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Lawsuit complicates budget picture

Last modified: 10/7/2012 12:00:00 AM
Medicaid is one of the state's most expensive programs, and how the state pays for it is out of the voters' hands, at least for now.

In 2008, Gov. John Lynch pushed a series of cuts to Medicaid reimbursement rates in order to balance a budget faced with weak revenue. Doctors and hospitals got less money to treat Medicaid patients. The theory is that hospitals should only get reimbursed for the marginal cost of each Medicaid patient, making their overhead and profits from patients who pay through private insurance and out of pocket. In reality, they lose money every time a Medicaid patient is treated.

Last year, the Legislature reduced payment to the state's larger hospitals under the Disproportionate Share Hospital program, known as DSH. This ended the Mediscam era, in which the state taxed hospitals under the Medicaid Enhancement Tax in order to get federal matching funds, and then effectively refunded MET payments through DSH.

In Dartmouth-Hitchcock v. Toumpas, 10 hospitals are suing the state to restore both sets of cuts. If they prevail, the Legislature would have to find $100 million or more in the next budget.

Whether the Medicaid cuts were a good idea is a matter of policy and not at issue in the lawsuit. States have broad authority to set Medicaid reimbursement rates under their agreements with the federal government.

But that agreement comes with strings attached. In March, U.S. District Court Judge Stephen McAuliffe found that the Lynch administration was 'highly likely' to have violated the federal Medicaid Act. State Medicaid Director Katie Dunn told the Legislative Fiscal Committee that they were seeking the cuts in order to meet the Legislature's budget limits. That admission has been the smoking gun in the hospitals' case.

Last month, McAuliffe rejected the state's motion to dismiss the lawsuit, reiterating that New Hampshire likely erred in cutting reimbursement rates without studying the impact of Medicaid recipients. He has not yet addressed the DSH reductions.

Despite the stern wording

in McAuliffe's decisions, the

hospitals could still lose.

McAuliffe has yet to determine if the hospitals have any standing to sue under the Medicaid Act. The hospitals argue that the Supremacy Clause gives them the right to appeal actions authorized by state law if they violate the Medicaid agreement. The state argues it has an agreement with the Centers for Medicare and Medicaid Services in Washington, and third-parties can't sue to enforce it.

McAuliffe had hoped for guidance from the U.S. Supreme Court, delaying the New Hampshire cast until the high court ruled on a similar set of lawsuits from California. Alas, the Supremes found part of the California lawsuit moot and sent the rest of the case back to a lower court without settling the Supremacy Clause. McAuliffe has scheduled new arguments for Nov. 1, meaning voters won't know how the case turns out when they go to polls five days later.

The Medicaid lawsuit will have far-reaching implications on other issues central to this fall's debate. When the Supreme Court threw out a provision of the Affordable Care Act forcing states to expand their Medicaid programs by raising the income eligibility level, it left that decision to each Legislature.

Expanding Medicaid with the current low reimbursement rates will put even more pressure on New Hampshire's overpriced private insurance market. Those patients pay a little more because hospitals end up losing money on every Medicaid patient. Expanding Medicaid would load up even more people on the overloaded side of the teeter-totter.

Hospitals also argue that unless the state increases reimbursement rates, there'll be no room in the system for the savings envisioned under managed care.

The state's new Medicaid Management Information System was supposed to take two years to develop. It's taken seven and still won't be done by the end of the year. Uncertainty over Medicaid reimbursement rates isn't likely to speed up the process.

Until Election Day, Republicans can blame Lynch and the former Democratic Legislature for illegally cutting Medicaid reimbursement rates. Democrats can blame Republicans for cutting the DSH program. After Election Day, it will be everyone's problem.

(Grant Bosse is vice president for media for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord.)


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