Backus Hospital in Norwich Arielle Levin Becker /
Backus Hospital in Norwich Arielle Levin Becker /

The fate of a complex new taxing arrangement that would leverage hundreds of millions of federal dollars for the state and Connecticut hospitals to share hung in legal limbo Thursday.

Gov. Dannel P. Malloy said negotiations between his administration and the Connecticut Hospital Association were making progress, “but whether it will lead to a final agreement, I don’t know.”

At issue is a lawsuit the industry filed two years ago challenging the state’s hospital provider tax. The governor has said this lawsuit must be settled for Connecticut to enter an arrangement that would leverage $365.5 million new federal funds each year.

But the association says the two issues should not be linked.

Jennifer Jackson, CEO of the hospital association, said Thursday that “We continue to believe that it is in the best interest of the state to enact the hospital deal as soon as possible to maximize federal dollars and help patients, hospitals, and the state. We also remain committed to working toward a separate long-term global settlement with the administration.”

State officials and the industry both want Connecticut to raise the tax on hospitals by $344 million per year for this fiscal year and next. The state then would redistribute and return that entire $344 million increase to the industry, along with another $326 million in other payments.

This action would qualify Connecticut for $365.5 million per year in extra federal Medicaid reimbursements.

The hospital industry currently pays $439 million more in annual taxes than it receives back from the state in supplemental payments. This arrangement would reduce the yearly hit on the industry by more than half, down to $210 million.

And the stakes also are high for the next state budget.

Connecticut, which already has gone 13 weeks into the new fiscal year without an approved budget, would come out $137 million ahead yearly with this new hospital taxing arrangement. And both the last Republican-crafted budget — which Malloy vetoed Thursday — and the last Democratic proposal, rely on this boost in federal funding.

In other words, if there is no deal with the hospitals, all of the latest state budget proposals have a major structural hole.

Further complicating matters, Connecticut and the hospitals are running out of time to secure approval for this arrangement from the U.S. Centers for Medicare and Medicaid Services. The governor says that deadline is around mid-October.

So while there is no agreement on a new state budget yet, Malloy and legislators discussed this week approving the hospital taxing arrangement in a separate bill now.

But the governor says the industry lawsuit — which argues the state tax has been unfair and a major fiscal drain on hospitals — must be settled first.

And while legislative leaders were divided on the issue, Malloy holds a procedural advantage.

The top Republicans in the House and Senate, Themis Klarides and Len Fasano, said they agree with the hospital association that the tax arrangement and the legal dispute should be handled separately.

House Speaker Joe Aresimowicz, D-Berlin, said he would wait until talks between the Malloy administration and the CHA are concluded.

But Senate President Pro Tem Martin M. Looney, D-New Haven, said that while he also is watching the talks closely, he is interested in voting on a hospital taxing bill that the governor is willing to sign.

“Our understanding is we would be going forward with something the governor had given his assent to us doing,” Senate President Pro Tem Martin M. Looney, D-New Haven, said.

And for a bill to be raised  for a vote in special session, which follows a procedure referred to as the emergency certification process, it requires the signature of both the House speaker and the Senate president pro tem.

So without Looney’s consent, no hospital taxing bill could be brought to a vote.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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