Settlement OK’d
Lawmakers ratify agreement in special session
State lawmakers unanimously ratified a seven-year, $1.8 billion settlement Wednesday to end a long-running lawsuit between the state and its hospitals over taxes. Officials said the state could have faced a judgment of as much as $4 billion if the hospitals’ case went to trial.
State lawmakers unanimously ratified a seven-year, $1.8 billion settlement Wednesday to end a long-running lawsuit between the state and its hospitals over taxes.
The measure passed with little debate. Officials said the state could have faced a judgment of as much as $4 billion if the hospitals’ case went to trial. The state’s share of the settlement will be $872 million, with the federal government contributing another $1 billion.
The tangled battle involved hundreds of administrative legal claims by more than 25 hospitals regarding Medicaid rates that were filed on a quarterly basis with the state
Department of Social Services, as well as tax appeals that were filed with the state Department of Revenue Services in order for the hospitals to preserve their legal rights, officials said.
The dispute began under the administration of then-Gov. Dannel P. Malloy, who had a contentious relationship with the hospitals. A new hospital tax was implemented by Malloy and legislators in 2011 and in its early years proved to be a financial benefit to the hospitals. But as Connecticut struggled with persistent budget deficits in the following years, the tax increased and the payments back to the industry decreased even as federal reimbursement rates rose.
House Speaker Joe Aresimowicz cited a well-known clash in February 2015 that personified the political and personal battles between the Malloy administration and the hospitals. During a public hearing in front of the tax-writing finance committee, then-state Sen. L. Scott Frantz of Greenwich told Malloy’s budget chief, Benjamin Barnes, that he could not understand why hospitals were being asked to pay more in taxes.
Barnes responded, “Why do you rob banks? That’s where the money is.”
Aresimowicz said the quote is still remembered at the Capitol nearly five years later.
“That was unfortunate,” he said. “The hospitals are very large employers in the state of Connecticut. I don’t think we should have that type of adversarial relationship with any sector. Putting this to a final conclusion is good for the state.”
Resolving the lawsuit, and repairing the state’s relationship with its hospitals, was one of Gov. Ned Lamont’s first tasks when he arrived at the Capitol in January.
“Today marks the start of a desperately needed reset between the state and our hospitals, and I am thankful that we were able to come together and negotiate a settlement in good faith that provides stability for both sides while reducing the losses the state would have incurred in the absence of this agreement,” Lamont said in a written statement shortly after the vote.
Jennifer Jackson, the chief executive officer of the Connecticut Hospital Association, said the settlement “marks the start of
a new partnership with the state that will strengthen health care in Connecticut for the benefit of everyone who lives here.”
The hospitals are currently paying $900 million a year in taxes, which will drop to $820 million by the end of the deal. In a highly complicated arrangement, the state receives federal reimbursements based on the hospital tax and the hospitals receive some of that money back from the state.
Lawmakers had already agreed to set aside more than $160 million from last fiscal year’s operating surplus in order to settle the lawsuit, and the final deal now calls for an additional $20 million in the current two-year budget. The agreement runs from the current fiscal year through the 2026 fiscal year — providing Medicaid rate increases of 2% for inpatient services in hospitals and 2.2% for outpatient services annually for seven years.