Posts

Charlie Arlinghaus

June 4, 2014

As originally published in the New Hampshire Union Leader

The brokered deal on the Medicaid Enhancement Tax and lawsuit is a partial solution to an imperfect situation that will require difficult choices but it may still be the right choice to make. The complexity of the tax and the schemes surrounding it make evaluating and understanding the tax, the choices, and the possibilities difficult but let’s give it a try.

The Medicaid Enhancement Tax (or MET) was a convoluted scheme developed in 1991 to borrow from the hospitals and leverage money from the federal government at no cost to the hospitals. In the first decades it wasn’t a real tax, it had no cost to hospitals, and was something they could hardly refuse to go along with. It took almost 20 years but the folly of trusting a money hungry government finally hit them like a 2×4 to the face.

The no-cost favor hospitals did the government had created a structure to collect hundreds of millions of dollars. In 2009, the government took some money off the top. In 2011, hospitals were hit with a de facto tax increase of $250 million. When your taxes go up that much, you take action.

The hospitals stopped being cooperative doormats, hired good lawyers, and – despite the famous lyrical prediction to the contrary – fought the law and the law lost.

That put the government in an odd spot. If they took no action, about $370 million for the current budget would either not be collected or refunded while only $50 million of spending would go away.

Your perspective on what should happen next might depend on your thoughts about the lawsuit. If you believed the state’s appeal of the decision would be successful, you might not think any action necessary but few believed such a thing. Most people – and this includes me – believe that the tax would remain unconstitutional and there would be a $320 million budget hole.

This put hospitals in the driver’s seat. They were willing to negotiate a settlement that included more money for the state but insisted in exchange on some reversal of the earlier $250 million tax hike. There is no possible settlement that will not create a spending problem of some sort.

Theoretically, the tax was always collected to fund uncompensated care (largely free charity care that hospitals provide low income patients) and for Medicaid underpayment. Remember that Medicaid is not the government paying for health care. It is the government paying about a third to a half of what private insurance pays the same provider for the same service and expecting the provider to eat the rest of the cost. In theory, the MET is to help cover some of those underpayments.

The current proposed plan mandates that a minimum portion of the tax collected to fund uncompensated care actually does so and that those payments are made proportional to charity and Medicaid care actually provided. Even after we made a fake tax a real tax, some money went to such payments but that amount will probably rise by $125 million – half of which would be paid by the federal government.

There is a substantial difference between how much we will collect and how much we will return to hospitals. The remainder must be used – as it is used now voluntarily – to support regular Medicaid provider payments which we have to make either way. That additional amount can be thought of as the portion of the scheme that is a real tax. That amount is likely to be around $80-100 million less in the next budget than it is today. That’s a big hole but it’s after the election so politicians are happy.

The precise language of the law is being tweaked to eliminate drafting errors and some inconsistencies so it is a bit of a moving target. To make matters worse, there is not yet a fiscal note attached to the bill that is publicly available. I remain convinced that no legislation should be passed that does not include a fiscal note – the official financial analysis – that is available to the public for a week before the vote.

All that having been said, something has to be done or the state will have a huge financial hole. If lawmakers are confident the State would win an appeal to the Supreme Court, they might vote against this incomplete agreement. However, I think the state would lose an appeal and so do most lawyers I know. In the battle between a crap shoot and a beat up used car, the jalopy wins.

Charlie Arlinghaus

May 14, 2014

As originally published in the New Hampshire Union Leader

I believe that the unique joys of another special legislative session loom on the horizon for the New Hampshire legislature. The purpose of the session will be the byzantine creature known as the Medicaid Enhancement Tax but we might just as easily call it the current budget crisis. Some legislators deny the existence of a crisis. They’re wrong.

The current crisis has come about as the courts have ruled a weird tax scheme of ours unconstitutional and placed almost $400 million the state is counting on for its budget in jeopardy. Solutions are swirling in Concord and some sort of Grand Alliance may yet come together but a solution must be reached by June 5 or a special session will be required. In the meantime, the governor’s delay in taking simple steps of preparation is inexplicable.

