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Hospitals have eye on California lawsuit

Millions of dollars are at stake here

When the U.S. Supreme Court gavels itself in tomorrow morning in Washington, millions of dollars will be on the line for New Hampshire hospitals and taxpayers. The high court will hear oral arguments in Douglas v. Independent Living Center of Southern California, and while New Hampshire isn't party to that suit, the court's decision could determine whether 10 New Hampshire hospitals prevail in their legal challenge to the state budget, Dartmouth-Hitchcock v Toumpas.

In Douglas, a group of medical providers is suing the state of California over cuts to Medicaid reimbursement rates lawmakers used to balance a huge budget deficit. Ring any bells? Here in the Granite State, 10 hospitals are making a similar claim about a series of cuts dating back to 2008. Gov. John Lynch has repeatedly turned to the state's Medicaid program to balance the budget, steadily cutting the amount doctors and hospitals are reimbursed for serving Medicaid patients. State participation in Medicaid is voluntary, and comes with broad flexibility to provide health care for low-income residents. But the plaintiffs in Davis and Dartmouth-Hitchcock argue that once a state signs up to distribute Medicaid dollars, it is bound by the rules of that program.

They contend that by cutting reimbursement rates dramatically and without proper notice, California and New Hampshire have balanced the budget on the backs of Medicaid, and broken their agreement with the federal government. The court must decide if federal regulations, including those not written into the Medicaid Act itself, are binding on states. Do New Hampshire officials have to go through a formal procedure proving that hospitals will continue to provide access to Medicaid patients, or can they cut spending at any time, just as they can for other state programs?

While making the case to lower outpatient reimbursement rates in 2008, state Medicaid Director Katie Dunn told the legislative Fiscal Committee that the cuts were motivated by budget concerns.

'So when you're looking at the need to balance your budget based on what you're appropriated by the Legislature, the tool that I have before me at the moment is to reduce rates in order to come into compliance with state law,' Dunn testified.

The hospitals point to this as a smoking gun proving that the Lynch administration was looking to save money without checking to see how the cuts would impact Medicaid. But cuts are always motivated by tight budgets. The Davis case could decide whether state officials have to put on a show before cutting Medicaid.

The Dartmouth-Hitchcock case does not rest solely on Davis. Plaintiffs are also suing over cuts to the Disproportionate Share Hospital Program, which has for years redistributed the Medicaid enhancement tax back to the same hospitals that pay it, but only after qualifying for federal matching funds. 'Mediscam' has been embraced by both political parties when they were writing their budgets, and criti-

cized by both when the other side did it. The federal Department of Health and Human Services kept telling state officials to stop the charade, and recently hit New Hampshire with a $35 million bill.

This Legislature ended Mediscam, but didn't end the Medicaid enhancement tax. Hospitals used to get DSH money on the same day they paid the Medicaid enhancement tax.

This year, they still pay the tax but get back much lower DSH payments. Their legal argument is that by turning a tax-in-name-only into a real tax, budget writers imposed such a burden on hospitals that they are forced to lay off staff and deny services to Medicaid patients.

The Supreme Court's conservative majority has a broad view of state authority. But the Davis plaintiffs may argue tomorrow that the case is more about contracts than state sovereignty. The Supremacy Clause issues may not rest on Washington's authority to tell states what to do, but on the states' responsibility to live up to their agreements. The claims in the New Hampshire case are novel, and it could be years before they are decided. Dartmouth-Hitchcock gets its first day in U.S. District Court on Nov. 21.

(Grant Bosse is lead investigator for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord, and editor of NewHampshireWatchdog.org.)