Hospitals and state reach settlement over Medicaid tax funds

Less than two months after New Hampshire hospitals sued the state over the legality of a Medicaid tax imposed on hospitals, the two parties have reached a settlement that both say will benefit patients.

At issue was a dispute over how much money hospitals receive back from the so-called NH Medicaid Enhancement Tax (MET). The state imposes an annual 5.4% MET on hospitals’ net patient revenues to help bring matching dollars to New Hampshire from the federal government to support the state’s Medicaid program.

Medicaid is funded by federal and state dollars. In return for paying the MET, New Hampshire hospitals receive payments from the state to help offset financial losses they incur from caring for patients without health insurance.

Under an agreement that expired in June 2024, hospitals were getting back 91% of what they paid in MET.

That number has been a source of contention for several years between the governor’s office and New Hampshire hospitals. After several rounds of negotiations with then-Gov. Chris Sununu and the current governor, Kelly Ayotte, hospitals took the state to court in April, saying the tax was unconstitutional.

The two parties have now settled on a three-year agreement that will give about 93% of MET dollars back to hospitals in aggregate, said Steve Ahnen, president of the NH Hospital Association, which was one of the plaintiffs that sued the state. Other plaintiffs included Dartmouth Health and its affiliated hospitals, and Concord Hospital and its affiliates.

“It’s certainly an improvement in some respects,” Ahnen said in a telephone interview. “It’s an agreement that will provide greater stability for the Medicaid program, that will insure hospitals can budget, plan and continue to do the important work they do taking care of patients.”

In a prepared statement, Ayotte called the settlement “the best possible outcome for everyone.”

“This agreement is a win for our state, for rural health care access, and most importantly, for patients,” she said. Ayotte’s office did not return inquiries seeking further comment.

The MET, established over 30 years ago, is expected to generate $348 million this year, which will be used to bring $485 million in additional federal funding to New Hampshire to support the state’s Medicaid program, according to the state hospital association.

Medicaid provides health care to residents with low income and/or disabilities, and also other eligible populations including children and seniors. About 13% of NH residents, or 186,319 people, were enrolled in Medicaid as of March. In the fiscal year 2025, the total cost of New Hampshire’s Medicaid program is projected to be $2.57 billion.