A federal judge has declined to throw out the lawsuit that accuses the state of Vermont and the federal government of discriminating against Dartmouth-Hitchcock Medical Center.

Judge Landya McCafferty of the U.S. District Court in New Hampshire denied dismissal requests from the Vermont Agency of Human Services, the U.S. Department of Health and Human Services, and the U.S. Centers for Medicare and Medicaid Services on May 2.

Dartmouth-Hitchcock's lawsuit, filed in November, accuses Vermont's Medicaid program of using a payment formula that illegally discriminates against the New Hampshire hospital.

According to the lawsuit, the Department of Vermont Health Access, which administers Vermont's Medicaid program, has been paying the University of Vermont Medical Center a base rate of $7,611 for inpatient services, versus $5,225 to Dartmouth-Hitchcock, even though they are similar hospitals providing similar services to Vermont residents.

The lawsuit also says the Department of Vermont Health Access pays Dartmouth-Hitchcock less than UVM for outpatient services; Dartmouth-Hitchcock makes about 75 percent of what Medicare pays similar hospitals, while UVM makes about 93 percent of what Medicare pays.


Additionally, Vermont does not give what are called "disproportionate share hospital" payments to Dartmouth-Hitchcock, even though all of Vermont's 14 hospitals receive such payments. DSH payments help reimburse hospitals for uncompensated care they provide to uninsured patients and sometimes Medicaid patients. DSH payments are funded through state and federal Medicaid money.

Dartmouth-Hitchcock also says it should be paid additional money because it's a teaching hospital.

Specifically, the suit alleges five violations based on the payment differentials: denying Dartmouth-Hitchcock equal protection under the U.S. Constitution, violating the commerce clause in the U.S. Constitution, and violating three different parts of the federal Administrative Procedure Act.

After the dismissal requests from the state and federal governments, McCafferty threw out one of the complaints in the case related to the Administrative Procedure Act but not the other four complaints. The ruling means the case has merit and will be able to move forward in federal court.

Dartmouth-Hitchcock says it has been losing out on $11 million a year from inpatient and outpatient services since November 2013. UVM Medical Center, by comparison, has been paid between $15 million and $18 million a year in DSH payments since 2013 in addition to the higher base level of reimbursement.

If Vermont loses the suit, it is not clear whether the state would be forced to lower what it pays Vermont hospitals, raise what it pays Dartmouth-Hitchcock, or something else. The original complaint includes demands that the court find Vermont's payment methodology unconstitutional but does not request to be paid a specific amount of money.

The state of Vermont has not denied that the way it reimburses hospitals is discriminatory, court documents say, but argued that the case should be dismissed because its payment methodology does not violate the U.S. Constitution's commerce clause or the equal protection clause.

The court rejected that argument and wrote that federal law "does not expressly allow states to adopt reimbursement and payment schemes that are less favorable to out-of-state providers" and that the state would be able to do that only if Congress made it "unmistakably clear" that it agreed with Vermont's procedure.

"Even if the state has a legitimate interest in benefitting its own citizens with preferential Medicaid reimbursements and payments to in-state hospitals, Vermont's discriminatory scheme does not appear to be rationally related to (protecting its own citizens)," the court wrote.

A spokesperson for Dartmouth-Hitchcock was out of the office this week and unavailable for comment. The spokesperson for the Department of Vermont Health Access did not respond to an emailed inquiry for comment.