Board of Directors
William H. Dunlap, Chair
David Alukonis
Eric Herr
Dianne Mercier
James Putnam
Todd I. Selig
Michael Whitney
Daniel Wolf
Martin L. Gross, Chair
Emeritus
The Medicaid
Enhancement Tax
and the many forms of
DSH
Directors Emeritus
Sheila T. Francoeur
Stuart V. Smith, Jr.
Donna Sytek
May 13, 2014
Brian F. Walsh
Kimon S. Zachos
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
1
Incredible Resources for
Understanding MET in New Hampshire
• Medicaid Enhancement Commission
http://tinyurl.com/matba3d
2
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.
3
The NH Disproportionate Share
Program has brought in more than
$2.2 billion since 1991.
Medicaid Enhancement Revenues to the General Fund
(In Millions $)
$300
$250
$250
$200
$180
$167
$150$147
$150
$117
$117
$102
$98
$100
$74
$68 $70
$52
$85
$74
$83
$93 $100 $98
$54
$50
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
$0
4
And represents a significant share
of the NH’s general fund revenues
Medicaid Enhancement Revenues as a share of General Fund Revenues
25.0%
22% 23% 22%
20.0%
15.0%
12% 12%
10.0%
11%
10%
9%
8%
6%
5.0%
11%
7%
7% 7%
6%
6% 6%
7% 7%
4%
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
0.0%
5
a
ah
o
ot
g
an
W sas
is
co
n
N
ew sin
M
ex
ic
D
o
el
aw
a
M
i n re
ne
so
ta
M
ar
yl
an
d
Ill
in
o
Ve is
rm
on
C
t
ol
or
ad
o
H
W aw
a
as
hi ii
ng
to
M
n
is
si
ss
W
ip
es
t V pi
Pe irg
nn inia
sy
lv
an
i
Ka a
ns
as
C
al
ifo
Te rni
a
nn
e
R
ho sse
e
de
Is
la
C
n
on
ne d
ct
ic
M ut
is
so
ur
N
i
e
N
ew w
Yo
H
am rk
ps
hi
re
Ar
k
Id
ak
D
m
in
W
yo
th
So
u
NH Took Advantage of
Federal Law
Per Capita DSH Expenditures in 1993
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
6
O
h
Ve io
rm
M
on
i
So ssis t
si
ut
pp
D hC
i
is
a
tr i
ro
ct
lin
of
a
C
ol
um
N
ew Mis
so
H
am uri
ps
h
Lo ire
ui
si
an
a
O
w
a
re
go
n
Id
ah
o
M
on
ta
n
Ar a
iz
o
M
in na
ne
so
N
eb ta
ra
sk
a
Al
as
ka
N
ev
ad
C
ol a
or
ad
o
G
Pe eo
r
g
nn
sy ia
N
lv
or
a
th
ni
a
C
ar
ol
in
a
Io
as
sa
ch
us
et
W
ts
So yom
ut
in
h
g
D
ak
ot
Ka a
n
Te
s
nn as
es
se
e
M
And in 2009 …. Federal Government
has scaled back programs, but states
have expanded their use
DSH Per Capita 2009
250
200
150
100
50
0
7
General
Fund
General
Fund
2004
General
Fund
General
Fund
2010
2012
New DSH Program
Created
2007
New DSH Program
Created
6% to 5.5% ‘tax’
1995
GAO Audit finds
$30 million
Overpayment and
Requires state to pay
back
1991
8% to 6%
Established at 8% of
Gross Patient Service
Revenues + suppl later
repealed
A timeline
General
Fund &
Uncompensated
Fund
?
General
Fund &
Uncompensated
Fund &
Provider Payments
8
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.
9
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.
10
State Taxes
Hospitals $100
$50 in Federal Funds
Generated via state
payment of $100 to
hospitals
$50 in Uncompensated
Care Fund
$100 distributed to
Hospitals based on
Formula
In this case, $100 (or 100%) of the
original tax amount is returned to the
hospital industry.
