue, 39457-0-II
| Decision Date | 09 November 2010 |
| Docket Number | No. 39658-1-II,No. 39457-0-II,39457-0-II,39658-1-II |
| Court | Washington Court of Appeals |
| Parties | SKAGIT COUNTY PUBLIC HOSPITAL DISTRICT NO. 1, d/b/a SKAGIT VALLEY MEDICAL CENTER; SKAGIT COUNTY PUBLIC HOSPITAL DISTRICT NO. 2, d/b/a ISLAND HOSPITAL, Appellants, v. STATE OF WASHINGTON DEPARTMENT OF REVENUE, Respondent. |
Bridgewater, J. — Skagit County Public Hospital District No. 1, d/b/a Skagit Valley Medical Center (Skagit Valley) and Skagit County Public Hospital District No. 2, d/b/a Island Hospital (Island), collectively "the hospitals," appeal from the Board of Tax Appeals (Board) orders requiring them to pay, rather than deduct, business and occupation (B&O) tax under RCW 82.04.220 on amounts received from Medicare beneficiaries1 and their secondary insurers (Medigap insurers) for Medicare beneficiaries' copayments and deductibles. We hold that under the plain language of former RCW 82.04.4297 (1988), Medicare beneficiaries and Medigapinsurers are not instrumentalities of the United States when they pay patient copayments and deductibles. We also hold that Skagit Valley was not entitled to sovereign immunity and any delays were not for the Department of Revenue's (Department) sole convenience. We affirm the Board's decision.
Medicare is an insurance program that provides basic protection against the costs of hospital, related post-hospital, home health services, and hospice care for individuals over 65 and those who meet certain conditions. 42 U.S.C. § 1395c. Medicare coverage is available through what are called Medicare part A and B. 42 U.S.C. §§ 1395c-1395w-5. Under both parts, Medicare pays a predetermined amount for covered services provided to Medicare beneficiaries. Regardless of a hospital's standard charges, Medicare prohibits the enrolled hospital provider from charging and receiving more than the operating and capital costs of providing the Medicare beneficiary's inpatient care. 42 C.F.R. § 412.2; 42 C.F.R. § 489.21 (2010).
Medicare does not cover all costs associated with these services. Most pertinently to this case, Medicare beneficiaries pay deductibles and 20 percent coinsurance (copayments) for most services and equipment. 42 U.S.C. § 1395e(b)(1), (2); 42 U.S.C. § 1395l(a)(1), (b). To help cover these costs, Medicare beneficiaries may purchase Medigap plans, which offer gap coverage under one of a fixed number of options specified and regulated by the federal government. 42 U.S.C. § 1395ss(g)(1); 42 C.F.R. 403.200(a) (2010).
The hospitals contract with Medicare to provide services to Medicare beneficiaries. When the hospitals provide services to Medicare beneficiaries, they send a bill to the Centers for Medicare and Medicaid Services (CMS), the governing body for the Medicare program. Regardless of the amount of the hospital bills, CMS sends back remittance advice, which identifies the amount of money (1) Medicare will pay for the claim and (2) the hospital can charge the Medicare beneficiary. The amount the Medicare beneficiary owes is a copayment and/or deductible. The Medicare beneficiary and/or the Medigap insurer pays the hospital directly for amounts owed for copayments and deductibles. The hospitals deposit in their bank accounts any amounts received for copayments and deductibles and do not transfer them to Medicare.
Some Medicare beneficiaries or Medigap insurers fail to pay their copayments and deductibles, and these debts become "bad debts." Board of Tax Appeals Record (BTAR) (Island) at 289. If the hospitals comply with Medicare regulations and first seek payment from patients, Medicare pays a portion of the bad debt. The amounts Medicare pays hospitals for bad debts are discretionary and depend on Medicare's budget each year.
The Department conducted six audits of Skagit Valley for tax years 1993, 1994-96, 1997, 1998, 1999, and 2000. The Department audited Island for the tax years 1997 through 2000. The Department found that the hospitals failed to pay B&O taxes on copayment and deductible amounts received from Medicare beneficiaries and Medigap insurers for each of the tax years and it assessed unpaid taxes and interest. Skagit Valley had use of those funds during the auditedperiods.
The hospitals appealed to the Department's appeals division and the Department issued a determination denying the appeals. The hospitals then appealed to the Board.
