Gov. Dannel P. Malloy told Bristol Hospital’s President Kurt Barwis that he would trade his more than $7 billion deficit for Barwis’ $4 million deficit any day.

“I don’t have an easy answer for you,” Malloy told Barwis and the more than 50 hospital executives gathered Monday at the Connecticut Hospital Association for a face-to-face meeting with the new governor to go over some of his tax increases and spending cuts.

Barwis told Malloy his hospital will lose close to $4 million over the next two years under Malloy’s new hospital tax.

Malloy’s proposed budget eliminates $83 million in state funding hospitals receive for treating the uninsured and underinsured and tries to make up for it by implementing a 5.5 percent provider tax to raise more than $266 million in fiscal year 2012 and $269 million in fiscal year 2013.

The tax would then be matched at around 50 percent by federal funds and redistributed to the hospitals in a way that creates winners and losers.

Malloy said he understands he’s taking away the money for the underinsured and uninsured fund two years before it’s scheduled to disappear under federal reform, but he tried to make up for that with the provider tax proposal.

“I’d prefer perfect, but it’s not the set of circumstances I’m dealt,” Malloy told Barwis.

If hospital executives were expecting Malloy to sympathize with their situation, it didn’t happen. Malloy offered the executives glimpses at the reality and budget situation he has to deal with and perhaps hoped he would receive some sympathy from them too.

“I know you all want more of my money,” Malloy said. “No one has taken me up on my willingness to swap deficits so…but I think you all get it.”

“Everyone believes in shared sacrifice until it comes to them,” Malloy added.

But the Connecticut Hospital Association isn’t ready to concede their case.

After Malloy left to a standing ovation, the executives got to work devising a strategy to beat back the hospital tax through the legislative process. The strategy session was closed to the media, but based on a statement sent late Monday evening it doesn’t look likely that they will give up the fight, easily.

“Cutting hospital funding and imposing a hospital tax hurts all patients and communities, moving us all farther away from our mutual goal of building a healthier and economically strong Connecticut,“ CHA President and CEO Jennifer Jackson said in a statement. “We fully understand and recognize the difficult challenge he faces—balancing growing needs with finite and ever-dwindling resources—because, as discussed today, Connecticut hospitals have been engaged in the same balancing act for years.”

The Connecticut Hospital Association was able to defeat former Gov. M. Jodi Rell’s hospital tax proposal last year, but it’s unclear how much the Democrat-controlled legislature will seek to change Malloy’s budget proposal.

Sen. Toni Harp, D-New Haven, who co-chairs the Appropriations Committee, said she’s supportive of the hospital tax. In fact, Harp tried to implement her own version of it last year when the state would have received close to 60 cents on the dollar from the federal government for the proposal. This year, federal reimbursement rates are back down to the typical 50 cents on the dollar.

What’s hard for the hospitals to swallow is the unfairness of the tax.

Under Malloy’s proposed hospital tax everyone can’t be a winner.

Harp said federal law dictates that 75 percent can be winners, but 25 percent have to be losers, meaning they receive less back than they contribute.

She said the hospitals don’t like the tax because they can’t control what money is funneled back to them.

But hospital officials say these cuts to their bottom lines won’t heal anytime soon.

“These budget cuts threaten hospitals’ significant role as today’s safety net—caring for the most vulnerable among us—and seriously jeopardize our ability to invest in tomorrow,” one of their pamphlets says.

But Harp said under last year’s Medicaid changes hospitals did benefit by receiving more patients covered by health insurance, instead of the thousands without it.

Under Malloy’s budget since more low-income adults are covered by Medicaid, fewer individuals will be walking into the emergency room without insurance coverage, she has said.

Hospital officials dispute the claim saying they may have served more Medicaid patients, but what they received in terms of payment was 70 cents on the dollar. They said it was hardly a “windfall,” in terms of profits.

John Murphy, CEO of New Milford and Danbury Hospitals, asked if Malloy would be willing to do what New York Gov. Andrew Cuomo has done and set a cap on medical malpractice claims.

Malloy said flatly, “No.”

Malloy said the amount of money that would save in the first or second year of the budget is relatively miniscule.

He said clinging to an arbitrary $250,000 cap makes no sense at all and doesn’t allow for a discussion to take place in the state. “Beginning and ending the conversation at $250,000 is guaranteed failure,” Malloy said.

Murphy told him that’s what they’re looking at in New York and Malloy replied he hasn’t seen that legislature work on it yet, but “I wouldn’t hold my breath.”

Instead, Malloy encouraged the hospital executives to work in partnership with the federal qualified Community Health Centers. He said that’s a partnership that could help save them money by diverting some Medicaid patients or individuals with no health insurance which end up costing hospitals money.

“I think there are hospitals in this room that need to rethink their relationship with Community Health Centers,” Malloy said. “Honestly.”

He said he envisions a shifting of expenses for hospitals with those types of relationships, since the federal government pays for most of the care administered in those settings.

Malloy urged hospital leaders to look beyond their disappointments with this budget. He said they should start gathering support for it because it’s going to be the best budget they’re going to see.