CONCORD — The Republican-controlled state Senate on Thursday approved its own solution to a potential budget crisis created by court challenges to a controversial hospital tax.
In a 13-11 vote along party lines, senators approved an approach championed by Senate President Chuck Morse, R-Salem.
Now it remains to be seen whether that solution can later be reconciled with a vastly different approach approved the day before by the Democratically controlled House.
Morse stepped down from the podium and handed the gavel to Sen. Bob O’Dell of Lempster so that he could present the Senate amendment he championed as a first step toward dealing with the Medicaid Enhancement Tax.
“This is a measured attempt to move the state away from reliance on the MET in the wake of recent court decisions,” he said.
Morse was referring to two separate Superior Court cases in which two different judges ruled the tax is unconstitutional because it is not applied evenly to all providers of medical services and weighs unfairly on hospitals.
The rulings put about $185 million to $190 million at risk over the next two fiscal years. The tax on patient services was used since the 1990s to attract matching federal funds and was rebated to the hospitals, until federal rules changed.
The state began keeping more of the money to balance its budget, and the hospitals sued. While the state appeals the rulings to the state Supreme Court, lawmakers have been working under the assumption that they will have to find some way to deal with the loss of a major revenue source.
The plan approved by the Senate on Thursday would reduce the current tax rate from 5.5 percent of net patient services revenue over the next three years to 4 percent, with an eye to eliminating it in the future. It also changes the definitions of what is taxable and removes rehabilitation hospitals from the tax base.
It would use insurance tax revenues generated when 50,000 of the state’s adult poor join the state Medicaid program and others buy private insurance under the Affordable Care Act, and additional federal matching money, to offset the loss of some MET revenues.
Morse acknowledged that the Senate plan is only a first step, and will mean significant budget cuts.
“This will certainly require tough decisions by budget writers in the next session,” he said.
The House plan would expand the tax base to include other health care providers beyond hospitals if the Supreme Court upholds the Superior Court rulings.
Before voting to adopt the Morse proposal, the Senate voted along party lines to defeat an alternative presented by Manchester Democrat Lou D’Allesandro, who said the Morse plan would create a $112 million shortfall for budget writers to deal with.
D’Allesandro proposed reducing the rate more slowly and keeping rehabilitation hospitals in the tax base, which he said would reduce the general fund impact by $64 million.
Morse described his proposal as a better opening bargaining position with the House. The Senate and House are expected to negotiate the two plans in hopes of finding a compromise before lawmakers go home June 5. The hospitals also would have to be partners in any agreement that precludes further court challenges.
“We all know there will be a Committee of Conference on this,” Morse said, “possibly two.”