Hospitals leery of Rell tax proposal

Connecticut’s hospitals are wary of Gov. M. Jodi Rell’s plan to reinstate a 10-year-old tax on revenues, rejecting the administration’s claim that overall payments to the industry would remain constant, although individual hospitals would experience gains or losses.

An official with the Connecticut Hospital Association also said that numerous spending cuts also proposed in the governor’s latest deficit-mitigation plan would ensure all hospitals are worse off next fiscal year than they are now in terms of state assistance.

“History is more than likely to repeat itself, despite the best of intentions,” Stephen Frayne, the association’s senior vice president for health policy, said Tuesday, one day after Rell unveiled her latest plan to close a more than $500 million deficit in the current state budget. “The record is clear despite all promises.”

Frayne was referring to the governor’s proposal to reinstate the gross revenues tax on hospitals, which was eliminated in April 2000. The administration estimates that a rate of 3.25 percent would raise $129.4 million next fiscal year. If those funds then were returned to hospitals — in this case as payments to cover uncompensated care, or the cost hospitals incur for treating uninsured and under-insured patients – state government would be eligible for added federal Medicaid reimbursement equal to roughly half, or $64.7 million. Rell’s plan calls for state government to keep those extra federal dollars to support the overall budget.

But Frayne said that creates two problems.

First, state government has a questionable track record of re-channeling tax dollars raised in previous user fee systems back to the health care providers who paid them in the first place.

In six fiscal years between 1994 and 1999, the state collected more in hospital taxes than it paid out in uncompensated care funding five times, with annual gaps as high as $37 million in 1995 and 53 million in 1996, according to the state Office of Health Care Access.

Secondly, the funding that would be returned to hospitals would not go back in the same proportions in which it came in. Federal rules governing the Disproportionate Share Program, which is designed to focus the most assistance on those hospitals with the highest caseload of uninsured patients, require that at least 25 percent of those hospitals paying taxes receive at least 25 percent less in payments sent back.

“Somebody’s got to lose, you already know that at the start,” he said, adding that in a prolonged recession, none of Connecticut’s 30 acute care hospitals can afford to take a funding hit, especially since Rell has proposed scaling back state aid in several other areas that impact hospitals. In fact, one of her proposed cuts for this fiscal year includes more than $3 million in uncompensated care assistance for urban hospitals.

Another includes a 5 percent reduction in the general Medicaid rate for hospitals, which would cost the industry between $35 million and $45 million next fiscal year.

Rell called the choices in her plan crucial, though neither popular nor pleasant.

“We have a robust public health budget that depends on having resources,” said Jeffrey Beckham, spokesman for Rell’s budget agency, the Office of Policy and Management. “One of the ways we can leverage more federal money, which the legislature is always urging us to do, is to do this little maneuver. There are no perfect choices.”

But while legislators only are beginning to analyze the plan, Sen. Jonathan Harris, D-West Hartford, co-chairman of the Public Health Committee and former co-chairman of the Human Services panel, predicted the hospital-related ideas wouldn’t go far.

“I understand the pressure the governor is under to make cuts, but cuts to health care, while appearing to help the bottom line in the short run, will most likely increase the cost to the taxpayers in the long run,” he said. “We are now going to increase the cost on some hospitals that are struggling to survive, and the extra dollars we’re getting from Washington aren’t even going back to the hospitals? I think the tax is counter-intuitive.”