For two decades, the state relied on a perfectly-legal scam known as the Medicaid Enhancement Tax to balance its budget. The shell game – referred to by critics on the right and left alike as MediScam – was a clever shifting of money of money back and forth whereby hospitals got back every penny of a sham tax they paid but we briefly laundered it through state coffers so it could be “enhanced” with federal Medicaid reimbursement dollars diverted to other uses.

The Hospitals were happy to help out so long as the odd scheme didn’t cost them any money. Changes made in 2009 created winners and losers among hospitals and were a sign of things to come. Then in 2011 a tax that started as a net zero, simply an accounting favor the hospitals were doing the state as good corporate citizens, suddenly became a full blown real tax with a vengeance.

The final budget saw the hospitals take a $248 million hit – a far cry from net zero. Understandably they started looking into the details of the scheme. They sued and agreed that the tax was discriminatory. Some budget writers believe the state will win an appeal. Fewer lawyers than budget writers believe such a thing.

The current ruling on the field is that the $185 million we hope to collect in October is unconstitutional.  If so, hospitals will also be entitled to get back the money they paid last October.  If the tax is taken off the table then some of the uncompensated care program it pays for probably goes away too but over the biennium the net budget problem is in excess of $300 million.

There are plans to fix it but Rep. David Hess – author of one of the plans – sums it up best when he quotes Churchill to describe the current discussion as not the end or even the beginning of the end: “But perhaps it is the end of the beginning.”

The legislature has difficulty reaching an agreement with Democrats on side and Republicans on the other. This situation is further complicated because a seat at the table is occupied by the hospitals. If they don’t agree to drop their lawsuit, they sit in the driver’s seat with the $300 million budget problem riding shotgun.

The Senate President Chuck Morse has proposed slowly phasing out the tax (over 22 years) and increasing payments that hospitals receive. Changes proposed in the House by Rep. Hess among others would maintain the revenue stream by addressing the court’s administrative concerns.

To become law a settlement would have to be negotiated between the House and Senate, between Republicans and Democrats, and between all of them and the hospitals. That’s a big task to accomplish in two weeks. In all likelihood, a solution will be complicated, will need time to be studied and fully explained to 424 legislators, and will almost certainly require a special session this summer rather than be cobbled together quickly now.

The one thing that is clear is that there is in fact a gathering budget storm. Under our laws, when the governor determines that revenues will be insufficient to maintain a balanced budget, she is empowered to make reductions in expenditures. Every governor in recent has done this by executive order – in most cases multiple times.

The problem is there and has been there for more than a month. No solution is going to be budget neutral. With six weeks left in the fiscal year, time is running out to make reductions in the current fiscal year. With the legislature set to go home June 5 the time to get them to act on changes that need legislative approval is now. Leadership requires action.

Update: http://www.jbartlett.org/press-release-listening

Charlie Arlinghaus

April 30, 2014

As originally published in the New Hampshire Union Leader

The $400 million hole in the state’s budget I described two weeks ago has caused the state to be placed on a negative fiscal watch. Some would ignore or minimize the crisis but the problem is large, structural, and will require more than a small tweak to fix.

This past week, the national bond rating agency Standard and Poor’s lowered the state’s outlook from ‘stable’ to ‘negative.’ Very quickly, the other major national group, Moody’s, followed suit and advised investors and anyone watching the state’s finances that New Hampshire’s outlook was negative. The bond rating was not lowered but both major fiscal watchdogs are advising the world that New Hampshire’s outlook is negative. I think it’s fair to say that this is not putting our best foot forward as we look to attract jobs and investment to the state.

When the state courts ruled (as many of us predicted they would) that the state’s Medicaid Enhancement Tax is unconstitutional, the ruling took off the table almost $400 million used to balance the state’s budget (about $370 million in direct payments plus some federal matching money which could still exist if the state uses other funds to match it). Half that money has already been collected for the fiscal year ending June 30 but, being unconstitutional, it would have to be refunded. The other half simply won’t be collected. The state can delay the refund of the first half by appealing but no one really thinks the state has much hope of winning an appeal.

