New Hampshire hospitals, state on cusp of a reset over payment dispute

After seven years of often-bitter debate, the dotted line is ready for a signature.

New Hampshire’s hospitals and top state officials have brokered a seven-year deal over uncompensated care payments, ending for now a yearslong dispute from hospitals who said they were underpaid.

The agreement, negotiated by Senate President Chuck Morse, R-Salem, and others, halts a period of uncertainty for the state after a key federal court ruling in March.

The ruling, out of the District Court of Washington, D.C., determined that the federal formula New Hampshire and other states had used to determine payments to hospitals was wrongfully put in place. That put New Hampshire on the hook for up to $36 million more than had been budgeted for in 2018 – and $37 million in 2019.

Now, after heated public and private discussions, the state is on the cusp of a compromise: $22.1 million in fiscal year 2018 and $22.5 million in fiscal year 2019. And negotiators have found a new funding formula that will extend into 2024, overriding a previous agreement made in 2014 that was close to running out.

“We’re certainly pleased that we were able to reach a settlement agreement,” said Steve Ahnen, president of the New Hampshire Hospital Association, calling the deal “a helpful formula.”

Tensions over the payments, known as “disproportionate share hospital” (DSH) or “uncompensated care” payments, have brewed since 2011.

Under federal law, hospitals that treat significant numbers of Medicaid or uninsured patients may receive DSH payments – state and federal funds that help them recoup the higher costs associated with those patients. Exactly how much each hospital receives comes down to how many services it can count as “uncompensated care.”

But after the Legislature stopped making the payments in 2011, calling the previous arrangement – which relies on tax revenue from hospitals that is then matched by the federal government – unconstitutional, hospitals took to the courts. The result was an agreement in 2014 that worked as a short-term salve.

But problems persisted. In 2017, lawmakers set aside $36 million less per year than hospitals requested, relying on a new rule set by the Trump administration that aimed to discount patients who are dually eligible for Medicaid and private care from uncompensated care calculations.

That rule brought down the DSH payouts considerably, but it faced immediate challenges in the courts, both in New Hampshire and nationally. The March decision overturned the rule, putting the Granite State back on the hook.

This month’s agreement, packaged as part of an omnibus spending bill, House Bill 1817, pegs the state payments to hospitals at about 90 percent of the Medicaid Enhancement Tax they pay every year – an amount that gets doubled with a federal match.

“This will not cover all of the uncompensated care costs that hospitals incur in taking care of those patients, but it will certainly help to offset the loss they will incur providing those important services,” Ahnen said.

In fiscal year 2018, for example, 92.2 percent of the amount hospitals pay in is $112 million; after a federal match, the hospitals will receive back $224.6 million. Starting in fiscal year 2020, the state switches to a slightly more complex formula that nonetheless maintains a similar result.

In contrast, New Hampshire last year budgeted $166 million and $165 million for hospital payments in fiscal years 2018 and 2019, respectively, an amount hospitals complained would not cover what they spend on low-income patients and would force cuts to services.

The March court decision was at a district court level; the federal Centers for Medicare and Medicaid Services is seeking appeal to the Circuit Court, potentially spelling out a different decision down the line.

But Ahnen said the deal is designed to insulate the state from further turmoil from the courts.

“We’re sort of trying to resolve those issues in a way that won’t negatively impact us if there are changes at a federal level,” he said.

Gov. Chris Sununu is expected to sign the bill when it reaches his desk.