DHMC Stiffed Again: Hospital Unpaid for $74 Million in Charity Care

Lebanon — For the second straight year, Dartmouth-Hitchcock Medical Center and 14 other large New Hampshire hospitals received no state money for treating people who cannot afford to pay, adding financial pressure to safety net providers that hospital officials say ultimately harms the state’s neediest residents.

The Lebanon hospital is by far New Hampshire’s largest provider of charity care and will provide an estimated $74 million in medical services this fiscal year for which it won’t be paid, according to New Hampshire Department of Health and Human Services records. Meanwhile, the state’s 13 smallest hospitals were reimbursed for most of the medical care they gave to people who couldn’t afford to pay.

In all, New Hampshire hospitals are expected to provide $358 million worth of charity care in the 2013 fiscal year, $305 million of which will be unreimbursed.

The shortfall is straining hospital budgets at a time when health care providers everywhere are adjusting to the sweeping reforms mandated by the Affordable Care Act, and hospital officials said the hundreds of millions of dollars in lost revenue have led them to lay off staff and eliminate services.

The word “broken” comes up often when health care providers in New Hampshire talk about Medicaid and the so-called “disproportionate share,” or DSH, payments they receive through the Medicaid. (Medicaid is a federal program that is administered by the states to provide health care for the poor. Medicaid money is supposed to be given to health care providers that treat Medicaid recipients and give charity care to the uninsured.)

Steve Ahnen, president of the New Hampshire Hospital Association, said he has long been fighting the state over funding shortfalls and believes the state’s health care network is at a crisis point. “We have to find a way to solve that problem,” he said. “We clearly have to find a way of changing the trajectory of how the system works. It simply is broken and not sustainable.”

In past years, DHMC and other large hospitals in the Granite State had been reimbursed under the state’s disproportionate share Medicaid program. But recent changes in the way the state distributes DSH payments have shortchanged large hospitals — which provide about 85 percent of the charity care in New Hampshire — because there isn’t enough money to go around.

At the same time, those hospitals are losing money on a “Medicaid enhancement tax” that they are required to pay to the state and which is used to garner more federal funds. In DHMC’s case, that tax came to $47 million this year, though $10 million is in dispute, according to Frank McDougall, vice president of government affairs for Dartmouth-Hitchcock.

As a result, between uncompensated care and the state Medicaid tax, DHMC stands to lose $121 million in fiscal year 2013, putting further cost pressures on the state’s largest health care provider and threatening its workforce and ability to keep treating the area’s neediest residents, McDougall said.

The Medicaid enhancement tax, levied on hospitals at a rate of 5.5 percent of gross patient revenue, has been around since 1991 and served as a way for New Hampshire to collect more federal money, a portion of which went into the state’s general fund. Until recently, hospitals tolerated the tax because it was returned to them via DSH payments, making it a financial wash.

Indeed, how the state manages Medicaid funds is at the center of a lawsuit Dartmouth-Hitchcock and nine other hospitals have brought against the state. This latest round of DSH disbursements, while not surprising, offers further proof of why the law needs to be changed, McDougall said.

“What’s driving this is a ridiculously flawed state policy, which we hope is changed in the future budget and which has punished those who provide the most charity care,” McDougall said.

Budget Questions

After years of what hospital administrators say has been Concord’s disinterest, if not outright hostility, toward the Medicaid problem, they may finally be getting a sympathetic ear.

In her budget address on Thursday, Gov. Maggie Hassan proposed to expand the state’s Medicaid program by tapping $2.5 billion in federal funding available under the Affordable Care Act. She also acknowledged the financial burdens on health care providers and called for a “need to re-examine the massive tax increase imposed by the last budget on New Hampshire’s hospitals.”

Toward that end, Hassan proposed reducing the amount of the Medicaid enhancement tax that goes into the state’s general fund so that more money would be available for uncompensated care payments.

McDougall applauded Hassan’s plan to expand the Medicaid program and said the proposal to increase funds for the DSH program was promising, calling it a “baby step” in the right direction. He was disappointed, however, that her proposal continues to rely on taxing hospitals as a source of funding to pay for the state’s Medicaid expenses.

No hospital in the state was reimbursed for all of the charity care it is expected to provide in the 2013 fiscal year, according to state figures, although smaller “critical access” hospitals such as Alice Peck Day Memorial Hospital in Lebanon and Valley Regional Hospital in Claremont came close.

Alice Peck Day provided $4.3 million in care for which it received no compensation and got back $4.16 million in DSH payments from the state. Valley Regional did $6.8 million in charity care and is getting $6.5 million. (“Critical access” is a federal designation for hospitals with 25 beds or fewer.)

