Connecticut hit another snag Wednesday as it tries to develop a new taxing arrangement with its hospitals that would leverage millions of dollars in new federal funding to help both the state and the industry.
Gov. Dannel P. Malloy’s administration notified legislators that most hospitals are contesting increases in state payments to these facilities for treating poor, under-insured patients. Hospitals assert these increases are insufficient to correct longstanding imbalances.
But the industry has been challenging rates regularly since 2013 — when the state began dramatically increasing taxes on hospitals. Hospitals must file appeals within 10 days after the state posts the rates it intends to pay, otherwise facilities forfeit any right to protest later.
All hospitals except the Connecticut Children’s Medical Center, John Dempsey Hospital and Sharon Hospital recently filed appeals with the state Department of Social Services.
Ben Barnes, the governor’s budget director, wrote to lawmakers that this “amounts to a repudiation of the hospitals’ agreement with the General Assembly.”
Those appeals also could jeopardize the state’s ongoing effort to secure federal approval of the new taxing arrangement, Barnes added, “putting the state at risk of significant financial harm.”
The U.S. Centers for Medicare and Medicaid Services, commonly known as CMS, has not ruled on a series of Medicaid-related changes proposed by Connecticut after adoption of the new biennial budget in late October.
Jennifer Jackson, president and CEO of the Connecticut Hospital Association, countered that the industry has not reneged on the deal it struck with legislative leaders.
“We remain thankful for the bipartisan legislative support for the agreement regarding taxes from and Medicaid payments to hospitals made during the last legislative session,” she wrote in a statement. “ … We stand by the agreement and, in fact, filed documents with the state, with a copy to CMS, supporting the state plan amendments.
Technically the new state budget dramatically increases taxes on hospitals, boosting the industry’s assessment from $556 million per year to $900 million.
But at the same time, state payments back to hospitals would rise by more than $200 million per year.
The industry, which paid about $438 million more in taxes last year than it got back from the state, would watch its annual loss shrink below $230 million under this new deal.
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. And the plan in the new budget would draw an estimated $137 million annually from Washington, D.C., into Connecticut’s coffers.
Increasing federal aid was the goal in 2011 when Malloy and the legislature established a hospital provider tax. At that time the industry — and not just the state — came out ahead. Hospitals paid $350 million in taxes in the 2011-12 fiscal year but received $400 million from the state.
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.
This led the industry to file a lawsuit which is still pending. Malloy insisted last fall that hospitals settle this suit before the new taxing arrangement — which benefited both sides — would be implemented.
The industry refused and lawmakers from both parties sided with hospitals last October, writing the tax and payment changes into the new state budget despite Malloy’s objections.
The state currently is managing its finances under the assumption that federal Medicaid officials also will endorse the new arrangement.
But the top Democrat and Republican in the state Senate chastised the hospitals Wednesday.
“This is a thoroughly disappointing and shocking development,” Senate President Pro Tem Martin M. Looney, D-New Haven, and Senate Republican leader Len Fasano of North Haven wrote in a joint statement. “ … We consistently have supported Connecticut hospitals; however, today we learned that the Connecticut Hospital Association did not even have the respect or the courtesy to come to the legislative leaders to explain why they would contemplate going back on their agreement. We fear this about-face by the members of the Connecticut Hospital Association and betrayal of the agreement will endanger federal reimbursements and hurt the viability of our smaller hospitals.”