Opinion: Lawsuit Exposes Big Issue With States Setting Medicaid Reimbursements

Sep. 9--Cheshire Medical Center in Keene is one of three New Hampshire hospitals suing the Vermont Agency of Human Services over the rates paid by the latter through its Medicaid system. Cheshire, along with Valley Regional in Claremont and Alice Peck Day Memorial Hospital in Lebanon, claims the state is discriminating against the hospitals on this side of the Connecticut River. At least, some of them.

According to the suit, N.H. Business Review reported, Vermont reimburses its own hospitals at a base rate of as high as $9,273 for a Medicaid patient, but pays the New Hampshire hospitals $2,900, a nearly 70 percent difference. It also pays Vermont hospitals twice the amount for "outlier" (more expensive) cases, and reimburses in-state outpatient services at 113 percent, while out-of-state providers get only 82 percent.

A very similar lawsuit in 2015 by Mary Hitchcock Memorial Hospital resulted in a settlement that upped its rates by $10 million a year.

This suit, N.H. Business Review reported, could mean $2 million a year in higher rates, the bulk of it to Cheshire.

It's just the latest flap over Medicaid reimbursement rates and payments. The system, meant to ensure medical access to poorer residents across the country, has a unique financial setup that's been misapplied and abused for decades.

The Medicaid system is a federal/state partnership, with the federal government paying at least a 1:1 match of costs. But it can be more, depending on how wealthy a state is, based on average income. Since New Hampshire is a relatively wealthy state -- typically about 6th or 7th in per-capita income -- it receives a direct match. Vermont gets a slightly higher percentage. Mississippi receives about $2.80 for every dollar it spends.

Even at a 50/50 split, states have the ability to determine how much the program affects their budget. While the federal share is essentially a pass-through of its share, the states can determine their own rates paid to providers. Historically, the stingiest states have paid woefully low rates. As one might imagine, New Hampshire falls into this category. According to Kaiser Health News, New Hampshire ranked 44th of the 50 states in reimbursement rates in 2018, paying a paltry 73 percent of the national average for obstetric care. The same organization found the state's reimbursements for Medicaid services overall to be just 58 percent of what's paid through Medicare -- which typically determines market charges.

New Hampshire has even been able to game the system in the past. It famously concocted a "Medicaid Enhancement Tax" that allowed it for years to overcharge the federal government in Medicaid payments, thus turning what should be a simple pass-through of funds to providers into a cash cow. When the feds figured it out and put a stop to the scheme, the state continued to charge the tax to hospitals anyway, forcing them to pay as much as $250 million over a two-year period before a threatened lawsuit ended the practice.

New Hampshire has seen a 50 percent increase in Medicaid enrollment statewide since the advent of the Affordable Care Act's Medicaid expansion in 2013. Now, about 191,000 Granite Staters rely on the program, roughly 13 percent of the state. That's only been possible because the ACA called for the federal government to guarantee at least 90 percent of the cost of new enrollees.

But New Hampshire has kept the clamps on the rates paid to providers, to the point where some won't accept Medicaid patients, as is par for the course for dentists in the state. And we've previously noted the dragging effect the state's reimbursement rates to mental health providers may have on the success of the 10-year mental health plan unveiled in 2019. Because of those inadequate rates, the agencies that provide such services -- and which are often required to accept those rates in order to secure state funding -- can't fill empty positions.

The idea of Medicaid rates reflecting the financial realities of each state isn't a bad one. It allows needed flexibility. But giving those states the ability to decide what rates they'll then pay providers is another story. Especially in revenue-challenged states, the temptation is too great to suppress payments to save the state on its share of spending on medical care.

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