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N.H. Begins To Wrestle With Medicaid Expansion

Sara Plourde
NH Statehouse

A group of New Hampshire lawmakers will meet Wednesday to begin discussing how the state should move forward under the nation’s health care law.  One of the big questions for the Joint Health Care Reform Oversight Committee is whether New Hampshire should expand its Medicaid program.

The recent Supreme Court ruling on the Affordable Care Act gives states the option to extend Medicaid to more low-income residents. Under the new law, beginning in 2014, an adult who brings home less than $15,000 a year and a family of four with income under about $30,000 will qualify.
That would add an estimated 56,000 New Hampshire residents to the state's rolls, according to an analysis by the Kaiser Family Foundation. Almost all of the cost — $1.2 billion — would be borne by the federal government. According to Kaiser, New Hampshire's share would add up to $63 million, or about 5 percent.

New Hampshire lawmakers have already rejected one provision of the ACA: In June, Gov. John Lynch signed a bill that blocked the creation of a health insurance exchange. Some members of the state's Republican majority, along with two Republican candidates for governor, say the state should “opt out” of the Medicaid expansion as well.

Senate Majority Leader Jeb Bradley, a Republican who chairs the Senate Health and Human Services Committee, says there are too many unanswered questions about how the expansion will unfold and who will foot the bill.

“When we talk about these costs, there are huge considerations as to whether it's affordable for states,” Bradley told Laura Knoy on NHPR’s The Exchange. “Can the federal government possibly, with trillion dollar deficits as far as the eyes can see, actually maintain its commitment?”

But opting out of the expansion could have far-reaching consequences in New Hampshire, where a lesser-known provision of the Affordable Care Act will eventually put an end to about $100 million a year in federal aid for hospitals that treat large numbers of low-income patients.

Under the new law, the federal Centers for Medicare & Medicaid Services plan to eliminate a program called disproportionate-share hospitals, or DSH, which was designed to reimburse the hospitals for the money they lose treating Medicaid patients and the uninsured. Similar to Medicaid, DSH is a joint venture: states use their own resources — in New Hampshire's case, a state tax on hospital services — to leverage a 50-percent match from the federal government.

And for nearly two decades in New Hampshire, the program served its purpose — and then some. Thanks to a regulatory loophole, the state reimbursed hospitals what they paid in the state tax, known as Medicaid Enhancement. Meanwhile, since 1991, New Hampshire has taken in roughly $2 billion in federal DSH revenues that have gone directly to the general fund for other purposes.

Known as “Mediscam,” the accounting scheme is not unique to New Hampshire. But a federal audit forced the state to make some changes to its program in 2009. As a result, nine of the state's largest hospitals spent a total of $14 million more on uncompensated care than they received from the tax. The Legislature also took $89 million from Medicaid Enhancement tax revenues away from hospitals to balance the budget.  

It got worse in 2011, when the Legislature's biennial budget withheld a total $250 million in state and federal DSH revenues. That eliminated uncompensated-care reimbursement for half of New Hampshire's 26 hospitals. The other 13 hospitals — smaller, mostly rural facilities known as critical-access hospitals — received about 25 percent less in DSH than they spent to treat Medicaid patients and the uninsured.

“Uncompensated care cost our members a little over $300 million this past year,” Steve Ahnen, president of the New Hampshire Hospital Association, says, “and obviously the state did not pay out anywhere close to that to hospitals.”

Steve Norton, executive director of the New Hampshire Center for Public Policy Studies, says lawmakers turned to DSH as a budget tool because that's where the money is. “They were looking for ways to fund the budget deficit,” Norton says, “so they looked to big institutions — universities, pensions and hospitals.”

Phasing out the federal program in 2014 makes sense in light of the Affordable Care Act: more people will have health insurance, so fewer health-care costs will go unpaid for. But, Norton says, in New Hampshire, where the federal payments represent about seven percent of state revenues, the program's demise “will create another budgetary crisis, absent a strong economic recovery.”

Lisabritt Solsky, deputy director of New Hampshire's Medicaid program, says it's not immediately clear how New Hampshire would make up for the loss of DSH. She says states are “very anxious” to receive some guidance from federal regulators on how the cuts will be calculated and when they kick in.

“It's really too early to talk about contingency plans until states can get answers to these questions and make an informed choice about whether to more forward with an expansion or not,” she says.

Solksy says a decision not to expand Medicaid will have the greatest financial impact on New Hampshire hospitals, who are already feeling the effects of the DSH cuts, as well as reductions in Medicaid reimbursement rates enacted by the legislature in 2008.

