State, hospitals, still trying to reach legal settlement

When Gov. Ned Lamont and Connecticut’s hospital industry announced a tentative deal in late May to resolve a longstanding lawsuit, they estimated the deal would be ratified by September.

Now, nearly two months past the target date, details are still being hammered out, with both sides saying little except they remain on track for a resolution.

“Negotiations based on the tentative deal we reached with the hospitals are ongoing and we hope to have the matter resolved soon,” said Chris McClure, spokesman for the governor’s budget office.

The Connecticut Hospital Association’s statement was equally opaque.

“We have been in discussions with the state, with a mutual goal of resolving this matter soon,” CHA said Friday.

But there are several reasons why the deal would be very complex and perhaps take longer than expected.

There’s big money at stake.

Since the 2011 General Assembly and then-Gov. Dannel P. Malloy established the hospital provider tax, the industry has pumped hundreds of millions of dollars annually into Connecticut’s coffers.

With the exception of one year, the state has returned some — but not all — of those funds, redistributing them through various methodologies. This back-and-forth system was supposed to be a tool to qualify for and leverage more federal Medicaid dollars, but quickly evolved into a hefty tax on the hospital industry.

Hospitals filed suit in 2015, charging Connecticut abused this process. Industry officials have said hospitals have been short-changed by billions, and one estimate places the damage at roughly $4 billion.

Though neither side has disclosed many details, Connecticut is expected to settle for about 40%  of that amount, to be paid out over seven years.

And that leads to the second reason why a final agreement hasn’t been ratified yet. ….

Connecticut doesn’t plan to foot the bill by itself.

The settlement is expected to continue the provider tax as well as the corresponding supplemental payments back to hospitals. And it’s through those payments that Connecticut will make up for its past fiscal sins.

And since those payments to hospitals generally qualify Connecticut for Medicaid reimbursements, the federal government would be covering roughly half of the settlement cost.

That means the deal must pass muster with the U.S. Centers for Medicare and Medicaid services.

And federal approval isn’t the only complication that stems from using Medicaid dollars to resolve any settlement.

Connecticut can’t assume Washington won’t tamper with Medicaid.

More specifically, the state must build contingency language into the agreement to guard against any radical changes to Medicaid.

What happens if a Supreme Court ruling were to radically alter the Affordable Care Act?

What if a recession coupled with federal budget woes leads Congress to curtail Medicaid funding for states?

If Connecticut is counting on hundreds of millions of federal dollars over the coming years to help settle the lawsuit, the state and the industry must agree on what will happen if some of those dollars don’t materialize.

But state officials aren’t the only ones who need contingency plans. The final reason a final settlement is delayed is …

Hospitals haven’t forgotten the state’s history of flipping the script.

Just as Connecticut must have fiscal and legal safeguards in place, so too the hospitals.

Industry officials recall the hospital levy initially was pitched as a tax in name only.

Under that original agreement, the industry would pay $350 million per year to the state, which would redistribute and return every penny back to hospitals — plus $50 million more.

Connecticut could afford to do that because of the additional federal Medicaid funds it received.

But things began eroding almost immediately. As state government struggled with budget deficits over the next six years, the tax grew while the payments back to the industry shrank — despite an increase in the federal reimbursement rate.

By 2017, hospitals were paying $514 million to the state and getting a collective $78 million in return. And last year, under a new agreement, they paid $900 million and received back about $670 million.

Industry officials also complained earlier this year that between October 2018 and May 2019, hospitals were short-changed more than $230 million for care provided to Medicaid patients and to the under-insured.

The final settlement with the state is expected to contain provisions to ensure Connecticut politicians cannot fiscally undermine this deal in the future.