Other services that could be closed or suspended to Medicaid patients include neonatal intensive care at Dartmouth-Hitchcock's Children's Hospital; the helicopter rescue program at Dartmouth-Hitchcock; and the Exeter Healthcare center, the state's only sub-acute rehabilitative care facility that accepts long-term ventilator-dependent patients, the suit said.

In the state budget that took effect July 1, the state is taxing hospitals 5.5 percent on net patient revenues while reducing payments for caring for the poor. For many years, the state taxed the hospitals to gain matching federal Medicaid funds, then returned the amount of the tax to the hospitals so they effectively lost no money. From 1991 through 2009, the lawsuit estimates the state acquired $1.8 billion in matching federal money this way.

After a federal challenge to this process, New Hampshire no longer can simply reimburse hospitals dollar-for-dollar what they are taxed. They must look at how many poor people the hospitals treat.

The hospitals estimate they will be taxed $250 million over the two-year budget. Dartmouth-Hitchcock estimated it will be assessed $40 million this year alone and could pay more to care for Medicaid patients than it gets in reimbursement.

The budget cuts $115 million over the two years from a fund established to make payments for caring for the poor. The cut actually is much deeper because the money was used dollar-for-dollar to acquire matching federal funds. Democratic Gov. John Lynch had proposed taking $20 million, but the Republican-controlled Legislature made the deeper cut to avoid raising any taxes or fees.

"This doesn't come as a surprise," said Lynch spokesman Colin Manning. "The budget proposed by the governor was very different from the one passed by the Legislature. The governor took a more balanced approach and did not propose such a drastic cut to hospitals."

Lynch allowed the budget to take effect without his signature.

House and Senate Republican leaders had not received the lawsuit Monday afternoon and had no immediate comment, said Senate communications director Carole Alfano.

Wayne Granquist, chair of Dartmouth-Hitchcock's board of trustees, said the budget threatens not just Dartmouth-Hitchcock, but also the public's access to care.

"We are determined to stand up for our patients for the committed people who deliver care to them. This lawsuit comes after we have exhausted all other avenues to express to the state Legislature the impact of these draconian budget cuts," he said.

Besides Dartmouth-Hitchcock, hospitals listed as plaintiffs are Elliot Hospital and Catholic Medical Center in Manchester, Wentworth-Douglas Hospital in Dover, Exeter Hospital in Exeter, Southern New Hampshire Health System and St. Joseph Hospital in Nashua, Cheshire Medical Center in Keene, Frisbie Memorial Hospital in Rochester and Lakes Region General Hospital in Laconia.

Dartmouth-Hitchcock said on top of the $40 million tax, it will lose $60 million in payments for treating Medicaid patients. The hospital said the state only paid it $28 million of its costs in fiscal 2010 against $88 million in care the hospital provided to the poor.

New Hampshire's 26 acute-care hospitals provide Medicaid services. Thirteen are designated as critical access hospitals, which are smaller and usually rural hospitals. The budget treats critical access hospitals better than the other hospitals, but payment levels to all are inadequate, the lawsuit said.