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N.H. Hospital Tax Settlement Adopted

Concord — Legislation needed to implement a settlement with 25 New Hampshire hospitals over Medicaid rates and a tax on hospital revenues that was deemed unconstitutional passed the Legislature easily Wednesday.

The House voted 278-72 after a brief discussion to approve the deal, and the Senate did the same on a voice vote not long after. The legislation implements a settlement negotiated among Gov. Maggie Hassan, legislative leaders and the hospitals.

“Dartmouth-Hitchcock is very happy with the legislation and with the settlement agreement,” said Frank McDougall, vice president for government relations at the Lebanon-based hospital and clinic operator.

McDougall hailed the deal as a “bellwether for improving relations with the leaders of our state government” in the ongoing work of improving quality and lowering costs of health care.

St. Joseph Hospital in Nashua, which has sued over the tax, is the only hospital that didn’t sign onto the agreement.

“In New Hampshire, unlike in Washington D.C., we continue to work across party lines to solve problems in order to keep our economy moving forward and to protect priorities that are critical to our people,” Hassan said in a statement released after the vote.

Under the settlement, the tax rate would drop from 5.5 percent assessed on net patient revenues to 5.45 percent in 2016 and to 5.4 percent in 2017. It could drop to 5.25 percent in 2018 depending on if the total cost of uncompensated care provided by hospitals drops below $375 million. Uncompensated care currently totals $427 million.

The tax brought in about $185 million this year and was used for Medicaid and other state spending. The agreement calls for all the money to be spent on health care after the current budget, sparing the state from making deep spending cuts. The hospitals would get more state aid starting in 2015.

The deal will require Dartmouth-Hitchcock to make a $40 million tax payment next April for the fiscal year that ends June 30, but the hospital will get back $9 million from the state, McDougall said.

Dartmouth-Hitchcock will be guaranteed reimbursement for 50 percent of its uncompensated costs for care for low-income patients for two fiscal years, then reimbursement for 55 percent of those costs for two more years.

Recently, Dartmouth-Hitchcock has posted annual uncompensated care costs of about $92 million, but it is hoped that those costs will decline as health care reforms move forward, McDougall said. Dartmouth-Hitchcock projects that it will collect $175 million in uncompensated care cost reimbursements over four years, he said.

Steve Ahnen, president of the New Hampshire Hospital Association, said the agreement shows how the state and hospital community can work together.

“This is an important agreement that will allow New Hampshire to move forward, building a strong and sustainable health care system for our people,” he said in a statement.

Hassan, legislative leaders and the hospitals negotiated for several months toward a settlement over the tax and Medicaid rates. The discussions focused on how to boost payments to the hospitals since New Hampshire’s reimbursement rate for Medicaid care is about 50 percent of cost, which the hospitals argue is too low.

Under the agreement, the state’s two rehabilitation hospitals would no longer pay the tax. A judge had ruled this winter that applying the tax to them was unconstitutional.

In 1991, hospitals began paying the tax so the state could gain matching Medicaid funds to pay for health care for the poor. For many years, they got all their taxes refunded dollar-for-dollar.

In 2011, the federal government said states could no longer refund all the money and, instead, had to apply a formula that reimbursed the funds according to hospitals’ Medicaid costs. Three years ago, the Republican-controlled Legislature cut Medicaid funding to the hospitals by more than $130 million, but retained the tax. That prompted hospitals to sue.