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September 11. 2013 9:07PM

State, hospitals still at odds over Medicaid taxes owed

CONCORD — The state’s tax collector and hospitals continue to disagree over what they owe under the Medicaid Enhancement Tax a study committee heard Wednesday.

“Hospitals claim that only revenue from services reimbursed under Medicaid is taxable under the MET,” Department of Revenue Administration Commissioner John Beardmore told the Medicaid Enhancement Tax Study Commission. “This is not correct.”

The state contends all services a hospital provides that is Medicaid reimbursable should be taxed whether Medicaid, an insurance company or an individual pays for the services.

Hospitals contend that only the Medicaid payments are taxable, and also claim such things as laboratory fees, X-rays, physical therapy and professional services should be exempt.

Last week, New Hampshire Hospital Association representatives dubbed the MET “a sales tax on the sick,” and said it puts New Hampshire hospitals at a competitive disadvantage.

The disagreement centers on what outpatient services are covered by the tax. That debate has lead to MET revenues dropping from $200 million annually prior to fiscal year 2011, to $176 million in fiscal year 2012 and $185 million in 2013.

The MET began in 1991 as a way to match federal money to pay the state’s share for Medicaid services. The state then returned the hospitals’ MET money through the Disproportional Share Hospital program to help hospitals that treat large numbers of Medicaid patients.

But in 2011, the federal government said states had to distribute the money based on a hospital’s Medicaid costs, not simply return the money.

At the same time, lawmakers stopped reimbursing the state’s largest hospitals for uncompensated care, although the program continued for small rural hospitals.

Since then, hospitals have sought to minimize their tax liability, Beardmore said, largely by reducing the revenue from outpatient services they report.

Ten of the state’s largest hospitals sued the state over changes to its Medicaid program. The suit is pending in federal court. Several hospitals also filed suit in Hillsborough County Superior Court challenging the MET’s constitutionality.

“From a hospital’s point of view, prior to 2011 this did not matter,” said John Prochilo, CEO and administrator of Northeast Rehabilitation Hospitals and a committee member. “Now this is a real tax with huge numbers, and we are trying to catch up.”

Beardmore’s department issued new guidance to hospitals Tuesday outlining what the agency views as taxable and what is not under state and federal laws and regulations.

Committee member and Dartmouth-Hitchcock Chief Financial Officer Robin Kilfeather-Mackey said the guidance is inconsistent with negotiations hospitals had with the Department of Revenue Administration last year. She said that is troubling. She noted hospitals have to file estimated tax returns next month and said the difference could be millions of dollars.

The instability in MET returns led lawmakers to create the commission to recommend whether the state should change the MET.

Currently under the MET, hospitals’ net revenue for in-patient and outpatient services is taxed at 5.5 percent, one of the highest rates in the country. The MET revenue is used to pay providers in the Medicaid program, for Disproportional Share Hospital program payments and for other state expenses.

Hospitals are taxed in 39 other states, although the rate is generally 3 percent or less, according to Marilee Nihan, Department of Health and Human Services Deputy commissioner.

The committee will hear from a Dartmouth Hitchcock official on the fairness of the tax and from a representative from a small rural hospital at its next meeting Sept. 25.

grayno@unionleader.com


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