State leaders have taken steps to strengthen Hawaii’s health care system in recent years, including incentives to bring doctors to serve throughout the islands. Despite this, multiple weak spots remain, among them the expenses that have driven too many medical and dental providers away from private practice here.

Now the way should be clearer to removing this particular hurdle for affected practitioners. Gov. Josh Green, long a champion for those who share his private profession as a physician, ought to have no problem enacting Senate Bill 1035, which would help to level the playing field through a reform to the general excise tax (GET) system.

In particular, SB 1035 would exempt medical and dental clinicians from paying GET on services reimbursed through Medicaid, Medicare or TRICARE, the programs for, respectively, the low-income, elderly and military health system. Reimbursements for services covered by these government insurance programs have been historically low. And many providers have restricted the number of beneficiaries they accept as new patients.

Illustrating how this grim picture is not improving, the Centers for Medicare and Medicaid Services in November finalized a new rule that results in a 1.2% decrease in overall payments, with some variation by specialty.

For their part, hospitals have been shouldering a similar financial weight. For example, the American Hospital Association calculated that Medicare paid only 82 cents for every dollar spent by hospitals for Medicare patients in 2022, the most recent data available.

For at least the nonprofit providers, though, there is some relief. In passing SB 1035, the Legislature’s conference committee giving the measure its final revisions noted that “medical services rendered at a nonprofit hospital, infirmary, or sanitarium are exempt from the general excise tax, whereas the same services rendered by individual or group practices or clinics are fully taxable.”

Rightly, lawmakers concluded that because government insurers do not compensate for the tax differential, independent or private-practice providers have to bear additional costs.

The measure further clarifies that health-care services being reimbursed — and therefore exempt from GET — need not be performed by a medical or dental practitioner but may be performed by a physician’s assistant, nurse “or other employee under the medical or dental practitioner’s direction.”

Hawaii is among the last states that impose a broad tax like the GET on health care services. And in a place with patients scattered across largely rural islands, this translates into a burden that can force private practitioners to close their doors.

That’s bad for Hawaii’s population and for the overall health of the economy, long-term.

In a commentary published in the Honolulu Star-Advertiser on March 26, physicians Angela M. Pratt, Thomas S. Kosasa and Elizabeth Ann Ignacio wrote that “the low population density makes it less practical for larger hospitals and health-care facilities to locate,” which adds major costs to the bottom line for the smaller private-practice providers.

Lawmakers acknowledge that SB 1035 will result in a loss of $70 million to $84 million in GET revenue. A second bill, SB 397 to raise Medicaid reimbursements to match current Medicare rates, unfortunately died in conference committee. This would have cost an additional $30 million in expenditures, and perhaps legislators were already feeling the budgetary pinch from the session’s hefty tax relief program.

But given how long Hawaii’s health system has been ailing, the sacrifice of the GET from clinicians at least offers a much-needed booster shot. SB 1035 should be signed into law.