In Island's appeal, the Department moved for summary judgment, which the Board granted. In Skagit Valley's appeal, the Department issued formal findings of fact and conclusions of law following a hearing. In both instances, the Board found that the Medicare deductibles and copayments were not amounts received from the United States or any instrumentality thereof. The Board found:
Although patients have legal rights in accordance with the statutory provisions of Medicare, it is not a "contractual" relationship where the patients are agreeing to pay the deductibles and co-payments for Medicare. The patients are making the payments for themselves. The patients' insurers are making payment on behalf of the patient (patients voluntarily pay for supplemental insurance policies with their funds), not Medicare. The statutory scheme requiring a Medicare patient to pay a deductible or co-payment makes the patients' payment their individual responsibility, not Medicare's responsibility.
I Administrative Record (AR) (Skagit Valley) at 28; BTAR (Island) at 26. In addition, the Board found that the Department properly imposed pre-and post-assessment interest on Skagit Valley under RCW 82.32.105(3)(b) because the Department had not extended the assessment due dates for its own convenience. The hospitals sought review from the superior court, which affirmed.
ANALYSIS
We review the Board's decision, not the trial court's decision. Dep't of Revenue v. Sec. Pac. Bank of Wash. Nat'l Ass'n, 109 Wn. App. 795, 802-03, 38 P.3d 354 (2002). On review of an agency order under the Administrative Procedure Act, chapter 34.05 RCW, we will reverse an agency decision based on an erroneous interpretation or application of the law. RCW 34.05.570(3)(d). We review de novo decisions based on interpretation of the law. Advanced Silicon Materials, LLC v. Grant County, 156 Wn.2d 84, 89, 124 P.3d 294 (2005). We accord substantial weight to the agency's interpretation of the law, although we may substitute our judgment for the agency's. Haley v. Med. Disciplinary Bd., 117 Wn.2d 720, 728, 818 P.2d 1062 (1991). As the challenging party, the hospitals bear the burden of demonstrating an invalid agency action. RCW 34.05.570(1)(a); DaVita, Inc. v. Dep't of Health, 137 Wn. App. 174, 180, 151 P.3d 1095 (2007).
We review the findings of fact in Skagit Valley's case under the substantial evidence standard of RCW 34.05.570(3)(e). We uphold findings supported by evidence sufficient to persuade a fair-minded person of the declared premise's truth. Heinmiller v. Dep't of Health, 127 Wn.2d 595, 607, 903 P.2d 433, 909 P.2d 1294 (1995), cert. denied, 518 U.S. 1006 (1996). We view the evidence in the light most favorable to the party who prevailed in the administrative forum. City of Univ. Place v. McGuire, 144 Wn.2d 640, 652, 30 P.3d 453 (2001). Accordingly, we accept the fact finder's determinations of the weight given to reasonable but competing inferences. McGuire, 144 Wn.2d at 652; Sec. Pac. Bank, 109 Wn. App. at 803.
When reviewing an order granting summary judgment, we engage in the same inquiry as the Board. Kahn v. Salerno, 90 Wn. App. 110, 117, 951 P.2d 321, review denied, 136 Wn.2d 1016 (1998). Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that no genuine issue as to any material fact exists and that the moving party is entitled to a judgment as a matter of law. CR 56(c). A material fact is one on which the outcome of the litigation depends, in whole or in part. Morris v. McNicol, 83 Wn.2d 491, 494, 519 P.2d 7 (1974). We consider all reasonable inferences in the light most favorable to the nonmoving party. Clements v. Travelers Indem. Co., 121 Wn.2d 243, 249, 850 P.2d 1298 (1993). The parties do not dispute any issues of fact.
The hospitals argue that they may deduct from their gross income subject to the B&O tax the Medicare copayments and deductibles received from Medicare beneficiaries and Medigap insurers because the hospitals receive these amounts from an instrumentality of the United States.
The State imposes a B&O tax on every person for the act or privilege of engaging in business activities, which is measured by the business's gross income. RCW 82.04.220. The legislature intended to impose the B&O tax on virtually all business activities carried out within the state. Simpson Inv. Co. v. Dep't of Revenue, 141 Wn.2d 139, 149, 3 P.3d 741 (2000). Unless an exemption or deduction applies, a taxpayer owes B&O tax on all income received for the rendition of services, including services related to health care. Wash. Imaging Servs., LLC v. Dep't of Revenue, 153 Wn. App. 281, 294, 222 P.3d 801 (2009), review granted, 168 Wn.2d 1031 (2010). We construe tax deduction statutes narrowly. United Parcel Serv., Inc. v. Dep't of Revenue, 102 Wn.2d 355, 360, 687 P.2d 186 (1984). We construe any ambiguity strictly, but fairly, against the taxpayer. Group Health Coop. of Puget Sound, Inc. v. Wash. State Tax Comm 'n, 72 Wn.2d 422, 429, 433 P.2d 201 (1967). The taxpayer bears the burden of proving that it qualifies for a tax deduction. Group Health, 72 Wn.2d at 429.
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