Since the decision came out, we’ve known there’s a problem and a big problem. The governor can under state law (and should immediately) start cutting back on the state’s budget. A $400 million problem that has to be made up in one year isn’t easy when the state’s general and education fund budget (our “operating budget”) totals only $2.32 billion in FY15.

It is important to note that not all lawmakers have their heads in the sand. Some of them sound like they’ve been listening. Senate President Chuck Morse, who long served as chairman of the Senate Finance Committee, decided to focus on substance. He described the Standard and Poor’s report as a “clear road map.” He’s right. The S&P description of what’s wrong reads like a primer on the state’s fiscal problems. They are describing New Hampshire as negative based not simply on the MET problem but on the state’s pathetic reserves and our having one of the worst-funded pensions in America.

Sen. Morse responded to each factor. His statement on the problem provides a clear outline of a three part approach. First, take the remaining $15 million of surplus we haven’t already spent and put it away in the rainy day fund. Pre-crisis, the governor and House were reluctant to do so. One imagines they will now see the light.

Second, Morse doesn’t want to undermine the modest pension reforms authored by Sen. Bradley and passed in 2011. I would go further and move to a more stable, defined system.  Three years ago, Josh Elliott-Traficante outlined the options to fix the system in “Defined Contribution Models in Other States” for the Josiah Bartlett Center. New Hampshire needs a well-funded system not “worst-in-the-nation.”

Third, Morse correctly points out that the fix to this problem is not short term or easy. Grant Bosse’s “Meet the MET” warned about this mess in 2013 when people were pretending a crisis wasn’t looming on the horizon. Morse describes the task correctly as needing to find “long term solution to how we fund our state’s health care safety net.” That debate will be a political minefield.

There is very broad agreement that there ought to be some sort of safety net but tremendous disagreement about what that net ought to include or look like. The state has always been content to fly by night and create short term solutions to nurse us through the next few years. Sometimes a crisis can focus the mind.

One real danger here is that the scope of the problem will encourage some lawmakers to do nothing right away. That’s their natural reaction and it’s wrong. S&P showed the need for a less pathetic rainy day fund. Put away the $15 million before you spend it. We know the big problem will approach $400 million. Start cutting spending now as the first fiscal year winds down and before managers are inclined to “spend it so they don’t lose it.”

A crisis isn’t coming, it’s already here. The time for acting isn’t soon it’s now.

Charlie Arlinghaus

April 16, 2014

As originally published in the New Hampshire Union Leader

A Superior Court ruling just created a $400 million hole in the state’s budget.  A fake tax little understood by most policymakers and almost unknown to the public started as a scam to leverage more money from the federal government, turned into a clearly unconstitutional real tax, and has created New Hampshire’s own fiscal cliff. Lawmakers will deal with it the way they deal with most big problems: put it off until after the next election.

Ironically, the state’s Medicaid Enhancement Tax (MET) was created in 1991 to fix a budget hole. Lawmakers learned of and copied other states’ efforts  to create a pretend hospital tax and, by giving it back to the hospitals, have it matched by the federal government in a way that diverted half of it to the state’s general operating budget. Critics on both the right and left called the shell game “Medi-scam.”

The scheme is best illustrated graphically in a chart Grant Bosse developed for the Josiah Bartlett Center in a paper called “Meet the MET.” In the original two decades,  hospitals would pay the state let’s say $200 million in MET. The state would give $100 million to the general fund for other state expenses and spend $100 million on the same hospitals in an only technically unrelated program called DSH for unreimbursed Medicaid expenses. Because DSH was “Medicaid spending,” the feds would match it with another $100 million for the hospitals.

The hospitals paid $200 million and got $200 million back – usually on the same day. The state, however, got an extra $100 million to balance the rest of the budget.

Hospitals were content to go along with this because the agency that regulated them, the state HHS department, told them they would be doing the state a favor and the tax would never be real. Then commissioner Harry Bird assured hospitals that if the federal government ever disallowed the arrangement, the “tax” would go away.

