Hospitals Battle New Hampshire Over Medicaid Cuts

January 12, 2011

A battle between New Hampshire hospitals and the state moved into a federal courtroom this week, with the hospitals attempting to halt a reduction of $130 million in Medicaid funding. 

The fight over the funding is rooted in an attempt by the state legislature to cut spending by limiting disproportionate share hospital (DSH) funding to hospitals.

In the 2012-2013 budget, the New Hampshire legislature cut $250 million from the state's Medicaid budget, with $230 million coming from DSH payments to hospitals.

 Attorneys for the 10 plaintiff hospitals argue that the state, by reducing Medicaid payments without first determining if those cuts would harm patient care, violated Federal law.

The hospitals are asking for the court to issue an injunction to halt the Medicaid cuts.

Several Medicaid patients are also plaintiffs in the suit.

In court filings state officials maintain that that there are no legal grounds for an injunction, adding that the plaintiffs have not demonstrated that the cuts would cause harm to patients. 

For the past two decades the state has assessed a Medicaid Enhancement Tax on New Hampshire hospitals to use as matching funds for DSH dollars, collecting an average $150 million annually. While the tax was reimbursed to the hospitals, they received none of the DSH funds, which were placed in the state general fund. 

While a recent change in federal law ended dollar-for-dollar reimbursement of the tax to the hospitals, the state has continued to collect the 5.5 percent tax on patient revenue as a means of balancing the budget.

The state estimated $200 million in revenue from the hospital tax for the 2012 budget year, but earmarked half that for the state's general fund and only $75 million for Medicaid.    

Besides the lawsuit, the hospitals have reacted to the cuts in other ways. The New Hampshire Hospital Association has asked the federal government for a ruling as to what types of services are allowed to be taxed under federal law. Several hospitals have filed amended tax returns with the state, claiming to have overpaid taxes over the past several years and seeking approximately $50 million in refunds. 

Adding to New Hampshire's financial woes is a recent ruling that the state must repay $35 million in DSH funds that the state paid to hospitals as reimbursement for taxes paid. State officials say that the repayment will place further stress on the budget, including Medicaid spending.

Over the past two years there have been a number of lawsuits brought by providers against states cutting Medicaid spending, but the New Hampshire suit is the only one focusing on reductions in DSH payments.