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“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

The Medicaid Enhancement Tax

and the many forms of DSH

Board of DirectorsWilliam H. Dunlap, Chair

David Alukonis

Eric Herr

Dianne Mercier

James Putnam

Todd I. Selig

Michael Whitney

Daniel Wolf

Martin L. Gross, Chair Emeritus

Directors Emeritus Sheila T. Francoeur

Stuart V. Smith, Jr.

Donna Sytek

Brian F. Walsh

Kimon S. Zachos

May 13, 2014

2

Incredible Resources for Understanding MET in New Hampshire

• Medicaid Enhancement Commission

http://tinyurl.com/matba3d

3

The Federal Medicaid Disproportionate Share

Program• Begun in the 1990s as a method for providing

additional money to state Medicaid programs. • Basic Policy: If a state made a payment to a

hospital because they provided a disproportionate share of care to Medicaid and uninsured patients.

• Program has been under significant review in last five years by the federal government.

• Faces uncertain long-term future – the Affordable Care Act will phase out DSH.

4

The NH Disproportionate Share Program has brought in more than $2.2

billion since 1991. Medicaid Enhancement Revenues to the General Fund

(In Millions $)

$52

$167$180

$250

$117$102

$54$68 $70 $74

$85$98

$117

$150$147

$74$83

$93 $100 $98

$0

$50

$100

$150

$200

$250

$300

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

5

And represents a significant share of the NH’s general fund revenues

Medicaid Enhancement Revenues as a share of General Fund Revenues

8%

22% 23% 22%

12% 12%

6%7% 7%

4%

7%9%

10%

11%11%

6% 6% 6%7% 7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

6

NH Took Advantage of Federal Law

Per Capita DSH Expenditures in 1993

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Wyo

ming

South

Dak

ota

Idah

o

Arkan

sas

Wisc

onsin

New M

exico

Delawar

e

Minn

esot

a

Mar

yland

Illino

is

Verm

ont

Colora

do

Hawaii

Was

hingt

on

Miss

issipp

i

Wes

t Virg

inia

Penns

ylvan

ia

Kansa

s

Califo

rnia

Tenne

ssee

Rhode

Islan

d

Conne

cticu

t

Miss

ouri

New Y

ork

New H

amps

hire

7

And in 2009 …. Federal Government has scaled back programs, but states

have expanded their useDSH Per Capita 2009

0

50

100

150

200

250

Mas

sach

uset

ts

Wyo

ming

South

Dak

ota

Kansa

s

Tenne

ssee

Iowa

Orego

nId

aho

Mon

tana

Arizon

a

Minn

esot

a

Nebra

ska

Alaska

Nevad

a

Colora

do

Georg

ia

Penns

ylvan

ia

North

Car

olina

Ohio

Verm

ont

Miss

issipp

i

South

Car

olina

Distric

t of C

olum

Miss

ouri

New H

amps

hire

Louis

iana

8

A timelineE

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t 8

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ross

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tien

t S

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ep

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1991 1995

8%

to

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to

5.5

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ax’

20072004G

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ack

GeneralFund

GeneralFund

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w D

SH

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2010

GeneralFund &

UncompensatedFund

Ne

w D

SH

Pro

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2012

GeneralFund &

UncompensatedFund &

Provider Payments

?

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New Hampshire’s DSH Program: The Medicaid Enhancement Tax

• In 1990s, used to expand revenues for state, indirectly (or directly, depending on your perspective) providing support for Medicaid provider payments. – Method: Tax hospitals make payments to hospitals draw

down matching federal dollars. – Has brought in over $2b in revenues to the state since its

inception.• Has experienced significant change over the past five

years which has fundamentally altered the program from its original design. – State forced to pay back $35m audit finding– New DSH program created in 2010– New DSH program created in 2012 in wake of great recession

and revenue issues.

10

Changes in 2010

• Beginning in 2010, the program redistributed the pool of state resources created by the hospital tax to hospitals based on their provision of uncompensated care, among other things.