In the 2009 budget, some tweaks were made to satisfy federal regulators who insisted on some effort at masking the fiction. Hospitals no longer got back penny for penny what they paid but for most hospitals it was close. In 2011, legislators went further and completely decoupled MET and DSH. The fake tax became a real tax and most DSH payments were suspended. Rather than a net zero, hospitals lost $125 million each year.

Under New Hampshire law taxes can’t be discriminatory. It’s all right to tax soda if you tax any soda. But you can’t tax soda bought at the grocery store but not at the convenience store. The MET is discriminatory. We tax certain procedures if they’re done at a hospital but not if they’re done somewhere else. The court, quite rationally, ruled the tax unconstitutional.

The state will appeal the decision and that appeal will take until after the next election – conveniently. But it’s hard to see any hospital come November making their MET payment – why would they pay a tax that has been ruled unconstitutional? The damage isn’t just the $72 million used by the general fund, it is much greater.

The MET raises about $175 million from hospitals. In rough terms, about $75m goes directly to the general fund, about $75m supports Medicaid payments that used to be made from the general fund, and about $25 of it is given back to hospitals and matched by the federal government (those numbers are not precise and vary year to year). So, in total the state loses the 175 and the 25 match – about $200 million each year.

Each hospital has reserved its right to have their October 2013 payment refunded and no hospital is likely to pay their October 2014 payment so we will suddenly see a $400 million budget hole. Given how much fighting happens over $15 million which may or may not be put in the rainy day fund, I would expect the $400 million hole to be like an earthquake.

The preferred solution of most “leaders” in Concord is to appeal the sensible and very obvious lower court decision. The advantage of appeal is that it will take a year so the final decision won’t occur until after the next election. Sure, we’ll have a cash flow problem at some point but that too won’t occur until after the November election.

Below is a piece written last year during the budget debate and the issues surrounding the revenues raised by the MET (Medicaid Enhancement Tax).

On Friday (April 11) Hillsborough Superior Court ruled in favor of the hospitals, finding the tax unconstitutional. 

New Hampshire budget writers grapple with a brand new tax that’s been around for 20 years

By Grant D. Bosse

May 2013

SUMMARY: New Hampshire adopted the Medicaid Enhancement Tax as a means to leverage federal matching funds without imposing any real tax liability on state hospitals. After two decades, budget writers finally ended the practice of MediScam by turning this phantom tax into a real one. Faced with a new multimillion dollar tax liability, New Hampshire hospitals took the state to court and started paying closer attention to how much they owed.  As the Legislature struggles to understand a huge source of state revenue that went without much oversight for twenty years, how they change the Medicaid Enhancement Tax will have expensive implications for the state budget and state hospitals for years to come. This paper will outline the history of the Medicaid Enhancement Tax in New Hampshire, describe how the complex tax works in conjunction with the Disproportionate Share Hospital Program, and dispel some of the many misunderstandings that trip up budget writers trying to incorporate this brand new, 20-year old tax into the FY14-15 State

Click here to download a copy of  “Meet the MET”

Under the Federal Medicaid program, participating states split the cost for providing health care to low income recipients with the federal government. Most states, including New Hampshire, elect to reimburse hospitals for treatment based on a fee-for-service model. Reimbursement rates are set by state officials, but must be approved by the Centers for Medicare and Medicaid Services.[1]

Reimbursement rates under fee-for-service plans are not sufficient to pay for the hospitals’ costs to treat Medicaid patients. The program relies on hospitals to be an implicit third partner, along with states and the federal government, in financing Medicaid. Losses incurred through treating Medicaid patients are offset by patients paying through private insurance, or in rare cases out of pocket.

Throughout the 1980’s, Congress sought ways to encourage states to provide additional funding to hospitals who served a disproportionate number of low-income patients through Medicaid, and thus had fewer privately funded patients on which to shift costs. Beginning with the Omnibus Budget Reconciliation Act of 1981, Congress established the Disproportionate Share Hospital program.[2] DSH allowed states to provide higher payments to hospitals serving more low-income patients, but states were slow to adopt the program. Congress increased state flexibility throughout the 1980s, and states began turning to DSH as a way to leverage federal matching grants to help balance their general fund budgets.

