CTNewsJunkie file photo
Gov. Dannel P. Malloy is confronted in March outside his office by the CEO of Day Kimball Hospital (CTNewsJunkie file photo)

NEW BRITAIN, CT — Connecticut’s hospitals took two actions Tuesday to appeal the state’s defense of its taxing regime.

The first was an appeal filed in New Britain Superior Court, of the Sept. 23 ruling by the Department of Social Services and Revenue Service’s administrative to uphold the tax. The second was a petition to the federal Centers for Medicaid and Medicare Services asking it to decide if the tax violates the Medicaid Act.

In the lawsuit filed Tuesday in New Britain Superior Court, the Connecticut Hospital Association and 20 hospitals asked the court to end the tax and find that the state overreached in its implementation. In the petition to the Centers for Medicaid and Medicare Services, the association says that as a result of the hospital tax and poor Medicaid funding there have been 1,390 layoffs and more than 1,700 open positions have been eliminated at Connecticut hospitals.

The association’s petition tries to demonstrate how administration of the Medicaid program has been driven solely by state budget deficits rather than patients’ needs.

The hospitals are also asking the federal agency to compel the state to amend its Medicaid plan to bring Connecticut’s rates and payments, as well as the hospital tax, into compliance with the federal Medicaid Act.

“It is no surprise CHA is availing themselves of their legal remedies,” Chris McClure, a spokesman for Malloy said. “Nevertheless, we are confident the state will prevail as the legislated measure is legally and properly implemented.”

In 2015, 24 hospitals paid $556.1 million in taxes and received only $164.3 million back from the state.

The hospitals argued that the idea of implementing the “user fee” or tax was to increase the amount of federal reimbursement the state receives. In the first few years the state returned most of the money to the hospitals, but as the state’s budget situation worsened they proceeded to keep more of the revenue.

The amount hospitals get back from the state became a point of contention between legislative leaders and Gov. Dannel P. Malloy, who first implemented the tax in 2011.

Last year, the Malloy administration withheld payments as it dealt with midyear budget deficits and eventually agreed to pay at least half to the hospitals after negotiations with legislative leaders.

The political back and forth over the payments was described by the hospitals in their petition as “protracted and irresponsible manipulation by state officials.”

The petition further describes the “supplemental payments” as “inadequate.”

“In short, hospitals will pay $5 in tax for every $1 received in supplemental payments,” the petition states.

While it is true that hospitals will continue to be assessed a tax of $556.1 million annually, the amount actually paid is lower because of the use of tax credits, according to the Malloy administration.

The administration argues that the Medicaid program was expanded under the Affordable Care Act, which means more residents have some form of insurance when they show up at the hospital. There are more than 750,000 residents currently participating in the Medicaid program.

But hospital executives have argued the number of newly insured is not keeping pace with the cost of the services being provided.

The hospital’s estimated that in 2016 Medicaid payments will only cover 45 percent of the cost of care for Medicaid patients, after the hospital tax is taken into consideration.

Since 2008, Medicaid inpatient rates have been frozen for about two-thirds of hospitals at 80 percent of 2005 costs, and even lower for the remaining third of hospitals, according to the petition.

In addition, “many fees have not been updated for inflation since 2002; others have not been updated since 2009.”

For example, Medicaid pays only $156.82 for an emergency room visit when Medicare pays between $211 and $584.

The petition also says that Connecticut improperly taxes home health services offered by some hospitals. It says providers of these services outside the hospitals are not subject to the tax. It’s seeking immediate relief for that part of the petition.