DHMC, meanwhile, provides more charity care than all 13 critical access hospitals in New Hampshire combined and did not receive any money. Neither will other hospitals such as Laconia-based Lakes Region General Hospital, which provided $11.4 million in charity care.

McDougall said he doesn’t begrudge small hospitals their fair share of money. But he believes the funds should be distributed more equitably. “It shouldn’t be as disproportionate and ridiculous as it is now,” he said.

The way DSH money is distributed is a problem for small hospitals as well because the uncertainty surrounding the payments makes it difficult to budget, according to hospital officials.

“The (Medicaid enhancement tax) and DSH payments are critical, but when it comes to budgeting, you don’t figure it in because you never know,” said Maryanne Aldrich, a spokeswoman for Cottage Hospital in Woodsville, which got just over $4 million from the state toward the $4.2 million it provided in charity care.

Similarly, Alice Peck Day wasn’t sure it would get any reimbursement for charity care this year and so didn’t include it in the budget, said Evalie Crosby, vice president of finance at the Lebanon hospital.

In fact, there’s still some uncertainty. The payments handed out in December are technically “interim payments,” as they won’t become finalized until a federal audit is performed three years from now, according to Marilee Nihan, Medicaid finance director in New Hampshire.

Alice Peck Day’s DSH payment was more than enough to cover the $1.9 million that APD paid in its Medicaid enhancement tax, but Crosby said nobody is happy with the way the system works.

“It is broken,” she said. “We’re on the side of the critical access hospitals that did receive payments, but is it OK that the other (noncritical access) hospitals did not? No, it is not.”

‘No Additional Dollars’

The issues of DSH payments and the Medicaid enhancement tax haven’t always been so contentious. In 2011, however, the state changed the way it distributed the money. Lawmakers said they would still tax hospitals, but the DSH funds would not flow equally back to them as before. Small hospitals, which presumably had much smaller financial cushions than large institutions, would get priority. Then, if there was any money left over, it would go to larger hospitals.

In December 2011, when the first payments were handed out under this new approach, there was no money for large hospitals. It was the same story last December.

“We’ve gotten very close, but at the end of the day, there were no additional dollars to give to noncritical access hospitals,” said Katie Dunn, associate commissioner for the New Hampshire Department of Health and Human Services.

New Hampshire collected $176.5 million through the Medicaid enhancement tax in fiscal year 2013, according to the New Hampshire Department of Revenue Administration. The federal government matched $108 million of that, and a total of $216 million went to health care providers for uncompensated care and to reimburse providers that treat Medicaid patients. The remaining $68.5 million, which did not get a federal match, went into the state’s general fund.

No hospital was reimbursed for the entire amount it billed Medicaid. DHMC charged New Hampshire Medicaid for $151 million in care and received just $28.9 million in Medicaid reimbursements from the state, according to Department of Health figures.

New Hampshire needs to budget more money to compensate hospitals that provide Medicaid and charity care, McDougall said. Failure to do so will affect patient care and also the state’s workforce.

DHMC and other hospitals around the state have cut hundreds of jobs through layoffs and staff buyouts in the past couple of years, and officials say the cuts to Medicaid funding are largely to blame.

“The fact that there are 400 less people working here than there were when this budget passed says something,” McDougall said.

Patient access also has been restricted. More than a year ago, Lakes Region General Hospital stopped accepting Medicaid patients at a dozen primary care offices in its service area, a policy that remains in effect, said Ahnen, of the New Hampshire Hospital Association.

Solving the problem doesn’t require a complicated fix, he said. “I don’t think there’s any magic to it except that we have to fund it,” Ahnen said.

Hassan’s budget would increase DSH payments to $84 million in fiscal year 2014 and $113 million in 2015.

At those levels, large hospitals could expect to receive at least some payment toward the charity care they provide. But McDougall said he believes Hassan’s revenue projections are overly optimistic.

“Those are based on projections we believe are very, very robust and hard to achieve,” he said.

McDougall said he would work with the governor and legislators to address concerns about uncompensated care. Legislation is being written now and could be introduced next month, he said. There’s also plenty of work hospitals are doing outside Concord to change the system.

In addition to bringing the lawsuit, DHMC officials have been appealing to the Centers for Medicare and Medicaid Services about the problems with Medicaid in New Hampshire, McDougall said.

CMS director and deputy administrator Cindy Mann has met with DHMC officials to hear their complaints, and has been going back and forth with New Hampshire state officials to get more information and address the problems.

“That will certainly keep us busy in the courts and with CMS on the advocacy side to right this wrong,” McDougall said.

Chris Fleisher can be reached at 603-727-3229 or cfleisher@vnews.com.