The lawsuit recently filed by Dartmouth Health, Concord Hospital, and Concord Hospital Laconia, as well as the New Hampshire Hospital Association, has serious implications for the state budget. But it also has dangerous implications for patients who depend on the services provided by hospitals.
There is a reasonable compromise, however, that should satisfy everyone’s interests.
But first, how did we arrive at this point?
In the early 1990s, New Hampshire, along with other states, levied a tax on hospital revenues: The Medicaid Enhancement Tax, or MET. It provided matching federal funds for states. For every dollar paid by hospitals, hospitals would in turn receive a dollar reimbursement. After hospitals paid the tax, New Hampshire received the equivalent federal revenue as the tax paid by hospitals.
Twenty years later, the federal government changed the rules. No longer was the State of New Hampshire able to do a dollar-for-dollar return of the MET tax to hospitals. That led to two separate lawsuits by hospitals in 2013 and 2014 challenging the constitutionality of the MET tax.
In both cases, the superior courts agreed with the hospitals that the MET tax was unconstitutional. Why?
The MET tax only applies to hospitals. Similar providers like ambulatory surgery centers, unaffiliated urgent care centers, and many others weren’t taxed. They still aren’t. That disparity of taxation is unambiguously unconstitutional.
Given that the MET Tax has twice been ruled unconstitutional, the state had little alternative but to enter into settlement agreements in 2014 and again in 2018 with hospitals in order to protect hundreds of millions of dollars of annual federal revenue.
The 2018 agreement levied the 5.4 percent MET Tax on hospitals, generating more than $300 million of tax revenue, which was then matched by federal funds going to the state to support Medicaid health care programs.
After paying over $300 million, hospitals, per the 2018 settlement received in aggregate only 91 percent of this revenue in return. Hospitals agreed to that loss of funds in order to support the New Hampshire Medicaid program and its patients.
Make no mistake about it: Under the 2018 settlement, hospitals lost money paying a tax that twice has been ruled unconstitutional.
The 2018 settlement expired almost a year ago. However, hospitals are still required every April 15 to pay the MET Tax, estimated this year to be $348 million. When matched by the federal government under current rules, the state would receive not only the base $348 million but an estimated additional $137 million for a total of $485 million to support much-needed health care programs in New Hampshire.
The reason for the current litigation is that the current version of the 2025 budget has just 80 percent of the $348 million in taxes paid returning to the hospitals. That’s a $70 million loss for hospitals on a tax that was twice ruled unconstitutional. In my view, most observers would find going from 91 percent reimbursement to 80 percent entirely untenable.
What happens in the likely event that the hospitals again prevail in court? An unconstitutional tax can’t be collected, and New Hampshire would potentially lose $485 million of federal funds.
Should the state somehow prevail against past precedent, hospitals would lose $70 million and would likely be forced to curtail services, close operations, or raise prices, resulting in higher healthcare costs. Either outcome in litigation is a lose-lose-lose for the state budget, hospital viability, and patients needing services.
A year ago, I attempted to forge a compromise that both sides could accept. Unfortunately, at the last minute, my amendment did not prevail. However, it remains a viable solution today.
My amendment retained the 91 percent aggregate reimbursement to hospitals but added an additional $6 million per year to mitigate hospital losses. I believe that is fair to all sides, especially given that in the post-COVID world, hospitals are experiencing higher patient utilization, higher costs due to nursing shortages, and didn’t receive the higher Medicaid rates that other providers received in the last budget.
With this solution, hospitals in aggregate would still lose multiple millions of dollars. Last year, hospitals would have accepted those losses because they were willing to partner with the state to protect patient access to services. Hopefully, hospitals will now accept this compromise.
It is incumbent upon everyone involved to resolve this issue. The state’s budget becomes dire if $485 million of federal revenue is lost. The viability of New Hampshire’s 26 hospitals is at risk. Limited access to health care, especially in emergencies, is dire for patients.
This compromise solution isn’t perfect for either side. But it’s a small price to pay to prevent an outcome where everyone loses badly.
