- Associated Press - Sunday, October 11, 2015

HARTFORD, Conn. (AP) - Connecticut’s hospitals, embroiled in a battle with Gov. Dannel P. Malloy over cuts in Medicaid payments, are not ruling out a path taken by their counterparts in New Hampshire: possible legal action.

That state’s hospital association decided in 2011 to sue New Hampshire after its Republican-controlled Legislature cut Medicaid funding by more than $130 million, but retained a tax on hospitals that was supposed to help the state gain matching federal money to pay for health care for the poor.

Officials at the Connecticut Hospital Association contend they’re now in the same situation.

“I think they felt strongly they couldn’t allow that to stand and pursued legal action to try to bring (the tax) back to its original purpose,” said Stephen Frayne, the association’s senior vice president for health care policy, referring to his peers in New Hampshire. “At this point, I think in Connecticut, all options are really on the table. We’re exploring what all those particular possibilities might be.”

An announcement by Malloy on Friday to provide six smaller hospitals with $14.1 million did not appear to sway any opinions at the association. “Nothing’s changed,” said Frayne, reiterating that the association is “looking at every avenue possible to try and figure out a way to stop” the tax.

Connecticut imposed the so-called “provider tax” on 26 of the state’s 28 not-for-profit hospitals in 2012. It was touted as a way to generate new state funds and match them with federal money so the state could be eligible for additional federal Medicaid reimbursement. Originally, the cost of the new tax, plus some additional money, was supposed to be returned to the hospitals in the form of increased Medicaid payments.

However, Frayne said, that happened only in the first year. Since then, the hospitals have remained on the hook for the tax, while the amount they’ve received from the state has steadily declined. Then last month, Malloy, a Democrat, announced plans to cut $64 million in state Medicaid funding to hospitals, three months into the new fiscal year, because of declines in the stock market and expected drops in state revenue. That cut is predicted to prompt an approximate $130 million reduction in federal reimbursement the hospitals also expected to receive.

“This nightmare we are now trapped in started in 2013 and has just kind of escalated year in and year out,” said Frayne.

He said the hospitals have since shed more than 1,000 jobs, forgone hiring and scaled back services because of the tax, which now totals $556 million - minus the $14.1 million Malloy announced for the smaller hospitals on Friday. Hartford HealthCare last week broke off merger talks with Day Kimball Healthcare, blaming Malloy’s plan to cut Medicaid reimbursement payments.

Malloy has been unapologetic about his cuts to hospital funding, an issue that almost torpedoed final approval of a new two-year state budget in June. When asked about the chorus of complaints from hospital executives and some state lawmakers, including the General Assembly’s minority Republicans, the Democrat delivers a now-familiar response about hospital profits.

“Let’s just remember there’s 28 hospitals. All but three of them made money last year. Collectively they made $916 million. Let’s just remember that,” Malloy said recently on WNPR radio. He then criticizes the salaries paid to top hospital executives, saying, “I think making $3 million for a quote-unquote not-for-profit is a lot of money. Do I think it’s a lot? I think it’s a lot.”

Frayne said Malloy’s claim of $914 million is wrong because it includes accounting transactions, such Norwalk Hospital joining the Western Connecticut Health Network. He estimates the combined profit of the hospitals is approximately $457 million, which he said is needed to upgrade infrastructure, technology and cover other costs. It’s a defense Malloy spokesman Devon Puglia called “extraordinary,” especially as “executive compensation soars.”

The hospital association has launched a multimedia campaign, calling on lawmakers to intervene, but it’s questionable whether a special legislative session will be held. If the association ultimately decides to sue the state, legislators could eventually be forced to revisit the issue.

In mid-2014, the New Hampshire Legislature approved a settlement that Democratic Gov. Maggie Hassan and state legislators negotiated with 25 of the state’s 26 hospitals, agreeing to give the hospitals more money in exchange for dropping the lawsuit over rates and putting on hold their challenge of the tax’s constitutionality.

Under the deal, the tax rate on net patient revenues would drop over several years. Starting this year, the state was also required to provide the hospitals with additional revenue, putting an approximate $80 million strain on the state’s already tight $10.7 billion budget.

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