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The Medicaid Enhancement Tax and the many forms of DSH

The Medicaid Enhancement Tax and the many forms of DSH. 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

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The Medicaid Enhancement Tax and the many forms of DSH

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  1. The Medicaid Enhancement Tax and the many forms of DSH 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. Donna Sytek Brian F. Walsh Kimon S. Zachos May 13, 2014 “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.” 1 1

  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.

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

  6. NH Took Advantage of Federal Law

  7. And in 2009 …. Federal Government has scaled back programs, but states have expanded their use

  8. A timeline 1991 1995 2004 2007 2010 2012 GAO Audit finds $30 million Overpayment and Requires state to pay back Established at 8% of Gross Patient Service Revenues + suppl later repealed New DSH Program Created New DSH Program Created 6% to 5.5% ‘tax’ ? 8% to 6% General Fund & Uncompensated Fund & Provider Payments General Fund & Uncompensated Fund General Fund General Fund General Fund General Fund

  9. 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. 2010 DSH Program State Taxes Hospitals $100 $50 in Federal Funds Generated via state payment of $100 to hospitals $50 in Uncompensated Care Fund $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. $100 distributed to Hospitals based on Formula In this case, $100 (or 100%) of the original tax amount is returned to the hospital industry. Note: This diagram shows the flow, and source of funds, not the transactions that occur which deposit into state funds, expenditures made, and federal match generated.

  12. Payments and Net Position in 2010 system

  13. 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.

  14. 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 $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. $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. Note: This diagram shows the flow, and source of funds, not the transactions that occur which deposit into state funds, expenditures made, and federal match generated.

  15. The Impact of The Changes on Non-Critical Access Hospitals

  16. 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.

  17. Where does the money go?

  18. 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?

  19. 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?”

  20. 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).

  21. 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. 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?

  22. 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. Donna Sytek Brian F. Walsh Kimon S. Zachos 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.”

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