The state will appeal a judge's ruling that a tax on New Hampshire hospitals that brings in $185 million annually is unconstitutional, the attorney general's office said Monday.
Senior Assistant Attorney General Mary Ann Dempsey said the state will appeal last week's ruling with the state Supreme Court within 30 days. She said the tax is allowed under federal Medicaid regulations and the high court must determine if it passes muster under the state constitution.
The Superior Court ruling covered the 2011 tax year, but the 2013 state audit said the parties agreed the ruling would only apply to the 2014 and future tax years. If upheld, the hospitals could ask the state to refund perhaps $100 million or more in tax payments for 2014. It also means lawmakers would have to plug a similar hole in next year's spending from general tax sources.
Legislative leaders were still assessing the impact Monday. The tax produces about $185 million annually for Medicaid and other state spending. The state kept $72 million this year for general state spending, used $82 million for payments to health care providers and returned $31 million to the hospitals in aid to help offset the cost of uncompensated care.
In 1991, hospitals began paying the tax so the state could gain matching Medicaid funds to pay for health care for the poor. For many years, they got all their taxes refunded dollar-for-dollar from the state.
In 2011, the federal government said states could no longer refund all the money and, instead, had to apply a formula that reimbursed the funds according to hospitals' Medicaid costs. Three years ago, the Republican-controlled Legislature cut Medicaid funding to the hospitals more than $130 million, but retained the tax. Ten of the state's largest hospitals later sued the state in federal court over changes in Medicaid policies and reimbursements.
Northeast Rehabilitation Hospital also sued, arguing it was unfair for it to pay the tax while other medical providers doing the same procedures — but not classified as hospitals — were not taxed. A Superior Court judge ruled in its favor in February. The state has appealed the decision, said Dempsey.
Last week's decision involved Catholic Medical Center, St. Joseph Hospital and Exeter Hospital. They challenged the $31 million in taxes they paid in 2011. In his ruling, Hillsborough County Superior Court Judge Philip Mangones said the state should have stopped collecting the tax in 2011 when the Medicaid reimbursement system was changed.
Mangones said tax was imposed on hospitals simply because they are hospitals and not based on the nature of the services they provide. The state argues the services at issue are distinct classes of services provided by hospitals and not the same as those provided by non-hospital providers.
State Sen. Lou D'Allesandro, a former Senate Finance chairman, said the ruling may provide the House incentive to pass his bill to legalize two casinos to boost non-tax revenue. D'Allesandro's bill could generate as much as $168 million annually for the state if it had two fully operating casinos. The House killed a casino bill last month and has opposed such measures consistently over the years.
"Timing is everything in this life," he said.