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D-H Could Support Hospital Tax

Medicaid Fix Needs To Be ‘Fair and Just’

Lebanon — Tens of millions of dollars in r evenue from a controversial tax on New Hampshire hospitals continues to figure in the budget plans of state lawmakers despite opposition from Dartmouth-Hitchcock and other large hospitals and rulings by two judges that the current form of the levy is unconstitutional.

And even executives at Dartmouth-Hitchcock seem willing to extend the life of the 23-year-old Medicaid enhancement tax — as long as it is part of a “fair and just solution to properly funding the needs of our Medicaid population,” said Dartmouth-Hitchcock Vice President of Government Relations Frank McDougall.

Dartmouth-Hitchcock is the state’s biggest Medicaid enhancement taxpayer. The Lebanon-based hospital and clinic operator made about $110 million in Medicaid enhancement tax payments over the past three years, said McDougall.

The Medicaid program provides medical care for low-income people. Federal and state governments split the tab for the program, but hospitals and doctors in New Hampshire say Medicaid payments for serving needy patients lag far behind the costs incurred by providers.

The Medicaid enhancement tax does more — and less — than the name suggests. It was enacted in 1991 in order to exploit a loophole in the federal Medicaid law and boost the flow of federal dollars to New Hampshire. While the arrangement didn’t provide any direct boost to care under Medicaid, a hospital lawsuit estimated that over two decades New Hampshire used the tax to channel $1.8 billion in federal money into its general fund.

The hospitals, after receiving assurances from state officials that payments of the Medicaid enhancement tax would be fully reimbursed, dollar for dollar, and on the same day they were received, remained uncomplaining taxpayers.

Each year, a hospital would write a check to the state and receive an immediate rebate. In recent years the tax was set at 5.5 percent of a hospital’s net revenue for patient services.

But the arrangement collapsed in 2011 when, according to a lawsuit filed by Dartmouth-Hitchcock and nine other medical care providers, “the state finally broke New Hampshire’s hospital system.”

That year’s budget redirected some Medicaid enhancement tax revenue to the general fund. The hospitals saw their tax payments increase while their related reimbursements lagged or, in the case of Dartmouth-Hitchcock and some other big hospitals, stopped entirely.

In the three years after the deal broke down, Dartmouth-Hitchcock paid $110 million to settle Medicaid enhancement tax obligations but got back only $11 million in reimbursements, McDougall said.

Dartmouth-Hitchcock avoided going into the red, in part by laying off 60 employees, eliminating another 340 jobs through early retirements and attrition, and freezing pensions.

“We’re still in the black but this is very clearly not sustainable,” McDougall said.

After reimbursements of the Medicaid enhancement tax were slashed, Dartmouth-Hitchcock and other hospitals filed administrative appeals of their tax obligations and unleashed their lawyers.

In U.S. District Court, Dartmouth-Hitchcock and nine other hospitals sought to reverse cuts to their state payments to support treatment for low-income patients. In state courts, other hospitals challenged the constitutionality of the Medicaid enhancement tax.

Two state judges sided with the hospitals. Those rulings confronted state officials with two tough issues: How to balance the state budget without a tax that had accounted for as much as 4 percent of general fund revenue? And how, despite budget pressures, to sustain the Medicaid program to pay for medical care for the low-income people?

A formidable budget hole needs to be filled. The Medicaid enhancement tax had been projected to yield anywhere from $72 million to $92 million annually. And the financial impact on the state could be worse, McDougall warned.

If the state Supreme Court were to uphold the lower court rulings invalidating the Medicaid enhancement tax, “the hospitals could be entitled to about $180 million in rebates,” he said.

But a rebate would be owed only if the Supreme Court were to give “total and absolute” endorsements to the judges’ rulings against the Medicaid tax, said House Ways and Means Chairwoman Susan Almy, D-Lebanon.

And even the hospitals don’t want to see that happen, she said, noting that the demise of the tax would cost the state federal matching funds and leave “much less money in the system.” That could saddle the hospitals with more costs from providing care to low-income patients, she said.

McDougall said that the hospitals would “have no issue with the tax” if its proceeds were used to fund care for low-income patients.

McDougall said he is part of a committee of hospital representatives that is “negotiating diligently with state leaders.”

He said he was “pessimistic” that the standoff would end prior to the conclusion of the legislative session but optimistic about prospects for an eventual resolution.

William Hinkle, a spokesman for Gov. Maggie Hassan, said in an email that “negotiations including all stakeholders continued throughout the week.” In an earlier news release, Hassan acknowledged “the hardship that the hospitals have faced since the previous Legislature cut funding.”

Legislators are also working to lay a foundation upon which to reconstruct the Medicaid enhancement tax. Senate Ways and Means Chairman Bob Odell, R-New London, said he expected that a bill that passed out of his committee on Tuesday would be acted on by the full Senate next week.

That legislation would preserve the Medicaid enhancement tax for four more years — two state budget cycles — while ramping down the rate and excluding from the tax some hospital functions, such as laboratory services.

Almy said that bills sent to the House floor from her committee took a different approach — extending the tax to other medical services and trying to address the concerns about constitutionality — but that the main goal was to get the issue to a conference committee.

“I don’t think any of us believe that we have come up with a final solution that we would like to see passed,” she said.

McDougall said that the next step is to hammer out a common position among the state’s 26 hospitals. Hospital representatives have been meeting in teleconferences but McDougall, citing a saying about the dealings among the American Colonies, said reaching agreement seemed as difficult as getting 13 clocks to chime simultaneously.

That’s because of the diverse interests of the hospitals, said McDougall, who noted that some smaller hospitals face annual Medicaid costs of only a few million dollars, while Dartmouth-Hitchcock, the state’s largest, in 2012 paid not only the $42 million in Medicaid enhancement taxes but also absorbed another $61 million in uncompensated care because of low Medicaid reimbursement rates to providers.

Through a spokesman, Steve Ahnen, president of New Hampshire Hospital Association, declined to comment due to the sensitivity of the talks underway.

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.