N.H. leaders seek quick fix to budget crisis

Hospital tax loss takes away $185m

CONCORD, N.H. — Lawmakers need to agree soon on a short-term fix to a recent court ruling that found New Hampshire’s tax on hospitals unconstitutional if the Legislature is to avoid a major impact on the state budget, Senate President Chuck Morse said Tuesday.

The state plans to appeal the ruling, but Morse, a Salem Republican, told the Senate Ways and Means Committee that a short-term fix is needed before the Legislature adjourns next month followed by a long-term effort to phase out the tax.

He said that could begin by reducing the 5.5 percent tax on net patient revenues. He said how much the tax is reduced and how quickly depends on how phasing out the tax would affect payments to medical providers and aid for hospitals providing uncompensated care.


The governor, legislative leaders, and representatives from the hospitals have been meeting to try to find a way to address the issues that prompted the hospitals to sue the state. The Senate committee will discuss the issue again next week.

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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 the long-term, I believe we need to phase out the [tax] and instead use general funds to support the programs that it funds today,’’ Morse said. “I say long-term because simply eliminating the [tax] overnight, whether by the Legislature or by the courts, would create tremendous uncertainty and turmoil.”

Morse said that cutting hundreds of millions of dollars in state spending midway through a two-year budget would not be easy and that he has not heard anyone suggest adopting a new tax. ‘‘In my mind, we need a third alternative,’’ he said.

Representative David Hess, Republican of Hooksett, suggested cutting the tax rate and broadening which providers pay the tax.


This month’s Superior Court ruling covered the 2011 tax year, but 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.

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.