2010 DSH
Program
$50 to the General Fund
Note: For ease of understanding, this
represents the hypothetical case
of 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.
Note: This diagram shows the flow,
and source of funds, not
the transactions that occur which
deposit into state funds, expenditures made,
11
and federal match generated.
Payments and Net Position
in 2010 system
Hospital Name
Alice Peck Day Memorial Hospital
Androscoggin Valley Hospital
Cottage Hospital
Franklin Regional Hospital
Huggins Hospital
Littleton Regional Hospital
Monadnock Community Hospital
New London Hospital
Speare Memorial Hospital
The Memorial Hospital
Upper Connecticut Valley Hospital
Valley Regional Hospital
Weeks Medical Center
Catholic Medical Center
Concord Hospital
Elliot Hospital
Exeter Hospital
Frisbie Memorial Hospital
Lakes Region General Hospital
Mary Hitchcock Memorial Hospital
Parkland Medical Center
Portsmouth Regional Hospital
Southern New Hampshire Medical Ctr
St. Joseph Hospital
The Cheshire Medical Center
Wentworth-Douglass Hospital
Source: Office of Medicaid Business and Policy
Note: Excludes Rehab Hospitals From Analysis
Critical Access Designation
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Critical Access Hospital (CAH)
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Non-CAH
Total DSH
Payment
$1,976,308
$3,718,080
$2,488,420
$4,230,597
$4,301,264
$3,666,805
$3,566,936
$2,580,277
$4,882,196
$5,196,832
$1,500,000
$5,128,601
$2,738,033
$12,027,952
$20,536,667
$16,761,495
$9,889,671
$8,181,669
$7,064,268
$41,692,736
$4,513,298
$4,710,965
$11,896,946
$5,632,091
$6,454,494
$10,520,601
DSH Payment Tax Payment
$195,492
$1,118,337
$1,124,832
$2,984,395
$2,034,088
$520,171
$152,900
$103,943
$2,778,333
$2,389,848
$708,419
$3,124,218
$802,425
-$493,478
$2,895,618
$2,149,949
-$379,890
$3,415,785
$1,308,145
$4,730,333
-$903,592
-$5,949,089
$2,509,150
-$3,061,720
-$1,198,342
-$737,153
12
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.
13
Based on 2012-13
Changes
State Taxes
Hospitals $100
$13 in Federal Funds
Generated via state
payment of $26 to critical
access hospitals
$13 in
Uncompensated
Care Fund for
Critical Access
Hospitals
$26 distributed to critical
access hospitals only
based on new formula
In this case, only $26 (or 26%) of the
original tax is distributed back to
hospitals compared to 100%
in the current case.
$46 to the
general fund for
unrestricted use
$41 to the
general fund to
support
Medicaid
Provider
Payments
Note: For ease of understanding, this
represents the hypothetical case
of 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.
Note: This diagram shows the flow,
and source of funds, not
the transactions that occur which
deposit into state funds, expenditures made,
14
and federal match generated.
