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Lawmakers explore ways to fix Medicaid tax shortfall

State House Bureau

May 06. 2014 9:53PM

CONCORD — The House and Senate staked out their claims for the best fix to the state’s hospital tax problems Tuesday and will likely fight it out over the next four weeks.

Two superior courts have ruled the Medicaid Enhancement Tax is unconstitutional because it taxes hospitals but not other health care providers for the same services. The rulings put about $185 million to $190 million at risk in this and the next fiscal year.

The Senate plan would use insurance tax revenues generated when 50,000 of the state’s adult poor join the state Medicaid program under the Affordable Care Act. Additional federal matching money for health care services would also offset the loss of MET revenues.

The House will settle on one of two plans outlined Tuesday. One would expand the MET to all health care providers, not just hospitals. Another clarifies that the money collected is used only for health care services.

Gov. Maggie Hassan said having options is good, but negotiations will continue.

“I remain focused on negotiating with all relevant stakeholders, including legislators from both parties, hospitals and providers,” Hassan said, “and it is critical that we take steps that will allow these ideas to move through the legislative process as quickly as possible.”

Tuesday morning, Senate President Chuck Morse, R-Salem, laid out his proposal to address the MET and the state’s potential revenue shortfall.

Morse wants to reduce the money hospitals would have to pay, while boosting what they are paid to provide Medicaid services. The state has the lowest reimbursement rate in the country, paying about 50 cents on the dollar for Medicaid services.

Reducing MET

Under Morse’s plan, the MET would be phased out by reducing the rate one-quarter of 1 percent a year for four years; the legislature would have to decide whether to continue the tax. The current tax rate is 5.5 percent. It would be reduced to 4.5 percent by 2019.

“New Hampshire cannot take $184 million and wipe it out today,” Morse said. “I don’t even think the hospitals would agree to that.”

Morse’s plan would remove the state’s two rehabilitation hospitals from MET liability. It also clarifies and narrows what out-patient services are subject to the tax.

The proposal reduces what the state pays to reimburse hospitals for the services they provide but are not paid for. As more and more state residents are covered by health insurance, state payments would decrease.

Under the bill, lawmakers will have to decide how to cut $56 million from the fiscal 2015 budget and a reduction of about that amount of general funds every year going forward. For the next biennium, general funds would be reduced by approximately $112 million.

“I recognize that as a result these changes will require some tough decisions by budget writers to address the loss in general fund revenues in the next budget,” Morse said. “I am confident that expected increases in outpatient services, provider payments, and state revenue will help to offset the budgetary impact of this amendment.”

It’s ‘a real tax’

New Hampshire Hospital Association President Steve Ahnen said he had not had enough time to review the proposal, but acknowledged hospitals are split over the need to continue the Medicaid Enhancement Tax. Some want it eliminated, but others see it as a way to increase federal payments, he said.

“The MET is a real tax,” he said. “Some hospitals pay more in (MET) tax than they get for treating Medicaid patients.”

Ahnen said the underpayment for Medicaid services is a significant challenge to hospitals.

Legislators and hospitals need to work together to find “a solution that provides a sustainable means to pay for the Medicaid program,” he said. How the money is allocated is the key, Ahnen noted.

But Morse warned Ahnen that expecting additional revenue beyond what he outlined through his amendment would not happen.

“There is plenty of money in the system to fix what the hospitals want,” Morse said. “To ask for more, that is to go too far.”

The Senate Ways and Means Committee voted unanimously for the proposal, which the Senate will debate May 15.

Tuesday afternoon before the House Ways and Means Committee, proponents of the plan to expand the MET to ambulatory surgical centers, therapist services, free-standing laboratory and radiological services and emergency ambulance services ran into opposition.

The federal government currently allows 19 classes of services to be taxed to enhance Medicaid programs, which 49 states and Washington, D.C. do. New Hampshire currently taxes four of the categories and would add another four under the proposal.

Cordell Johnson of the New Hampshire Municipal Association said the proposal appears to tax municipal ambulance service.

“I would submit that is not the way it should be done,” Johnson said. “I don’t know of any other (state) tax municipalities pay.”

He suggested cities and towns as well as the private ambulance companies they contract with be exempt from the tax.

Opposition also came from representatives of several ambulance companies and laboratories.

Rep. Neal Kurk, R-Weare, who is a co-sponsor of both amendments, suggests the committee adopt both proposals so House and Senate negotiators will have more options to consider.

“The more approaches to solving the problem as we go forward,” Kurk said, “the more likely we will be able to find a solution.”

The House Ways and Means Committee meets Thursday to decide what recommendation to make. The House votes on the bill May 14.

Established in 1991

The MET was established in 1991. The state used the money generated by the hospital tax to match federal money earmarked for the Disproportionate Share Hospital program for facilities treating a large number of Medicaid patients. The state collected the money and then returned it to the hospitals after the federal match.

In 2009, federal officials said the money returned to hospitals had to align with the number of Medicaid patients treated. When Republicans held super majorities in the House and Senate in 2011, budget writers decided to retain about $130 million a year and eliminate uncompensated care for the state’s largest hospitals.

The hospitals sued. Earlier this month, a Hillsborough County North Superior Court judge ruled the tax was unconstitutional because only hospitals paid the tax when other providers such as surgical centers and laboratories do not.

The state will appeal that decision and a similar ruling for rehabilitation hospitals.

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