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State and hospitals reach agreement on MET battle

State House Bureau

May 29. 2014 7:59PM

CONCORD — A tentative agreement reached Thursday with all but one of the state’s 26 hospitals would essentially end their litigation against the state over the constitutionality of the Medicaid Enhancement Tax and reimbursement rates for the Medicaid program.

Gov. Maggie Hassan announced the tentative agreement before the conference committee trying to reach a compromise to address the MET issues raised in two superior court decisions declaring the tax unconstitutional.

The agreement hinges on what lawmakers approve to address the MET issues. House and Senate negotiators meet Friday at 10 a.m. to review the proposed legislation, with a 4 p.m. deadline.

Under the agreement, hospitals would receive more money for uncompensated care, which would be matched dollar-for-dollar by federal money. Hospitals would abide by state tax guidelines, which would increase their tax liability.

Hospitals are taxed on net in-patient and out-patient services under the MET, which was used to match federal money and then returned to the hospitals — until the last biennium.

In 2011, state budget writers decided to keep about $250 million of tax revenue and use it for other purposes. Ten of the state’s largest hospitals sued in federal court over Medicaid reimbursement rates going back to 2008. Hospitals claim the changes in rates threaten the stability of the Medicaid program.

Two rehabilitation hospitals and four medical hospitals sued the state in separate cases claiming the tax was illegal because it did not apply to other health care providers offering the same services, such as ambulatory surgical centers and private physician practices and laboratories.

The agreement announced Thursday removes rehabilitation hospitals from the tax and clarifies what services are covered under the MET.

Hospitals will not ask for MET refunds for fiscal years 2014 or 2015 under the agreement. Refunds could have put about $375 million in state revenue at risk this biennium — about $145 million of that general fund money.

The agreement will have no effect on the state budget for fiscal year 2015, but would cost the state between $43 million and $93 million during the next biennium or fiscal years 2016 and 2017, according to Hassan chief of staff Pam Walsh.

St. Joseph Hospital in Nashua is not part of the agreement. Walsh said the hospital does little charity care and receives little uncompensated care money from the state and federal governments.

“You have to do charity care to be reimbursed for it,” Walsh said.

Lawmakers are expected to include language in Senate Bill 365 that directly addresses the two court rulings on the tax’s constitutionality.

The changes are expected to shore up the state’s claim the MET is constitutional and allowed under both federal and state law. The changes would redefine several taxpayer classes and would put MET money into a special fund to be used only for health care services and not the state’s general fund.

Hassan said the agreement provides stability for the state’s budget and ensures hospital tax money pays for critical health care services including uncompensated care

“This settlement agreement will provide critical stability to our state budget while bringing us nearly all the way back to the situation that existed before funding to hospitals was cut in 2011,” Hassan said. “I am hopeful this settlement, combined with our efforts to expand access to health insurance coverage, will allow us to resume the important and productive partnership that existed between the state and our hospitals for so many years.”

Under the agreement, the state would guarantee that critical assess hospitals receive 75 percent of their uncompensated care for providing charity care and below-cost reimbursements under the Medicaid program. The state’s larger hospitals would receive up to 50 percent of their uncompensated care for the next biennium and 55 percent in the biennium beyond.

The agreement involves state funding through fiscal year 2019, according to Senior Assistant Attorney General Mary Ann Dempsey.

The four-year agreement is contingent on legislative approval.

Hospitals agree to put their litigation over the constitutionality of the tax on hold, but could reinstitute the suits if the state fails to abide by the agreement or cuts funding. Hospitals would end federal litigation over the rates if the state meets the agreed-to funding levels in the 2016 and 2017 fiscal years, Dempsey said.

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