Hospitals dropped their opposition Thursday to a tax intended to leverage increased Medicaid reimbursements, easing the way for passage of the largest single revenue increase in a compromise budget proposed by Gov. Dannel P. Malloy.
The Connecticut Hospital Association, which was sharply critical of the governor’s proposal to boost taxes on the industry Monday, negotiated legal “assurances” with the governor and top lawmakers that the levy would impose no fiscal burden on hospitals.
The tax increase would yield $344 million in extra annual payments from hospitals, leveraging hundreds of millions of federal Medicaid dollars. Malloy proposed from the start that the state redistribute all of those dollars — and more — back to the industry.
But the association had a similar arrangement with the state starting six years ago, and watched as state payments back to the industry shrank considerably.
Though full details of Thursday’s negotiations were not available, the hospital association says it received legal “assurances” this time that new tax arrangement will not change in the future, as it had in the recent past.
The governor, who has limited authority to order emergency spending cuts when the budget is at risk of a deficit, would waive his option to reduce tax reimbursement payments to hospitals this fiscal year and next.
“This afternoon, we reached an agreement that will provide much-needed funding to care for Connecticut Medicaid patients,” hospital association CEO Jennifer Jackson wrote in a statement. “It will help preserve critical healthcare jobs, and it recognizes that hospitals are foundational to our state’s economic health. … It is hospitals’ hope that legislators will vote for a budget that includes these measures, which will move healthcare forward in a positive direction over the course of the biennium.”
“This demonstrates that we can work with the hospital association to find ways to bridge our differences,” Office of Policy and Management Secretary Ben Barnes, Malloy’s budget director, said, adding he believes “this is a step toward a settlement” of the industry’s lawsuit challenging the tax.
The complicated back-and-forth arrangement of state taxes and payments back to the hospitals actually is employed by most states as a means to leverage federal aid.
That was the goal in 2011 when Malloy and the legislature first established a hospital provider tax in 2011.
At that time it also was a legal maneuver to qualify Connecticut for additional federal assistance and the industry paid $350 million in taxes and got back $400 million in supplemental payments.
But things began eroding almost right away. And as state government struggled frequently with budget deficits over the past six years, the tax grew while the supplemental payments shrank — despite an increase in the federal reimbursement rate.
Hospitals paid $556 million in total last fiscal year and received $118 million back as Connecticut passed up hundreds of millions of dollars in potential federal reimbursement.
Barnes said this new deal with the association covers this fiscal year and next, but both sides will continue to negotiate toward “a long-term agreement that would be in line with this.”