• This created winners and losers, unlike the past program which essentially ensured that hospitals received in return exactly what they had provided in taxes.

• The program as of 2010 is diagramed in the next slide and the payments and net position relative to the prior program characteristics are shown in the slide after that.

11

State Taxes Hospitals $100

$50 to the General Fund$50 in Uncompensated Care Fund

$50 in Federal Funds Generated via state payment of $100 to

hospitals

$100 distributed to Hospitals based on

Formula

2010 DSH Program

Note: This diagram shows the flow, and source of funds, notthe transactions that occur whichdeposit into state funds, expenditures made, and federal match generated.

Note: For ease of understanding, this represents the hypothetical caseof the hospital tax being $100 (as opposed to $186 m). The dollars shown here are proportionate to how HB1 allocates the full $186 million in tax revenue.

In this case, $100 (or 100%) of the original tax amount is returned to the hospital industry.

12

Payments and Net Position in 2010 system

Hospital Name Critical Access DesignationTotal DSH Payment

DSH Payment - Tax Payment

Alice Peck Day Memorial Hospital Critical Access Hospital (CAH) $1,976,308 $195,492Androscoggin Valley Hospital Critical Access Hospital (CAH) $3,718,080 $1,118,337Cottage Hospital Critical Access Hospital (CAH) $2,488,420 $1,124,832Franklin Regional Hospital Critical Access Hospital (CAH) $4,230,597 $2,984,395Huggins Hospital Critical Access Hospital (CAH) $4,301,264 $2,034,088Littleton Regional Hospital Critical Access Hospital (CAH) $3,666,805 $520,171Monadnock Community Hospital Critical Access Hospital (CAH) $3,566,936 $152,900New London Hospital Critical Access Hospital (CAH) $2,580,277 $103,943Speare Memorial Hospital Critical Access Hospital (CAH) $4,882,196 $2,778,333The Memorial Hospital Critical Access Hospital (CAH) $5,196,832 $2,389,848Upper Connecticut Valley Hospital Critical Access Hospital (CAH) $1,500,000 $708,419Valley Regional Hospital Critical Access Hospital (CAH) $5,128,601 $3,124,218Weeks Medical Center Critical Access Hospital (CAH) $2,738,033 $802,425Catholic Medical Center Non-CAH $12,027,952 -$493,478Concord Hospital Non-CAH $20,536,667 $2,895,618Elliot Hospital Non-CAH $16,761,495 $2,149,949Exeter Hospital Non-CAH $9,889,671 -$379,890Frisbie Memorial Hospital Non-CAH $8,181,669 $3,415,785Lakes Region General Hospital Non-CAH $7,064,268 $1,308,145Mary Hitchcock Memorial Hospital Non-CAH $41,692,736 $4,730,333Parkland Medical Center Non-CAH $4,513,298 -$903,592Portsmouth Regional Hospital Non-CAH $4,710,965 -$5,949,089Southern New Hampshire Medical Ctr Non-CAH $11,896,946 $2,509,150St. Joseph Hospital Non-CAH $5,632,091 -$3,061,720The Cheshire Medical Center Non-CAH $6,454,494 -$1,198,342Wentworth-Douglass Hospital Non-CAH $10,520,601 -$737,153

Source: Office of Medicaid Business and PolicyNote: Excludes Rehab Hospitals From Analysis

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Changes in 2012-2013

• Budget made the following changes:– Create an uncompensated care program for critical

access hospitals which potentially holds them harmless.

– Provide approximately the same level of funds to the general fund.

– Offset existing general fund expenditures within the Medicaid provider payment line items.

• The diagram on the next page shows how the new program worked.

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State Taxes Hospitals $100

$46 to the general fund for unrestricted use

$13 in Uncompensated

Care Fund for Critical Access

Hospitals

$13 in Federal Funds Generated via state

payment of $26 to critical access hospitals

$26 distributed to critical access hospitals only

based on new formula

Note: This diagram shows the flow, and source of funds, notthe transactions that occur whichdeposit into state funds, expenditures made, and federal match generated.