Under DSH, states could exceed the caps on assistance to hospitals under Medicaid, and receive federal matching funds for every dollar. The matching grants range from 50% for wealthy states such as New Hampshire to 75% for the poorest states. On average, the Federal Medical Assistance Percentage (FMAP) is 57% nationwide.[3]

State budget writers now had great flexibility to increase state assistance to hospitals. In states like New Hampshire, every dollar in DSH payments would receive a matching dollar in federal spending. The program was designed to help reduce the hidden subsidies built into the Medicaid program. But nothing in federal law prevented states from recapturing this new pot of money through taxes on the very hospitals the DSH program was meant to help.

State payments under DSH exploded from $1 billion in 1990 to $17.4 billion in 1992, accounting for 15% of total state medical expenditures.[4] New Hampshire quickly became one of the most aggressive states in implementing DSH payments as part of its state Medicaid program. DSH accounted for 35.8% of New Hampshire’s total Medicaid spending by 1992, just two years after adopting it.[5]

ENTER THE MET

New Hampshire began making DSH payments in Fiscal Year 1992, at the same time it imposed a new revenue stream to pay them. The Medicaid Enhancement Tax was a 6% levy on hospitals’ gross patient service revenue, essentially every dollar charged for patient care at all 28 New Hampshire hospitals.[6] The rate is currently 5.5%. The first payments were made in August 1991, and were credited to FY1991, which had ended on June 30th.[7]

Every hospital in the state was designated a Disproportionate Share Hospital, and captured under both MET and DSH. Upon making its MET payment, the State would refund an often identical amount to the hospital under the DSH program. The State would then apply for 50% reimbursement from the federal government.

For example, if a hospital owed $10 million under the MET, it would send its payment to the State, which would send a $10 million DSH payment to the same hospital later that same day. The federal government would soon get an application for a $5 million DSH matching grant, which would be deposited directly into New Hampshire’s General Fund.

Though the DSH program was meant to help narrow the gap between what hospitals spent to treat Medicaid patients and the low reimbursement rates they received, DSH and MET cancelled each other out for New Hampshire hospitals. It resulted in a windfall in unrestricted revenue for the New Hampshire General Fund.[8]

While many states passed new revenue sources like the Medicaid Enhancement Tax to claw back some or most of the new DSH matching grants, New Hampshire was particularly aggressive, recapturing all of its DSH spending through the MET.

The following chart shows DSH and MET payments tracking each other until very recently (Blue and Red Columns), with approximately half that amount making its way into the New Hampshire General Fund (Green Line). Net MET revenues were not always credited in the same Fiscal Year that gross MET revenues were paid.

FIGURE 1

Sources: Office of the NH Treasurer, Department of Administrative Services, Governor’s Budget, HB 1-2013

The Urban Institute’s 1997 paper on the DSH program found that New Hampshire was not alone in using this corner of the federal Medicaid program to shore up its state budget. “In sum, federal DSH payments provided a much needed source of revenue for states.”[9]

Governors and legislative budget writers from both parties have relied on this diversion of DSH funds to help balance the state budget for the past 20 years, in a practice often referred to as “MediScam”.[10]

New Hampshire’s aggressive use of the DSH program to backstop its budget, without providing any additional resources to hospitals serving Medicaid patients earned the attention of federal regulators. In fact, state officials have been fighting a 20-year battle with the Centers for Medicare and Medicaid Services over how much New Hampshire could receive under the DSH program. However, Congress has never stepped in to clarify that federal DSH grants must eventually make their way to Medicaid hospitals, allowing states to continue the practice.

Using Fiscal Year 2006 as an example, the following chart shows how state and federal DSH payments were entirely recaptured by the MET, with federal money eventually making its way into the New Hampshire General Fund. Hospitals were held harmless.

FIGURE 2

 In 2007, the Office of the Inspector General at the federal Department of Health and Human Services ordered the state to reimburse the federal government $35 million in DSH payments based on $70 million in state DSH spending that was deemed ineligible for federal matching funds.[11] The OIG report did not force New Hampshire to end MediScam, but did force state officials to lower their annual DSH payment applications. At issue was New Hampshire’s decision to use gross patient service charges. The OIG report found that the state should have been using net patient service charges, allowing deductions for bad debt, charity care, and patient discounts that never resulted in real revenue to the hospital.