“What they can't do is turn people away in the event of an emergency, irrespective of their ability to pay,” she says.

But they can take other measures, says the hospital associations Steve Ahnen, who points to the more than 1,000 hospital workers laid off in the past year. Hospitals can also decide to cut back on other services or reduce the number of Medicaid patients they treat in non-emergency settings.

In October, citing combined losses of about $14 million as a result of the DSH and rate cuts, Wentworth-Douglass Hospital in Dover and Frisbie Memorial Hospital in Rochester changed their Medicaid eligibility requirements. A projected $9 million reduction in annual DSH payments prompted LRGHealthcare, which has a dozen medical practices in the Lakes Region, to cut primary care services to 3,500 Medicaid patients.

Dartmouth-Hitchcock, the state's largest provider, lost $107 million last year on uncompensated care— $64 million as a result of the 2008 rate reductions; and another $43 million in Medicaid Enhancement taxes to support the DSH program that instead went into the state's general fund, says Frank McDougall, D-H's vice president of government affairs.

McDougall says the provider has reduced its workforce by 5 percent and is considering, among other measures, cutting the DHART helicopter-rescue program and reducing neonatal intensive-care services,
Medicaid expansion wouldn't cover all of funding cut for the 2011-2013 budget, McDougall says, but it “absolutely” would relieve some of the financial pressure on the hospital.

“I'll bet you right now, in our medical center, there is somebody who could be eligible for Medicaid expansion in New Hampshire who is being treated for nothing — probably five people,” says McDougall. “If you don't want to expand it, tell me what's going to happen to these uninsured patients.”

McDougall and other hospital officials say the elimination of DSH in the Affordable Care Act underscores much bigger problems with the state's Medicaid policies, which are the subject of a lawsuit filed in federal court a year ago by 10 New Hampshire hospitals.

The suit accuses the state of failing to consider how the DSH cuts and the rate reductions could impact the ability of Medicaid patients to access care. In March, federal district Judge Stephen McAuliffe ruled that it was “highly likely” the state violated the federal guidelines by making the cuts solely for budgetary reasons. He ordered DHHS to solicit public comment on the 2011-2013 budget cuts.

Assistant attorney general Nancy Smith says the state disagrees with McAuliffe's ruling and is awaiting a decision from the judge on its motion to dismiss the federal lawsuit. The state has argued that the hospitals have no legal standing to sue over how New Hampshire spends its Medicaid dollars, a position that a California judge agreed with in a similar case earlier this year.

“We believe the Centers for Medicare & Medicaid Services] should be reviewing that, not the courts,” Smith says.

And they are.

In May, Cindy Mann, CMS's deputy administrator, asked the state to provide data showing how the cuts would not hurt Medicaid patients' ability to receive care. Smith said the state has responded to Mann's request by providing data collected over the last five years, that “demonstrate why there isn't a lack of access” for patients.

Regardless of what happens in the courts and in Washington, the demise of the federal DSH program is “one more reason” why the state's strategy of using Medicaid to balance the budget is unsustainable, says Henry Lipman, chief financial officers for LRGHealthcare.  

Another reason is what Lipman calls the “growing phenomenon” of insured patients who are unable to pay their bills. Lipman says it's not uncommon for hospitals to encounter private heath insurance policies with $5,000 or $10,000 deductibles, which are beyond the means of many families.

Steve Norton, of the New Hampshire Center for Public Policy Studies, said the higher deductibles are a consequence of the rising cost of private insurance in New Hampshire, which is among the nation's highest. Part of the reason is the amount of uncompensated-care costs that are passed on to private insurers, who pass it down to the consumer.

“If you take all the Medicare shortfall, all the Medicaid shortfall and all the charity care shortfall, and you assume that those deficits and expenses are being made up in the private sector, that's about 25 percent of the premium amount,” Norton says.

Lipman says the DSH cuts, the rate reductions and rising cost of private insurance have put the state's health care system for the poor into a “death spiral.” Expanding Medicaid to 50,000 more Granite Staters is the right thing to do, he says, but it won't work unless the state starts using the Medicaid funding it already receives to treat low-income patients.

“The insured have a greater likelihood of being healthy. That's what we're all about,” he says. “On the other hand, the way the system is currently financed is totally broken. Whether you're a proponent or opponent of the health care reform, we need to figure a different way to address our Medicaid program, whether we go forward with the expansion or not.”

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