- Associated Press - Saturday, May 24, 2014

CONCORD, N.H. (AP) - New Hampshire lawmakers face a Friday afternoon deadline to resolve differences over remaining issues, but no compromise is as critical as finding a fix for a tax on hospitals to avoid deep budget shortfalls.

Gov. Maggie Hassan and legislative leaders have been meeting privately with representatives of the state’s hospitals to try to reach a deal. Meanwhile, the House and Senate will try to negotiate a legislative step toward untangling the fiscal and legal questions surrounding the Medicaid Enhancement Tax that has been found unconstitutional by two state judges.

It’s unclear if plans proposed by the House and Senate sufficiently address the legal issues involved in the tax unless the hospitals agree to a settlement crafted around a law change.

The tax produces about $185 million annually for Medicaid and other state spending.

The hospitals could seek refunds for the 2014 tax year and not pay taxes going forward if the state loses its appeal of two lower court judges’ rulings. That could trigger the need for lawmakers to make deep budget cuts this summer in a special session. The hospitals also could settle with the state.

The Senate plan would reduce the tax from 5.5 percent next year to 4.5 percent by 2019. It also would clarify and narrow what is taxed and eliminate the tax on the state’s two rehabilitation hospitals.

That proposal also reduces the amount the state keeps in 2016 for general state spending and increases the amount paid to hospitals for Medicaid. The plan concedes a revenue loss of $112 million in the state budget for the two years starting July 1, 2015.

The House plan clarifies existing law to bolster the state’s defense of the tax on appeal. It also broadens the tax and lowers the rate if the state loses its appeal.

The federal government allows states to apply their hospital taxes to 19 categories. New Hampshire applies the tax to two: inpatient and outpatient hospital net revenues. The state also taxes nursing homes and intermediate care facilities under a different law.

One alternative under the House plan would expand the tax to ambulatory surgical center services, therapist services, laboratory and X-ray services in a free-standing lab or X-ray facility and emergency ambulance services. It would lower the tax rate to 5 percent.

In 1991, hospitals began paying the tax so the state could get matching Medicaid funds from the federal government to pay for health care for the poor. For many years, hospitals got all their taxes refunded dollar for dollar.

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. The Legislature cut Medicaid funding to the hospitals by more than $130 million but kept the tax. That prompted hospitals to sue.

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