Following the OIG audit, the Legislature amended the MET to apply to net patient service revenue[12], resulting in a $78 million drop in gross MET revenues in FY2006 and a $39 million cut to the amount of MET proceeds transferred to the General Fund.

CMS continued to pressure New Hampshire to end MediScam and use federal DSH funds for their intended purpose. Beginning in FY2010, the Legislature finally decoupled DSH payments from a hospital’s MET liability. No longer would a hospital be guaranteed a full refund of its MET payment through the DSH program. As the New Hampshire Center for Public Policy Studies found in 2011, “This arrangement created ‘winners’ and ‘losers,’ whereas previously the program essentially ensured that hospitals received in return exactly what they provided in taxes.”[13]

The impact was quite substantial for several hospitals. Portsmouth Regional Hospital paid nearly $6 million more in MET than it received under DSH, while Mary Hitchcock Memorial Hospital netted more than $4.7 million from the change.[14] But overall, the state continued to divert about half of its total DSH spending to the General Fund through federal matching grants.

It wasn’t until the next budget cycle that the Legislature truly dismantled MediScam.

THE 2011 BUDGET- ENDING MEDISCAM

The Fiscal Year 2012-2013 State Budget, passed by the Legislature as House Bill 1, contained the largest revision of New Hampshire’s DSH and MET programs since they were established in 1992.

In the 20 years since its enactment, the Medicaid Enhancement Tax had existed only on paper, with little economic effect on New Hampshire hospitals. The 2010 changes meant that hospitals were no longer guaranteed a refund of their full MET payments, but all revenues were distributed among New Hampshire’s 28 hospitals. Federal matching funds, and not the MET itself, fueled the transfer to the General Fund. The 2012-13 budget decoupled MET revenues from DSH payments entirely. For the first time, the MET was a real tax, and not just a way to leverage federal matching funds. Legislative leaders could legitimately claim that their budget contained no new taxes, without mentioning the new tax burden on hospitals that had previously been borne only in theory.

In Fiscal Year 2012 for example, gross MET revenues were no longer twice the state’s annual DSH distribution to hospitals, but nine times as much. The federal match brought total DSH payments to just under $50 million, while MET payments totaled more than $175 million.

Additionally, the Legislature dedicated a significant portion of MET revenues to cover some of the state’s Medicaid provider payments. These are the normal payments outside of the DSH program that the state’s pays to reimburse hospitals for treating patients under Medicaid.

Since state funding for Medicaid provider payments comes from the General Fund, it makes no economic difference to dedicate MET revenues directly to them. In effect, the state was now using the MET to pay for standard Medicaid expenses, rather than for the DSH payments it had been making since 1992.

Dedicating MET revenues to provider payments did have one political advantage. It shielded the effect of decoupling DSH from the MET. Using the MET to cover a General Fund cost that had been paid with other revenues, lowered the apparent transfer to the General Fund. The state budget acknowledged a $75 million transfer from the MET to the General Fund in FY2012, but if the newly dedicated provider payments were still considered as part of the General Fund, the actual transfer topped $150 million.

FIGURE 3

The dark blue line on Figure 1 shows how shifting provider payments turned a large increase in the amount of MET used to balance the state budget into an apparent cut. Both Governor Maggie Hassan’s budget and the budget approved by the New Hampshire House continue to dedicate MET revenues to Medicaid provider payments rather than the General Fund.

Faced with a huge pending deficit, the Legislature was already on pace to cutting a billion dollars from the state’s two year budget. The MET, conceived as a creative way to leverage federal money to balance the state budget, would again help budget writers close the gap. Turning the MET from a tax paid entirely on paper to a real source of state revenue presented the Legislature with a unique opportunity. It could tap into a new source of state revenue not by raising taxes, but by declining to refund an old one.

