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111
“…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
$450
Wyo
ming
South
Dak
ota
Idah
o
Arkan
sas
Wisc
onsin
New M
exico
Delawar
e
Minn
esot
a
Mar
yland
Illino
is
Verm
ont
Colora
do
Hawaii
Was
hingt
on
Miss
issipp
i
Wes
t Virg
inia
Penns
ylvan
ia
Kansa
s
Califo
rnia
Tenne
ssee
Rhode
Islan
d
Conne
cticu
t
Miss
ouri
New Y
ork
New H
amps
hire
7
And in 2009 …. Federal Government has scaled back programs, but states
have expanded their useDSH Per Capita 2009
0
50
100
150
200
250
Mas
sach
uset
ts
Wyo
ming
South
Dak
ota
Kansa
s
Tenne
ssee
Iowa
Orego
nId
aho
Mon
tana
Arizon
a
Minn
esot
a
Nebra
ska
Alaska
Nevad
a
Colora
do
Georg
ia
Penns
ylvan
ia
North
Car
olina
Ohio
Verm
ont
Miss
issipp
i
South
Car
olina
Distric
t of C
olum
Miss
ouri
New H
amps
hire
Louis
iana
8
A timelineE
sta
blis
he
d a
t 8
% o
fG
ross
Pa
tien
t S
erv
ice
R
eve
nu
es
+ s
up
pl l
ate
r r
ep
ea
led
1991 1995
8%
to
6%
6%
to
5.5
% ‘t
ax’
20072004G
AO
Au
dit
find
s$
30
mill
ion
O
verp
aym
en
t a
nd
R
eq
uire
s s
tate
to
pa
y b
ack
GeneralFund
GeneralFund
GeneralFund
GeneralFund
Ne
w D
SH
Pro
gra
m C
rea
ted
2010
GeneralFund &
UncompensatedFund
Ne
w D
SH
Pro
gra
m C
rea
ted
2012
GeneralFund &
UncompensatedFund &
Provider Payments
?
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
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
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
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.
15
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
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.
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)
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.
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?
22
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