Note: For ease of understanding, this represents the hypothetical caseof the hospital tax being $100 (as opposed to $186m). The dollars shown here are proportionate to how HB1 allocates the full $186 million in tax revenue.

$41 to the general fund to

support Medicaid Provider

Payments

Based on 2012-13 Changes

In this case, only $26 (or 26%) of the original tax is distributed back to hospitals compared to 100% in the current case.

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The Impact of The Changes on Non-Critical Access Hospitals

2010 DSH Payments as a Share of 2009 Patient Services Revenue (Total and Medicaid)

32%

37%

25%

34%

28%

19%

15%

32%

18%

30%28%

27%29%

5%6% 6%

5%

9%

7%6%

5%

2%

7%

4%5% 5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

CatholicMedicalCenter

ConcordHospital

ElliotHospital

ExeterHospital

FrisbieMemorialHospital

LakesRegionGeneralHospital

MaryHitchcockMemorialHospital

ParklandMedicalCenter

PortsmouthRegionalHospital

SouthernNew

HampshireMedical Ctr

St. JosephHospital

TheCheshireMedicalCenter

Wentworth-DouglassHospital

Effective Reimbursement RateReduction to Medicaid Patient ServiceRevenues

Effective Net Patient ServicesReimbursement Rate Reduction

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2014 Changes Lessened the Impact

• Additional resources were added to the 2014-15 budget.

• Increased DSH revenues flowing to non-critical access hospitals from 0 to ~$45m.

• Non-critical access hospitals still are taxed more than they receive.

Hospital Name DSH PaymentAnnualized MET

Payment DSH Less MET

CAH Androscoggin Valley Hospital 3,740,166 (2,300,975) 1,439,191CAH Alice Peck Day Memorial Hospital 3,708,743 (2,127,714) 1,581,029CAH Cottage Hospital 2,581,973 (1,290,103) 1,291,870CAH Franklin Regional Hospital 3,568,074 (1,117,369) 2,450,705CAH Huggins Hospital 3,602,374 (2,734,714) 867,660CAH Littleton Regional Hospital 5,311,300 (3,183,364) 2,127,936CAH The Memorial Hospital 6,488,858 (2,871,392) 3,617,466CAH Monadnock Community Hospital 3,857,836 (1,800,780) 2,057,056CAH New London Hospital 2,159,168 (2,470,189) -311,021CAH Speare Memorial Hospital 4,787,312 (2,267,416) 2,519,896CAH Upper Connecticut Valley Hospital 1,876,648 (632,944) 1,243,704CAH Valley Regional Hospital 4,857,553 (2,092,802) 2,764,751CAH Weeks Medical Center 2,329,045 (1,307,947) 1,021,098PPS The Cheshire Medical Center 1,474,965 (8,965,775) (7,490,810)PPS Catholic Medical Center 4,181,879 (13,865,109) (9,683,230)PPS Concord Hospital 5,665,139 (16,265,000) (10,599,861)PPS Elliot Hospital 5,452,280 (17,095,883) (11,643,603)PPS Exeter Hospital 2,619,600 (9,704,027) (7,084,427)PPS Frisbie Memorial Hospital 1,883,423 (6,250,906) (4,367,483)PPS Lakes Region General Hospital 2,022,867 (5,655,206) (3,632,339)PPS Mary Hitchcock Memorial Hospital 11,079,282 (42,147,789) (31,068,507)PPS Parkland Medical Center 696,981 (5,778,983) (5,082,002)PPS Portsmouth Regional Hospital 1,156,296 (12,604,914) (11,448,618)PPS Southern New Hampshire Medical Ctr 3,091,738 (9,915,655) (6,823,917)PPS St. Joseph Hospital 836,428 (9,376,356) (8,539,928)PPS Wentworth-Douglass Hospital 2,863,312 (12,773,365) (9,910,053)

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Where does the money go?