DARTMOUTH-HITCHCOCK V. TOUMPAS

The 2011 changes to the state’s tax code prompted some big changes in taxpayer behavior. When the full amount of a hospital’s MET payment would be deposited back in their bank account later the same day through the DSH program, hospitals didn’t spend a lot of time examining their tax bill. They had no incentive to lower their liability, and state officials had every incentive to make the tax bills as large as possible, in order to maximize DSH payments and the 50% federal match.

For years, New Hampshire hospitals had gone along with the MET/DSH swap, even though they received no additional money from the arrangement. At least they weren’t paying anything. At the time of its inception, state Health and Human Services Commissioner Harry Bird assured New Hampshire Hospital Association President Gary Carter that the state wasn’t targeting his group under the MET, but merely looking for a new way to qualify for DSH matching funds.

“It is our intent that, should Federal Disproportionate Share funds become unavailable, we would no longer require the State revenue and we would recommend that the rate of taxation drop to zero,” Bird wrote.[15]

But now that the MET was a tax in deed as well as word, hospitals started taking a closer look at their multimillion dollar tax bills.  Several filed amended returns seeking $50 million in refunds for past overpayments.[16] And they withheld $34 million from their FY2013 MET payments as they appeal the current year’s tax bill.[17] That shortfall led Governor Hassan and House budget writers to assume the current budget would end with a deficit on June 30th, but strong business taxes have since made up for lower than expected MET receipts.[18]

A group of ten New Hampshire hospitals is also challenging the new tax law in court. In Dartmouth-Hitchcock v. Toumpas, the hospitals claim that the state significantly altered the DSH section of its Medicaid program without filing a state plan amendment with CMS, as is required by New Hampshire’s long-standing Medicaid agreement with the federal government. But the heart of the lawsuit is a series of cuts to the state’s Medicaid reimbursement rates over the past several years.[19]

MET REVENUE PROJECTIONS

Despite MET revenues underperforming by $34 million in the current Fiscal Year, and a pending lawsuit in U.S. Superior Court, budget writers are counting on big things from the MET in the FY2014-15 Budget. Governor Hassan’s budget proposal and the version of HB1 approved by the New Hampshire House assume that gross MET revenues will top $482 million over two years, which would fuel the restoration of the previous budget’s cuts to the DSH program.[20]

But state hospitals doubt that their patient revenues will grow quickly enough to satisfy the optimistic revenue projections adopted by the House, with current NHHA President Steve Ahnen calling them “overly aggressive.”[21] Senate Finance Chairman Chuck Morse believes the House MET estimates may be $100 million too high. If that revenue fails to arrive, and prevents the state from increasing its DSH payments as Governor Hassan suggests, that could mean a $200 million shortfall.[22] In her March presentation to the House Finance Committee, State Medicaid Director Katie Dunn testified that these estimates need to be lowered.

“SFY 2014/2015 projected MET revenues needs (sic) adjustment downward, consistent with actual collections in SFY 2013, which will impact amounts available for distribution.”[23]

Now that the MET has been decoupled from the DSH program, federal matching funds are not entirely dependent on MET revenues. DSH payments, and the 50% match from Washington, could be made from any revenue stream. A shortfall in the MET would only double its impact on the upcoming budget if lawmakers fail to provide a contingency to ensure that DSH payments are made. It would be difficult to find another way to pay for the 287% DSH increase sought by Governor Hassan.[24]

CONCLUSIONS

The Medicaid Enhancement Tax is likely to remain a key revenue stream in the New Hampshire. And the state is unlikely to resurrect MediScam. The current Legislature could take two important steps to bring stability and transparency to the Medicaid program, the Medicaid Enhancement Tax, and the state’s Disproportionate Share Hospital program.

First, the Legislature should stop thinking of the MET as the primary source for DSH matching funds. If the Legislature wants to impose a tax on net patient service revenue, it should do so independent of the DSH program. If it would like to apply for federal DSH matching funds, it should do so independent of the taxes those hospitals pay. Since DSH payments are matched, it is doubly important that they have a dependable funding source.

