Case 1:11-cv-00358-SM Document 50-18

Filed 09/23/11 Page 1 of 8

UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE **************************************** Dartmouth-Hitchcock Clinic and Mary * Hitchcock Memorial Hospital * d/b/a Dartmouth-Hitchcock, et al., * Plaintiff * * v. * Nicholas A. Toumpas, in his official capacity * as Commissioner of the New Hampshire * Department of Health and Human Services, * Defendant * ****************************************

11-cv-358-SM

AFFIDAVIT OF KATIE DUNN IN SUPPORT OF THE DEFENDANTS OBJECTION TO MOTION FOR PRELIMINARY INJUNCTION I, Kathleen Dunn declare as follows: 1. I am currently employed by the New Hampshire Department of Health and Human

Services (DHHS) as the Director for the Office of Medicaid Business and Policy (OMBP). I am also the New Hampshire State Medicaid Director. I have been in this position since 2007. Previously I was the DHHS Acting Medicaid Director and Director of OMBP for 1 year and prior to that I held the positions of DHHS Medicaid Assistant Director in OMBP for 2 years; DHHS Director of the Office of Community and Public Health (OCPH) which included the Division of Public Health and Medicaid Program for 4 years; DHHS Interim Director of OCPH for 1 year; DHHS Medicaid Liaison for OCPH for 1 year; DHHS Bureau of Maternal & Child Health Nurse Consultant in OCPH for 3years; and DHHS Communicable Disease Bureau Chief for 2 years I have been employed by DHHS for a total of 18 years. My job duties include preparation of budget requests relating to Medicaid, presenting the departments Medicaid budget and financial requests for items to the legislature, responding to requests from the legislature when budget reductions are required due to revenue shortfalls, and other tasks related to the

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financial needs of administering the New Hampshire Medicaid program, as well as monitoring utilization by our clients, and relations with our provider network and our federal counterparts, CMS. I am personally familiar with the facts stated herein. 2. The principle mandatory eligibility groups under Medicaid are low income women,

low income children, and disabled and long-term care for medically needy elderly without resources. 3. New Hampshires state plan section on reimbursement for in-patient hospitals, out-

patient and physicians provides that each are paid differently. 4. There has never been a requirement that the specific rates or percentages be

included in the state plan and the Centers for Medicare and Medicaid Services (CMS) have repeatedly approved revisions to the New Hampshire state plan that do not contain specific rates or percentages. 5. CMS communicates with State Directors from time to time through letters to all

State Directors. In such a letter, a true and correct copy which is attached, CMS recognized that the repeal of the Boren Amendment and current language in 42 USC 1396a(a)13(a) was intended to give states the maximum flexibility possible in regard to rate setting while minimizing CMS (formerly HCFA) involvement. Exh. KD-1, HCFA to Medicaid Directors letter, dated 12/10/97. 6. Before any of the actions complained of in this lawsuit occurred the Department

had information that the non-critical access hospitals were healthy and solvent. A 2008 study commissioned jointly by the Department and the Endowment for Health concluded that New Hampshires non-critical access acute care hospitals, are in better financial shape than hospitals nationally and that their reserves have consistently grown over the last five years, despite a decline in investment income in 2007. The hospital sector generated over a half-billion in

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operating profits and when non-cash expenses (depreciation and amortization) are added back in, the sector generated cash from operations of over $1.2 billion dollars over the five year period. However the report also showed that critical access hospitals consistently had lower operating margins than did all New Hampshire Hospitals in every year from 2003 to 2007. A true and correct copy of the Kane report, dated October 15, 2008 is attached as Exh. KD-2. 7. It has been my experience that hospitals do not turn away Medicaid patients, even

if the rates are low because they have fairly low occupancy. As the hospitals have already committed the capital and staffing costs to support those beds, receiving a Medicaid payment still reduces their overhead and contributes to the bottom line. 8. DSH is not a part of Medicaid rates as it allows, but does not require hospitals to be

compensated for true charity care for people that do not qualify for Medicaid, that have no insurance and who cannot afford to pay for care. The original intent of allowing DSH payments was to allow subsidies to inner-city hospitals that served low-income populations, many of whom do not qualify for Medicaid. Even if a hospital qualifies as a DSH hospital, there is no requirement in federal law that any set percentage of the hospitals uncompensated care must be subsidized. New Hampshire has previously been extremely generous to its acute care hospitals in allowing all of them to receive DSH payments, but this is not required by federal law. 9. I have attended almost every DHHS budget presentation that involved Medicaid

since I became State Medicaid Director. To the extent that a matter affecting hospital rates or reimbursement has been scheduled, the meetings have been attended by at least the NHHA lobbyist and often individuals on behalf of individual respective hospitals. 10. If any reduction to Medicaid rates has been proposed I have worked closely with

the Commissioners Office. It is my recollection that prior to the initial April 2008 proposal and

