NH Hospital Lawsuit stems from 2008 Medicaid Cuts

By Grant Bosse on August 10, 2011
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(CONCORD) Medicaid cuts in the current New Hampshire budget may have prompted ten hospitals to take the state to court, but the legal basis for the lawsuit stems from cuts to Medicaid reimbursement rates that Governor John Lynch requested in 2008. According to the plaintiffs’ complaint to the U.S. District Court for New Hampshire, “the state’s recently enacted budget rendered an already tenuous situation completely unsustainable.”

Medicaid Enhancement Tax
Since 1993, New Hampshire has charged hospitals with a Medicaid Enhancement Tax (MET), designed to secure matching funds from the federal government. After receiving the federal money, the state would send back virtually identical payments to hospitals under the Disproportionate Share Hospital (DSH) program. The plaintiffs points to a 1993 letter from Commissioners Harry Bird and Stan Arnold to then-President of the NH Hospital Association Gary Carter as evidence of the state’s original intent to hold hospitals harmless under the MET.

Dartmouth-Hitchcock Manchester. Photo: Dartmouth-Hitchcock.org

But federal officials have long complained about New Hampshire’s reliance on the MET to leverage federal money. Since the same amount of tax money was collected from and soon redistributed to New Hampshire hospitals, the Department of Health and Human Services threatened to close what it saw a loophole, and what budget critics derided as “Mediscam”.

In 2007, a federal audit ended the practice of hold harmless payments, and New Hampshire hospitals no longer get back under DSH what they paid in MET. But the two programs roughly balanced out, with larger hospitals paying a bit more in MET, and smaller hospitals getting back a little more in DSH. Until this year.

The current budget maintains the 5.5% MET on all hospitals. But it dramatically cuts state funding to the DSH program. In effect, the budget turned the MET from a tax in name only into a real cost for New Hampshire hospitals. The plaintiffs argue that by ending this 18-year arrangement, the state budget imposed higher taxes on hospitals and made it impossible for many of them to continue to provide services under Medicaid. From 1991 to 2009, New Hampshire netted $1.8 billion in federal matching funds under the MET-DSH arrangement.

The hospitals’ case rests on two provisions of the Medicaid Act, 13(A) and 30(A)

13(A) Notices
According to the plaintiffs’ complaint, state officials failed to properly notice reductions in Medicaid reimbursement rates. In 2005, the New Hampshire Legislature gave the Department of Health and Human Services authority to recommend cuts to Medicaid reimbursement rates, with approval from the Legislative Fiscal Committee, if program expenditures exceeded revenues.

On the spring of 2008, HHS Commissioner Nick Toumpas asked the Fiscal Committee to lower the outpatient reimbursement rate from 81.24% to 54.04%, retroactive to January 1, 2008. The Fiscal Committee tabled the proposal, but took it up its November 21, 2008 meeting.

HHS Director Kathleen Dunn represented the agency at that meeting. Under questioning from the Fiscal Committee, she said “So when you’re looking at the need to balance your budget based on what you’re appropriated by the legislature, the tool that I have before me at the moment is to reduce rates in order to come into compliance with state law.”

The hospitals argue that Dunn’s testimony is the smoking gun that proves that state officials cut Medicaid rates based solely for budget reasons, and did not properly determine how such cuts would impact health care delivery and access under Medicaid. They claim that Section 13(A) sets out specific public notice requirements, including a period for public comment, which they say was routinely ignored by HHS.

Also on November 21, 2008, Governor John Lynch issued Executive Order 2008-10, which cut inpatient hospital reimbursement rates by 10%. The Fiscal Committee approved the cut that same day. The hospitals argue that proposing and approving a cut to Medicaid in the same day leaves no time for public notice or comment, violating the state’s agreement under the Medicaid Act.

The complaint goes on to document a series of similar cuts in 2009 and 2010 by both the Legislature and HHS, all of which failed to meet 13(A) requirements, according to the hospitals.

30(A) Requirement
Under Section 30(A) of the Medicare Act, states choosing to participate must “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist such providers so that care and services are available…” The plaintiff hospitals argue that years of lowering Medicaid reimbursement rates, coupled with the loss of DSH revenues, means that they will be unable to afford to provide services to Medicaid patients, which they claim violates the state’s agreement when it joined the program.

The hospitals’ filing in U.S. District Court includes declarations from each of the ten hospitals stating that imposition of the MET, without corresponding DSH payments will force them to limit access to Medicaid patients. For instance, Dartmouth-Hitchcock Chief Financial Officer Robin Kilfeather-Mackey declares:

“As a direct result of the state’s newly enacted budget, Dartmouth-Hitchcock will very likely terminate, limit or curtail certain healthcare services which will adversely effect equal access to Medicaid patients.”

Top administrators from each of the other nine plaintiff hospitals made similar declarations.

Preliminary Injunction
The hospitals are asking the Court to restart DSH payments and restore Medicaid reimbursement rates to their 2008 levels while the case in adjudicated. The motion for a preliminary injunction argues that the plaintiff hospitals are likely to win the case, and that maintaining the improperly low Medicaid rates would irreparably harm both the hospitals and Medicaid patients.

Dartmouth-Hitchcock v Toumpas Motion Of Law in support of Preliminary Injunction

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