Secondly, the Legislature should end the fiscal fiction of dedicating MET revenues for provider payments, rather than depositing MET receipts into the General Fund, and paying for Medicaid from the General Fund as it always had. This may mask the true size of the MET’s contribution to balancing the state budget, but it is absurd to continue to tax hospitals to pay for their own Medicaid reimbursement.

These two small steps won’t end the political and legal wrangling over the Medicaid Enhancement Tax. But after over two decades of gimmickry, budget writers could finally deal with the MET as a transparent and legitimate part of New Hampshire’s tax code.

Click here to download a copy of  “Meet the MET”


[2] Mitchell, Alison, Medicaid Disproportionate Share Hospital Payments, Congressional Research Service, December 18, 2012, https://www.fas.org/sgp/crs/misc/R42865.pdf

[3] Ibid, Mitchell.

[4] Coughlin, Teresa A. and Liska, David, The Medicaid Disproportionate Share Hospital Payment Program: Background and Issues, The Urban Institute, October 1997, http://www.urban.org/pdf/anf_14.pdf

[5] Ibid, Coughlin.

[6] New Hampshire Legislature, HB 1, 1991, http://www.gencourt.state.nh.us/legislation/1991/HB0001.html

[7] NH Department of Administrative Services, 1991-Current Year Trend-General & Education Funds Unrestricted Revenue, http://admin.state.nh.us/accounting/interim_reports.asp

[8] Letter from Levinson, Daniel R, Inspector General, Department of Health and Human Services, July 2, 2007, http://oig.hhs.gov/oas/reports/region1/10500001.pdf

[9] Ibid, Coughlin.

[10] Medicaid politics: New Hampshire taxpayers lost, New Hampshire Union Leader, September 24, 2011, http://www.unionleader.com/article/20110925/OPINION01/709259991/-1/NEWS

[11] Ibid, Levinson.

[13] Understanding the Impacts of Changes in New Hampshire’s Disproportionate Share (DSH) Program, New Hampshire Center for Public Policy Studies, 2011.

[14] Ibid.

[15] Fleisher, Chris, Why Big Hospitals Are Suing N.H., Valley News, August 6, 2011, http://www.nhpolicy.org/news/valley_news__why_big_hospitals_are_suing_n.h..pdf

[16] New Hampshire Hospital Association, April 1, 2011, http://www.nhha.org/files/whatsnew/DSH_NHHA%20backgrounder_updated_080111.pdf

[17] State of New Hampshire Monthly Revenue Focus, April 2013, http://admin.state.nh.us/accounting/FY%2013/Monthly%20Rev%20April.pdf

[18] Leubsdorf, Ben, Strong April revenues put N.H. on track to finish fiscal 2013 with a surplus, not deficit, Concord Monitor, May 3, 2013, http://www.concordmonitor.com/news/5937229-95/strong-april-revenues-put-nh-on-track-to-finish-fiscal-2013-with-a-surplus

[19] Bosse, Grant, Lawsuit complicates budget picture, Concord Monitor, October 7, 2013, http://www.concordmonitor.com/article/359790/lawsuit-complicates-budget-picture

[20] Leubsdorf, Ben, With revenue down, Medicaid Enhancement Tax creates headaches, Concord Monitor, April 14, 2013, http://www.concordmonitor.com/news/politics/5546218-95/with-revenue-down-medicaid-enhancement-tax-creates-headaches

[21] Devil in details? Hospitals move to scuttle House budget, Laconia Citizen, April 2, 2013, http://www.laconiadailysun.com/index.php/newsx/local-news/66961-hospitals-challenge-hosue-budget

[22] Rogers, Josh, Morse Says Senate Budget Will Be “A Whole Lot Different”, New Hampshire Public Radio, May7, 2013, http://www.nhpr.org/post/morse-says-senate-budget-will-be-whole-lot-different

[23] Dunn, Katie, SFY 2014/2015 Budget Worksession, House Finance Division III, NH Department of Health and Human Services, Office of Medicaid Business and Policy, March 4, 2013, http://www.dhhs.nh.gov/ocom/documents/diviii-03042013.pdf

[24] Ibid, Dunn.