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subsequent November 2008 rate reductions that these proposed cuts had actually been discussed with NHHA and the Governor. The notice to the Hospitals for proposed cuts, as well as evidence of their opportunity to comment and that they in fact proposed alternatives is confirmed by correspondence between the Commissioners office and the NHHA, as well as directly from NHHA to Governor Lynch. A true and correct copy of two letters from Comm. Toumpas to the NHHA are attached as Exh. KD- 9, Letter dated 4/9/2008 and KD-10, Letter dated 5/21/2008; and Exh. KD-11, Letter dated 4/22/2008 from NHHA to Gov. Lynch. The April 2008 rate reduction request was tabled by the fiscal committee with the understanding that it was likely to have to be brought forward in the next fiscal year again by the Department. 11. By early fall 2008 the Departments calculations showed that the reduction

previously requested would not be sufficient since it would be implemented later in the cycle. Conversations regarding the hospitals making a donation were not resolved. A request was submitted by DHHS to the fiscal committee in accordance with RSA 126-A:3, revising the prior April 2008 fiscal request, asking to reduce outpatient rates from 81.24% to 54.04 % on October 30, 2008. A true and correct copy of that request is attached as Exh. KD-4, fiscal request FIS 08325. 12. The November 21, 2008 meeting transcript shows that access was considered in the

continuation of excluding the critical access hospitals from the rate reductions. 13. It is also evident that the hospitals and NHHA were well aware of the rate

reductions, as within 5 days of the Nov. 21, 2008 fiscal action, NHHA on behalf of all of the hospitals, wrote a letter to CMS dated Nov. 26, 2008, inquiring about whether the November 21, 2008 fiscal committee actions needed to be followed by state plan amendments and what if any

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notice was required. A true and correct copy of that letter is attached as Exh. KD-5, NHHA 11/26/08 letter to CMS. 14. Furthermore, in its response, CMS did not agree with the hospitals claim that all

changes that affect rates require state plan amendments or that, if a state plan amendment is not required, the federal regulations about notice for state plan amendments apply. A true and correct copy of that letter is attached as Exh. KD-6, CMS 12/19/08 ltr to NHHA. 15. The November 2008 inpatient and outpatient rates have been continued in the

FY2010-2011 budgets and again in the FY 2012-2013 budget. The FY2010-2011 budget process started in February 2009, only three months after the November 2008 fiscal committee hearing. The state budget processes are very open, with published budgets and extensive hearings at which the NHHA and the hospital stakeholders had full opportunity to comment and testify. I recall them being present at hearings at which I testified and I am aware that the hospitals lobbyists were engaged in direct communications with legislators. 16. Executive Order 2008-10 did not require that settlement payments for outpatient

reimbursement be suspended in FY 2009. Instead, the spreadsheet attached to the Governors Executive order presented to the fiscal committee that itemized the DHHS source of the proposed cuts showed on line 39 as additional funds $2.2 million that was owed to DHHS by the hospitals from over payment of outpatient costs. 17. On a one-time basis in 2011, solely because increased matching federal funds under

ARRA were available which would allow DHHS to pay approximately $10 million dollars in additional funds to the hospitals, DHHS included a UPL payment in its budget. This strategy was suggested by hospitals consultant as a way to maximize payments to the hospitals and they also explicitly recognized that it was a one-time opportunity that would vanish if the stimulus

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provisions were not extended. At true and correct copy of the proposals by the Hospitals consultant is attached as Exh. KD-7, Health Management Associates, 1/14/2010 report. There is no requirement to make UPL payments as demonstrated by the fact that New Hampshire had never done it before FY 2011 nor had any hospital requested it. 18. Language that would allow New Hampshire to make the one-time UPL payment in

