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Special commission considers changes to hospital tax

A special commission charged with recommending whether New Hampshire should change how it taxes hospitals heard yesterday that the state could broaden its tax to other medical services.

The $176 million in hospital tax revenue pays for Medicaid services and goes toward other state spending. The panel learned the federal government allows states to apply their hospital taxes to 19 categories. New Hampshire applies the 5.5 percent tax to two categories: inpatient and outpatient hospital net revenues. The state also taxes two other categories – nursing homes and intermediate care facilities – under a different law.

That leaves 15 other categories not now taxed, including physician services and ambulatory surgical centers.

In 1991, hospitals began paying the tax so the state could gain matching Medicaid funds to pay for caring for the poor. For many years, they got all their taxes back dollar-for-dollar in a refund from the state. That changed in 2011 when the federal government said states could no longer give hospitals the taxes back dollar-for-dollar and had to apply a formula that distributed the money according to hospitals’ Medicaid costs.

Then the Republican Legislature in charge two years ago cut Medicaid funding to the hospitals more than $130 million, but lawmakers maintained the tax. Ten of the state’s largest hospitals sued the state over changes in Medicaid policies and reimbursements.

Since then, the state and hospitals have differed on what revenues can be taxed.

Revenue Commissioner John Beardmore said there is general agreement on which hospital inpatient revenues are taxable, but still disagreement on outpatient revenues. Beardmore said his agency released a technical information bulletin yesterday aimed at answering hospitals’ questions about which outpatient revenues are taxable.

Robin Kilfeather-Mackey, chief financial officer at Dartmouth-Hitchcock Medical Center, said some of the definitions of what is taxable are inconsistent with negotiations held between hospitals and the state last year over taxable revenues.

Beardmore said he could not discuss negotiations with taxpayers since the number of hospitals involved is less than 10.

But Beardmore said his department considers revenue collected by hospitals for services that Medicaid covers taxable regardless whether the service is paid by private insurance. He said hospitals incorrectly claim that only revenue from services reimbursable by Medicaid is taxable.

Medicaid Director Katie Dunn said if hospitals bill for a service, it is taxed.

But Dunn also said the tax may need wholesale changes to make it more fair.

“Hospitals are no longer just hospitals. What we’re talking about are health care systems,” she said.

Kilfeather-Mackey proposed bringing in someone from her hospital to talk about the unfairness of taxing hospitals for providing a service that isn’t taxed if provided by a facility not defined in law as a hospital.

The commission agreed to her suggestion and also plans to hear from a spokesman for a small rural hospital.

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