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Connecticut hospitals may sue state over ‘unconstitutional’ tax

HARTFORD —Connecticut hospitals took the first steps toward a possible legal battle with the state over a tax the medical centers claim is unconstitutional and ...

HARTFORD —Connecticut hospitals took the first steps toward a possible legal battle with the state over a tax the medical centers claim is unconstitutional and is harming hospitals financially.

The Connecticut Hospital Association filed letters Monday with the Departments of Social Services and Revenue Services, seeking declaratory rulings from the agencies on whether the so-called “provider tax” on hospitals is constitutional. Those letters were first obtained by The Associated Press.

If the agencies determine the tax and its methodology are fine, that could become the basis for the association to challenge the tax in court. The group’s counterparts in New Hampshire took a similar path before negotiating a financial settlement with lawmakers and the governor.

“We’re about taking care of patients, not about filing these kinds of actions. Our preference would not be pursuing these kinds of things,” said Stephen Frayne, the Connecticut Hospital Association’s senior vice president for health care policy. “We just felt like we’ve been left with no other choice.”

A message left seeking comment with the Department of Social Services was not immediately returned.

The move toward possible legal action comes as Gov. Dan Malloy and legislative leaders try to craft a bipartisan plan to address a shortfall in this year’s $20 billion budget. Lawmakers estimate $350 million to $370 million is needed. A closed-door negotiating session is scheduled for Tuesday, with the goal of holding a special session of the General Assembly sometime during the second week of December.

The hospital association has been running an aggressive ad campaign, urging Malloy to scrap his plans to cut funds to hospitals, warning the reductions could harm services. Malloy has been unapologetic about his cuts, pointing out how all but three of the state’s 28 hospitals made money last year. Collectively, he said that adds up to $916 million — a figure the association disputes.

Connecticut imposed the provider tax on 26 of the state’s 28 not-for-profit hospitals in 2012. Like many states, Connecticut saw the tax as a means to obtain additional federal Medicaid matching funds. Frayne said the hospitals were originally told they would get their money back, plus some extra federal reimbursement in the form of increased Medicaid payments. Beginning in 2013, however, more and more of the money has been diverted to balance the state budget while the hospitals remained on the hook for the tax.

“The hospitals are losing nearly $11 million a week,” Frayne said.

Then this year, $60 million in state Medicaid payments was cut as part of Gov. Dan Malloy’s $100 million slash to government spending.

Jennifer Jackson, president and CEO of the Connecticut Hospital Association, said in September the reduction would lead to a $130 million decline in federal reimbursement. Coupled with the cuts already in the new state budget, Jackson predicted there will be employee layoffs.

In New Hampshire, lawmakers cut Medicaid funding to hospitals by more than $130 million, but retained the tax. That prompted legal action by the hospitals, which ultimately ended with two judges determining the tax was unconstitutional, said attorney Gordon J. MacDonald, a co-counsel for the New Hampshire hospitals who is now helping the Connecticut Hospital Association. In mid-2014, the governor and state lawmakers negotiated a settlement that dropped the tax rate on hospitals’ net patient revenues and required the state to provide an additional $80 million in state revenue.

Frayne said he hopes to avoid a protracted legal battle and wants to work with legislators and the governor’s office on a resolution. He said the hospital association plans to offer an alternative tax proposal later this week that’s similar to the original intent of the program back in 2011.

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