FY 2011 (for services provided in calendar year 2010) was added to the state plan in the same plan amendment that contained a substantial re-design of the DSH methodology, TN 10-011. At the time this was done, there was some hope that enhanced matching funds in the stimulus funding would be extended that would make doing a future UPL payment attractive. That hope has not materialized. There is no funding in the current budget for FY2012 for UPL payments. As any UPL payment would not be due before the end of the fiscal year, and as a state plan amendment is valid if filed before the last day of the federal fiscal quarter in which a payment is due, if necessary there is still ample time for DHHS to amend the state plan to clarify that no UPL payments will be made, if needed. DHHS is in the process of preparing notice and will determine if an amendment is needed. 19. The changes made in the FY2012 2013 budget process by the legislature changed

the distribution of the revenue received by the State from the Medicaid Enhancement Tax which will most likely result in little or no DSH payments to the non-critical access hospitals. However, DSH payments are not prohibited and in fact there is a provision in HB 2 that directs DHHS to consult with the Commissioner of the Department of Administrative Services towards the end of SFY 13 to assess the availability of surplus funds that would then be utilized for DSH payments with fiscal committee approval. Although arguably the methodology of the most recent state plan amendment concerning DSH, TN 10-011, would cover the payments called for

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by the FY2012-2013 Budget, if any state plan is needed, there is still ample time to submit it. As any DSH payment would not be due before the end of the June 2012 , and as a state plan amendment is valid if filed before the last day of the federal fiscal quarter in which a payment is due, there is still ample time for DHHS to give notice and amend the state plan to clarify that how and the extent to which DSH will be paid in FY 2012 and 2013 is subject to the current budget. DHHS is in the process of preparing notice and will determine if an amendment is needed. 20. Further, the Departments instructions from the Legislature, when asked to report

on the possible consequences of proposed cuts or legislation have been to be over-inclusive rather than under-inclusive. To the extent that the possibility of hospital closure was suggested by me in legislative testimony regarding the proposed FY2012-2013 budget, I specifically had in mind one or more of the critical access hospitals, due to their particular situation, not any of the plaintiffs. 21. Further, the count of active providers with at least one claim in the most recent

three prior year shows that there has not been a decrease in the number of providers that will see Medicaid patients. A true and correct copy of the Active provider count from 8/15/2008 to 8/16/2011 is attached as Exh. KD-8. 22. The hospitals specifically had notice of the proposed changes that were discussed

with the fiscal committee on February 5, 2010 as is evidenced by the NHHA correspondence to CMS ten days later, again inquiring about whether notice and plan amendments were required for the items discussed and presented at the February 5, 2010 fiscal meeting, itemizing the proposed actions to included reduction in Hospitals interim settlement rates, revenue 510 billing code changes, changing outpatient radiology to a fee schedule, suspending outlier payments and

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catastrophic payments and delay of outpatient costs settlement payment. Attached hereto as Exh. KD-12 is a true and correct copy of the NHHA Feb 16, 2010 letter by NHHA to CMS. 23. I responded for DHHS to the NHHA letter on March 1, 2010, pointing out that, to

the extent needed, notice would be given and state plan amendments submitted, and that even though notice and/or state plan amendment were not required for some of the items brought forward in the February 5, 2010 fiscal committee meeting, notice was still being done. See Exh. KD-13, March 1, 2010 letter by DHHS to NHHA re CMS letter. 24. We also have available and I have relied on the results shown in the biannual

benchmark reports that the Department has compiled. DHHS responded to an inquiry from NHHA about what DHHS had done or was doing to consider the impact of these changes on access on March 30, 2010 to the NHHA by pointing to favorable comparison of New Hampshire to other New England states in the 2008 benchmarking report and that OMBP would continue to monitor trends and work with NHHA and the hospitals. A true and correct copy of my response is attached as Exh. KD-14, March 30, 2010 letter by DHHS to NHHA re access. Although these show that New England Medicaid rates are lower than Medicare, New Hampshire is not generally, even in the 2010 report, the lowest paying New England state. The utilization data from these reports, as well as the other reports previously mentioned herein, do not demonstrate that there has been any decrease in access, from 2008 to the present, after any of the actions complained of in the lawsuit. I declare under penalty of perjury that the foregoing is true and correct to the best of my personal knowledge and the information available to me. Dated: 9/22/11 /s/ Kathleen Dunn Kathleen Dunn