MANCHESTER — Three New Hampshire hospitals asked a judge on Monday to declare the Medicaid Enhancement Tax unconstitutional, complaining that the tax hits hospitals while not taxing others that perform the same service, such as doctor offices and clinics.
But a lawyer representing the state said the 20-year-old tax is constitutional, and noted it never became an issue until 2011, when the state stopped reimbursements to the hospitals with Medicaid dollars through the Disproporitonate Share Hospital (DiSH) program.
“This is a thinly veiled challenge to the Legislature’s reduction in DiSH payments,” said Laura Lombardi, a senior assistant attorney general representing the state Department of Revenue Administration (DRA).
In a hearing Monday in Hillsborough County Superior Court-North, lawyers for Catholic Medical Center, St. Joseph Hospital and Exeter Hospital said the three hospitals paid $31 million in Medicaid Enhancement Tax payments in 2011.
Their central argument is the fairness of the tax. Hospitals must pay the 5.5 percent tax on all patient service revenues, while doctor offices and surgery centers perform many of the same services but aren’t taxed.
Hospital lawyers also presented a letter, written by former commissioners — Harry Bird at Health and Human Services and Stan Arnold at DRA — who said the tax would be rescinded if the federal reimbursement system dries up.
“The idea was hospitals were doing this so we (the state) could use the loophole,” said Dan Will of Devine Milliment.
A decision will eventually impact a key source of revenue for the state. Last year, all New Hampshire hospitals paid $181 million in the tax.
Hospitals have challenged the tax in several forums. In June, the DRA announced it has reached agreement that dealt with more than half of the hospitals that challenged their individual tax bills. It issued reimbursements of $5.39 million.
The agreement also says that the ruling in Monday’s court case will affect only future MET payments.
During the hearing, Superior Court Judge Philip Mangones peppered Lombardi with questions. At one point, he asked her to justify why hospitals pay the tax while other medical service providers do not.
She noted that hospitals receive higher Medicaid payments for the same service.
“Are you saying they can afford it better?” Mangones replied.
Mangones said he would issue a ruling within 60 days.
“Win, lose or draw, the case is likely headed to the Supreme Court,” said Alex Walker, a Catholic Medical Center vice president who attended the hearing.