Malloy: Hospital tax needs fix

Gov. says section must be rewritten to ensure reimbursement

HARTFORD — With a Wednesday constitutional deadline for him to act on the $41-billion budget, Gov. Dannel P. Malloy has asked legislative leaders to rewrite a portion of the spending package on the tax paid by Connecticut’s 29 hospitals.

Malloy requested the General Assembly reconsider a section of the budget to conform with language that would assure hundreds of millions of dollars in reimbursement for state hospitals.

He wants the General Assembly to act before Wednesday to ensure the taxes Connecticut imposes on hospitals are properly reimbursed.

On Monday afternoon, Republican and Democratic staff members, along with Malloy’s advisers, met for two hours with representatives of the Connecticut Hospital Association. The group agreed to meet again on Tuesday.

By late Monday afternoon, legislative leaders had not scheduled a session to reconsider the hospital tax issue.

But in a letter dated Friday and released Monday, the governor wrote that it was a follow-up to a Friday meeting attended by hospital officials, legislative staff and members of his administration, including representatives from his budget office, the Department of Social Services and the Department of Revenue Services.

“While I appreciate the difficulties involved with coordinating a legislative session on short notice, I’m also sure that the strong bipartisan support this bill received will allow you to pass a correction even without all of your members present,” Malloy wrote to GOP and Democratic leaders. “As you know, there is no guarantee that the (federal) Centers for Medicare and Medicaid Services will approve any request but I believe that failing to amend the language you passed will almost certainly cause them to reject this one.”

The multi-part hospital tax is based on total income hospitals received in the fiscal year that ended June 30, 2016, but sets a new tax rate based on a complicated calculus with separate in-patient and out-patient services.

Under the pending bill, the tax rates in the two-year budget period that began on July 1 would rise during the budget year that starts July 1, 2019.

It would require the Department of Social Services to seek federal Medicaid waivers to exempt some out-patient services in financially distressed hospitals, as well as children’s hospitals, and the John Dempsey Hospital in Farmington, from taxes.

“The language regarding no hospital receiving a rate lower than the amount in effect on January 1, 2018 is too rigid and needs to be replaced with language that simply requires the specified rate increases in this section to be maintained,” said an analysis of the issue released by Malloy on Monday.

One of the issues involves a so-called safeharbor rate of six percent on inpatient services, which is calculated by using a baseline 2016 revenue of $306 million divided by audited in-patient revenue.

“Exceeding the federal safe harbor tax rate on inpatient services will result in the state incurring federal penalties of $550 million to $620 million per year,” Malloy’s administration warned.

Last week, after the House and Senate voted overwhelmingly in favor of the tax-and-spending plan, lawmakers said that if the issue of the hospital tax needed review, they would gather again in special session.

Senate Republican leaders Len Fasano, R-North Haven, however, said he was told by hospital lawyers that the language of the bill was acceptable and would not jeopardize federal support.

Malloy has until Wednesday to sign or veto the budget. He may also let it become law without his signature.

He may also sign the bill, then exert line-item-veto authority on issues dealing with appropriations.