The Impact of The Changes
on Non-Critical Access Hospitals
2010 DSH Payments as a Share of 2009 Patient Services Revenue
(Total and Medicaid)
Effective Reimbursement Rate
Reduction to Medicaid Patient Service
Revenues
Effective Net Patient Services
Reimbursement Rate Reduction
40.0%
37%
34%
35.0%
32%
32%
30.0%
30%
28%
28%
29%
27%
25%
25.0%
19%
20.0%
18%
15%
15.0%
9%
10.0%
6%
7%
6%
7%
6%
5%
5%
5%
5%
5.0%
5%
4%
2%
0.0%
Catholic
Medical
Center
Concord
Hospital
Elliot
Hospital
Exeter
Hospital
Frisbie
Memorial
Hospital
Lakes
Region
General
Hospital
Mary
Hitchcock
Memorial
Hospital
Parkland
Medical
Center
Portsmouth Southern St. Joseph
Regional
New
Hospital
Hospital
Hampshire
Medical Ctr
The
Cheshire
Medical
Center
WentworthDouglass
Hospital
15
2014 Changes Lessened
the Impact
Hospital Name
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
CAH
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
PPS
Androscoggin Valley Hospital
Alice Peck Day Memorial Hospital
Cottage Hospital
Franklin Regional Hospital
Huggins Hospital
Littleton Regional Hospital
The Memorial Hospital
Monadnock Community Hospital
New London Hospital
Speare Memorial Hospital
Upper Connecticut Valley Hospital
Valley Regional Hospital
Weeks Medical Center
The Cheshire Medical Center
Catholic Medical Center
Concord Hospital
Elliot Hospital
Exeter Hospital
Frisbie Memorial Hospital
Lakes Region General Hospital
Mary Hitchcock Memorial Hospital
Parkland Medical Center
Portsmouth Regional Hospital
Southern New Hampshire Medical Ctr
St. Joseph Hospital
Wentworth-Douglass Hospital
DSH Payment
3,740,166
3,708,743
2,581,973
3,568,074
3,602,374
5,311,300
6,488,858
3,857,836
2,159,168
4,787,312
1,876,648
4,857,553
2,329,045
1,474,965
4,181,879
5,665,139
5,452,280
2,619,600
1,883,423
2,022,867
11,079,282
696,981
1,156,296
3,091,738
836,428
2,863,312
Annualized MET
Payment
(2,300,975)
(2,127,714)
(1,290,103)
(1,117,369)
(2,734,714)
(3,183,364)
(2,871,392)
(1,800,780)
(2,470,189)
(2,267,416)
(632,944)
(2,092,802)
(1,307,947)
(8,965,775)
(13,865,109)
(16,265,000)
(17,095,883)
(9,704,027)
(6,250,906)
(5,655,206)
(42,147,789)
(5,778,983)
(12,604,914)
(9,915,655)
(9,376,356)
(12,773,365)
DSH Less MET
1,439,191
1,581,029
1,291,870
2,450,705
867,660
2,127,936
3,617,466
2,057,056
-311,021
2,519,896
1,243,704
2,764,751
1,021,098
(7,490,810)
(9,683,230)
(10,599,861)
(11,643,603)
(7,084,427)
(4,367,483)
(3,632,339)
(31,068,507)
(5,082,002)
(11,448,618)
(6,823,917)
(8,539,928)
(9,910,053)
• 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.
16
Where does the money
go?
17
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
18
the Medicaid program?
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/hep802.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?”
19
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).
20
How to Expand the Base?
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Amount Raised at Given Tax Rate
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 ProviderRelated Donations and Health-Care Related Taxes; Limitations on Payments
to Disproportionate Share Hospitals,” 57 Federal Register 55118, November
24, 1992.
Hospital Care
Physician and Other Professional Services
Prescription Drugs and Other Medical Nondurables
Nursing Home Care
Dental Services
Home Health Care
Medical Durables
Other Health, Residential, and Personal Care
Total
Expenditures in
Millions (2009)
$3,940
$2,791
$1,330
$724
$606
$247
$176
$549
$10,365
2%
5%
$78,800,000 $197,000,000
$55,820,000 $139,550,000
$26,600,000 $66,500,000
$14,480,000 $36,200,000
$12,120,000 $30,300,000
$4,940,000 $12,350,000
$3,520,000
$8,800,000
$10,980,000 $27,450,000
$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 Millions
Provider taxes currently exit on hospitals and nursing home beds
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?
21
New Hampshire Center
for Public Policy Studies
Board of Directors
William 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.
Want to learn more?
• Online: nhpolicy.org
• Facebook: facebook.com/nhpolicy
• Twitter: @nhpublicpolicy
• Our blog: policyblognh.org
• (603) 226-2500
Donna Sytek
Brian F. Walsh
Kimon S. Zachos
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
22