In addition to trying to figure out how to deal with the changing landscape of how hospitals are managed and financed, the legislature’s Finance, Revenue, and Bonding Committee heard testimony Thursday on a bill that would phase out the hospital tax over the next four fiscal years.
Since 2000, hospitals were successful at fending off threats that the state would reinstitute a hospital tax, then came the $3.7 billion budget deficit that Gov. Dannel P. Malloy inherited when he took office in 2011 and all bets were off. Malloy was successful in getting lawmakers that year to approve his proposed budget, including a hospital user tax.
“When originally proposed, the hospital tax was levied to draw federal funds to help balance the state’s budget,” Frank Corvino, president and CEO of Greenwich Hospital, reminded the committee Thursday. “The taxes collected were returned to hospitals based on a formula that considered free and uncompensated care.”
But things have changed.
When the tax started it brought in an additional $200 million a year in federal revenue. That amount will be reduced to $40 million, Stephen Frayne, senior vice president of policy at the Connecticut Hospital Association, said.
Also, when the tax was imposed it was made with a number of promises, Frayne said.
“The first is that it would be relatively painless. The second was that it wouldn’t really cost anything. The third was that it would give the state an opportunity to tap unused federal funds that were available to the state of Connecticut,” he said.
He said the state needs to take a look at how well it’s kept those promises.
“This past year hospitals let go 1,400 individuals, froze pay, eliminated benefits and had to retreat in many instances from commitments to expand and maintain and improve services in their community,” Frayne said. “Certainly, it was not painless.”
He said every individual who gets their insurance through their employer is paying $49 more per person than they otherwise would have been paying if this tax wasn’t in place.
“That amount is going to double in three-and-a-half short months,” he said. “What we’re looking at from you is to see if there’s an opportunity to mitigate some of that tax.”
Frayne said what the bill does is not eliminate the increase in that tax, but instead of doubling it would only go up by 50 percent. Then it would reduce the tax in future years.
“We believe it’s high time this tax goes away,” Frayne said.
Ebony Forand, a nurse supervisor at Johnson Memorial Hospital, works the overnight shift but, because “it’s that important,” she stayed up to testify in favor of the legislation Thursday morning.
“Connecticut’s hospitals have done extraordinary things to minimize the impact on patient care, but the negative effects of these revenue losses are increasingly real,” Forand said.
Forand said her hospital had to lay off 22 full-time equivalent employees, reduce community services by 50 percent, and eliminate a wage increase.
Office of Policy and Management Secretary Ben Barnes didn’t make it a centerpiece of his testimony, but he did urge the committee to reject the proposal. He said if enacted, the bill would result in an estimated $75 million revenue loss to the state in 2015. The revenue loss would grow to approximately $360 million by 2019.
Earlier this week in an email, Barnes said it “is very unlikely that the state will forgo other priorities, like universal pre-kindergarten, community mental health services, etc., in order to reduce the provider tax in 2015.”
He said he hospitals are exaggerating the increase that is set to take place on July 1. He said the tax remains stable. The concern is about the reduction in federal funds for uncompensated care, which will be reduced because more patients are expected to have insurance under the Affordable Care Act.
Michele Sharp, director of communications for the Connecticut Hospital Association, disagreed with Barnes’ assessment of the situation.
“The tax on hospital patients will rise from $101 million to $235 million in July,” Sharp said. “CHA’s concern is the tax on hospital patients — it is impacting jobs and the ability of hospitals to invest in providing the best care to patients, and it is raising the cost of care for the people of Connecticut.”
Barnes said hospitals had $356.5 million in operating income, and $564.5 million in total income over expenses in 2012.
“If hospitals are concerned that their margins are shrinking, they should look to their high-cost areas of spending,” Barnes said.
But Tim Bolton, a chaplain at St. Vincent’s Medical Center, said it’s about more than dollars and cents. He said it’s about patients like his disabled daughter, Kaitlin, who has a rare genetic disorder.
“The special needs community relies on Connecticut hospitals to provide ongoing care and therapy,” Bolton said. “It is critically important that hospitals have the funds they need to continue to provide the highest level of care to families across our state.”
Rep. Patricia Widlitz, co-chairwoman of the committee, thanked Bolton for reminding the committee that when they debate these issues, “we’re not looking at just dollars and cents. We’re looking at people.”