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Policy Options

• Do nothing– Wait for Supreme Court to weigh in– Potential risk that hospitals won’t pay – Budgetary reductions in provider payments, general

fund and elimination of DSH payments to critical access hospitals.

• Amend the law to more accurately define rational basis for class distinction.

• Expand base to meet current financial obligations. • Phase the program out over time.• How does this fit into the broader Medicaid

reform/waiver conversations, and expansion in the Medicaid program?

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Reasons the Supreme Court Might Reconsider

• Intent of the legislature changed significantly in 2010 and obviously in 2012. Focus on practices and legislative intent associated with “Medi-scam” is misplaced.

• Rational basis for class distinction. Both federal and state law and practice provide a basis for explaining the distinctions. – http://www.dhhs.nh.gov/oos/bhfa/documents/he-p802.

pdf• The Hospitals themselves: The Hospitals have

argued that they are a distinct class (e.g. Cancer Centers of America debate, Ambulatory Surgery Regulations)

• Are there distinct classes of hospitals within “hospitals?”

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Eliminating the Program

• Effectively eliminating the DHS program hurts those critical access hospitals in difficult financial shape.

• Would require reductions in provider payments to hospitals ($82 million in general fund to provider payments broadly in 2014)

• And significant reduction in general fund spending ($72 million in general fund in 2014).

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How to Expand the Base?• inpatient hospital services,• outpatient hospital services,• nursing facility services,• services of intermediate care facilities for the mentally

retarded,• physicians’ services,• home health care services,• outpatient prescription drugs,• services of Medicaid managed care organizations (including

health maintenance organizations, preferred provider organizations, and such other similar organizations as the Secretary may specify by regulation),

• ambulatory surgical centers,• dental services,• podiatric services,• chiropractic services,• optometric/optician services,• psychological services,• therapist services• nursing services• Laboratory and X-ray services

Health Care Financing Administration, “Medicaid Program; Limitations on Provider-Related Donations and Health-Care Related Taxes; Limitations on Payments to Disproportionate Share Hospitals,” 57 Federal Register 55118, November 24, 1992.

Expenditures in Millions (2009) 2% 5%

Hospital Care $3,940 $78,800,000 $197,000,000Physician and Other Professional Services $2,791 $55,820,000 $139,550,000Prescription Drugs and Other Medical Nondurables $1,330 $26,600,000 $66,500,000Nursing Home Care $724 $14,480,000 $36,200,000Dental Services $606 $12,120,000 $30,300,000Home Health Care $247 $4,940,000 $12,350,000Medical Durables $176 $3,520,000 $8,800,000Other Health, Residential, and Personal Care $549 $10,980,000 $27,450,000Total $10,365 $207,300,000 $518,250,000

Notes: See http://kff.org/other/state-indicator/health-spending-by-service-2/ for notes and sources.Source: Distribution of Health Care Expenditures by Service by State of Residence in MillionsProvider taxes currently exit on hospitals and nursing home beds

Amount Raised at Given Tax Rate

This chart does NOT tell you how much could be raised, but does help focus on critical questions.

• Which of these services could be taxed and how?

• What share of the expenditures within each group could be taxed given federal limitations on provider-related Donations and health-Care Related Taxes?

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New Hampshire Center for New Hampshire Center for Public Policy StudiesPublic Policy Studies

Want to learn more?• Online: nhpolicy.org• Facebook: facebook.com/nhpolicy• Twitter: @nhpublicpolicy• Our blog: policyblognh.org• (603) 226-2500

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

Board of DirectorsWilliam H. Dunlap, Chair

David Alukonis

Eric Herr

Dianne Mercier

James Putnam

Todd I. Selig

Michael Whitney

Daniel Wolf

Martin L. Gross, Chair Emeritus

Directors Emeritus Sheila T. Francoeur

Stuart V. Smith, Jr.

Donna Sytek

Brian F. Walsh

Kimon S. Zachos