NH judge rules state's bed tax unconstitutional

A judge in New Hampshire has ruled the state hospital tax, which it uses to raise matching federal funds for the Medicaid program, is unconstitutional, the New Hampshire Union Leader reported.

It is unclear how the ruling will affect other states that also levy taxes on hospitals in order to draw down on Medicaid funds. Arizona approved such a tax as a way to mitigate cuts in its Medicaid program.

A county superior judge ruled New Hampshire's Medicaid Enhancement Tax (MET) violates both the state and U.S. equal protection clauses by levying the tax on hospitals but not on other healthcare providers in the state.

Three New Hampshire hospitals--Catholic Medical Center, St. Joseph Hospital and Exeter Hospital--filed suit against the state in 2011 to try and end the tax. Under the tax program, the state reimbursed the hospitals for the tax plus an additional 3 percent, and restored the leveraged federal Medicaid payments back to its general fund.

"In essence, the MET imposes a tax on hospitals simply because they are hospitals, not based on the nature of the services they provide,'' wrote Hillsborough County Superior Court Judge Philip Mangones in his decision, according to the Associated Press. Mangones rejected state officials' argument that hospitals differed from clinics because they provide both inpatient and outpatient services. "This legislative history indicates the primary, if not the sole, purpose of the MET had been to bring federal funds to the state treasury, with the hospitals acting as pass-through intermediaries,'' he wrote.

Other states that use bed taxes to leverage Medicaid funds have seen similar squabbles, such as Georgia, which fought over how to divide the returned revenue.

Since the ruling came from a lower level court, appeals are likely, and Gov. Maggie Hasan (D) said the ruling would present both budget and healthcare challenges to New Hampshire, according to the AP.

To learn more:
- read the New Hampshire Union Leader article
- here's the Associated Press article

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