Why Hospitals Are Angry Enough About New Medicaid Legislation To Sue

Michael McCord of the New Hampshire Business Review provides a good synopsis of why ten hospital administrators are so upset about the latest state budget that they’ve filed a lawsuit.

Dartmouth-Hitchcock Medical Center

Dartmouth-Hitchcock Medical Center is among 10 large hospitals suing the state over Medicaid reimbursement.

“Each October, New Hampshire and the state’s hospitals engage in an accounting sleight of hand set up in 1991. Hospitals wire the state millions of dollars to pay the “Medicaid Enhancement Tax,” and the state then wires the amount back, often within minutes.

The goal of the tax was to create the illusion of raising money so the state could apply for and receive more federal matching funds to cover uncompensated care costs for Medicaid services and indigent patients. Not all the federal funds go back to hospitals and doctors – New Hampshire has the second-lowest Medicaid reimbursement rate in the country – and money is diverted to the general fund. The ploy has been known over the years as “Mediscam.”

“We used to joke and say ‘What would happen if the state didn’t wire this money back?'” said Mark Whitney, vice president for strategic planning at Exeter Health Resources, parent company of Exeter Hospital.

A majority of the state’s 26 hospitals are about to find out the answer.”

That’s most of the Medicaid issue in a nutshell.  McCord goes on to explore other hospital complaints about forced layoffs and other budget problems that arose in the wake of this year’s legislative decisions.  Then he gives us this interesting tidbit,

“Meanwhile…the biggest change to the state’s Medicaid program was Senate Bill 147, which has mandated a transfer of all Medicaid services to a private managed care program on an expedited basis by July 1, 2012.

One national consultant familiar with New Hampshire’s Medicaid regulations and practices believes in the end the CMS [federal Centers for Medicare and Medicaid Services] will shoot down this latest legislative gambit. New Hampshire isn’t the only state that plays the Mediscam game but ‘the feds will take a very dim view of this,’ said Steve Scheer, a Chicago-based principal with Health Management Associates and adviser to the New Hampshire Hospital Association.

More importantly, he added, the CMS will need to disapprove because many states are already watching closely. If the CMS grants approval, some 33 other states could jump in line and, theoretically, it could lead to a dramatic rise in Medicaid payments to the states — not exactly an ideal scenario, given the immense debt and deficit pressures faced by the federal government.”

In other words, New Hampshire could be a test lab for how Medicaid funding could work all over the country. 

Incidentally, last spring the Federal Reserve Bank of Boston released a report titled, “How Does New Hampshire Do It?: An Analysis of Spending and Revenuse in the Absence of a Broad-based Income or Sales Tax.”  Among author Jennifer Weiner’s findings, “New Hampshire has had great success in bolstering its revenues through creative Medicaid financing arrangements.”  She notes that although Congress is not amused at states’ fiscal sleight-of-hand with entitlement money, “it has in some cases given states transition periods to comply, or even grandfathered heavy users–such as New Hampshire–into continued high levels of funding.” 

Weiner also writes that with the exception of Medicaid reimbursement, New Hampshire hasn’t been very good at attracting federal money designed to help support low-income people, because the state’s poverty rate is comparatively low.


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