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House, Senate negotiators agree on Medicaid Enhancement Tax language

House and Senate negotiators agreed to final terms of legislation yesterday that will stop hospitals’ lawsuits against the state over the Medicaid Enhancement Tax and prevent a $145 million hole in the current budget. Both legislative chambers must approve the bill next week.

The legislation drawn up yesterday reflects a settlement agreement between the state and hospitals announced by Gov. Maggie Hassan on Thursday. At issue is a tax on inpatient and outpatient hospital services known as the MET. The tax was first levied in 1991, but the hospitals used to get all of the payments back in state and federal funds. An arrangement often called “Mediscam” also allowed the state to pocket a large sum of the federal cash.

But in 2011, the state stopped reimbursing the hospitals in full, leading to several lawsuits. Under this agreement, the state has agreed to give more money back to the hospitals and put all of the tax revenue into a special fund dedicated to health care expenses rather than putting it into the general fund. In exchange, 25 of the state’s 26 hospitals are dropping the lawsuit.

“This agreement will require legislative enactment, but we look forward to working together to implement the provisions of today’s agreement to create a vibrant and sustainable Medicaid program for the patients and communities we serve,” Steve Ahnen, president of the New Hampshire Hospital Association, said in a statement.

With this plan in place, the state won’t lose any money in this year’s budget because the hospitals will stop seeking refunds and will pay what’s due in October. But in future years, the state will get between $45 million and $95 million per biennium.

“What’s not said today is the impact this is going to have (on future budgets),” said Jeff McLynch, executive director of the New Hampshire Fiscal Policy Institute.

Under the bill, critical care hospitals are guaranteed to get back 75 percent of uncompensated care costs, and, starting in fiscal year 2016, noncritical access hospitals will get 50 percent back.

The agreement relies on several estimates that are subject to change, including how much money comes in from the tax and how much uncompensated care the hospitals provide. Under the Medicaid expansion plan signed earlier this year, uncompensated care is expected to go down because more people will have health insurance coverage.

If MET revenue drops below a certain threshold, the state will lower its payments back to the hospitals. The tax rate will also drop from the current 5.5 percent rate to 5.45 percent in 2016 and 5.4 percent in 2015. The rate will keep dropping in following years only if total uncompensated care costs drop below $375 million. Uncompensated care is currently above $400 million.

Under the agreement, rehabilitation hospitals will no longer be taxed. Aside from that, all of the same inpatient and outpatient hospital services will be taxed. One of the lawsuits centered on whether it was fair to tax hospitals but not other facilities for providing the same services. The bill adds new language that references federal law that allows for taxing certain health care services, which aims to better clarify the legislative intent and put to rest constitutional concerns.

Senate President Chuck Morse, a Salem Republican, expressed disappointment with pieces of the agreement in a statement yesterday. While the agreement successfully deals with the constitutional issues and better directs the tax revenue only to health care services, he said it increases the state’s reliance on the tax and may not be sustainable in the long term. Morse had advocated for steeper reductions in the rate of the tax.

“Over the next few days, as legislators have the opportunity to review this conference report and discuss it with constituents and stakeholders, I would encourage them to fully consider the bill’s implications for our next budget,” he said.

Republican Rep. David Hess of Hooksett and Sen. Jeanie Forrester of Meredith did not sign off on the agreement yesterday and were instead replaced with Democratic leaders Naida Kane, the deputy House speaker, and Sylvia Larsen, the Senate minority leader. The plan is likely to pass both chambers next week, but many Republicans are unlikely to sign on.

(Kathleen Ronayne can be reached at 369-3309 or kronayne@cmonitor.com or on Twitter @kronayne.)

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