Bill to exempt primary care providers from general excise tax moves forward

A bill moving forward in the state legislature (HB 2542) aims to put in place a tax exemption on medical services provided by primary care physicians and APRNs. 

Under Hawaii’s current law, the state general excise tax (GET) applies to health care services provided by group and private practice physicians. According to the bill’s text, Hawaii is the only state in the country that taxes medical services in this way. 

 

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Hawaii hospitals and their employed physicians are exempt from the GET tax, but for primary care and specialty practices with narrow margins, the impact of the tax can be difficult to overcome.

“Community physicians are often operating small businesses with narrow profit margins, and Medicare, Medicaid, and private insurer payments for medical services are well below national levels. The general excise tax and related county surcharges make medical practices unviable, resulting in practice closures and challenges in recruiting and retaining new or younger physicians,” reads the bill. 

By removing the burden of the GET tax on primary care providers, supporters of the bill hope it will help address Hawaii’s physician workforce shortage.

“I am told, and I do believe, that eliminating the General Excise Tax on health care services would be a very positive step in improving the economics for healthcare providers, thereby encouraging existing providers to stay in practice and enticing new providers to join us,” stated Hawaii County Mayor Harry Kim in written testimony

The Hawaii Medical Association also submitted testimony in support of HB 2542, noting that this tax particularly impacts providers in rural areas. 

“This [tax] can essentially eliminate the ability to maintain a viable practice, particularly in rural areas with a high proportion of Medicare and Medicaid, the GET costs of which cannot be passed on to patients.”

The bill passed out of the Senate Committee on Commerce, Consumer Protection, and Health Committee unanimously on February 12 before passing out of the Senate Ways and Means Committee on February 19. 

If passed, the exemption will be effective for gross receipts received on or after January 1, 2021.