CONCORD — The necessary legislation to cement an agreement on the Medicaid Enhancement Tax with 25 of the state’s 26 hospitals was signed into law Monday.
The agreement suspends both state and federal litigation over the tax, helps stabilize the state budget, and provides more guaranteed money for hospitals while slightly reducing the tax rate.
The four-year agreement will avert what could have been a $375 million budget shortfall this biennium, after two superior courts ruled the state’s tax on hospitals or the Medicaid Enhancement Tax was unconstitutional. The courts ruled taxing only hospitals for services also provided by private laboratories, private physician practices, ambulatory surgical centers and other health care providers violates the constitution’s equal protection clause.
Over the next five years, the agreement will double the amount of state and federal money dedicated to helping hospitals recoup their uncompensated care, or services they provide for free or for less than cost because of low state Medicaid reimbursement rates.
The hospitals will have to abide by state tax guidelines issued last year and speed up payments which will increase their tax liability this and in the next four fiscal years.
All the money raised by the tax has to be spent on health care services.
“In order to protect the state’s budget and ensure the health and well-being of Granite Staters, we have worked since I took office with legislators from both parties, hospitals and other stakeholders to overcome the difficulties created by changes in the use of Medicaid Enhancement Tax revenues enacted in 2011,” Gov. Maggie Hassan said after signing Senate Bill 396.
Under the agreement, the state guarantees small rural hospitals receive at least 75 percent of their uncompensated care costs and up to 50 to 55 percent for large hospitals.
Hospitals are taxed on net in-patient and out-patient services under the MET. The revenue 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 MET 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.
Two rehabilitation hospitals and four medical hospitals sued the state in separate cases in state courts claiming the tax was illegal.
The agreement removes rehabilitation hospitals from the tax and hospitals agree not to seek refunds.
The agreement could cost the state up to $100 million in the next biennium and up to $87 million in the 2018-19 biennium.