MANCHESTER, CT — Gov. Dannel P. Malloy’s budget director sent legislative leaders a letter Wednesday to let them know most of the state’s hospitals are appealing the rate changes approved as part of the state budget.

“This amounts to a repudiation of the hospitals’ agreement with the General Assembly,” Barnes wrote legislative leaders Wednesday. “Furthermore, I fear that these appeals may hinder the state’s pending application before CMS, putting the state at risk of significant financial harm.”

The appeals are from every hospitals except the Connecticut Children’s Medical Center, John Dempsey Hospital and Sharon Hospital.

The hospitals claim the 31.65 percent increase for inpatient services and 6.5 percent for outpatient services “failed to correct the fundamental deficiencies” in the underlying rate methodology. The rate increases are on top of over $1.5 billion in annual rates paid to hospitals include more than $823 million in inpatient fees and $731 million in outpatient charges.

“I suspect that most legislators believed that the $554 million in supplemental payments and rate increases would satisfy the hospitals, at least for the biennium,” Barnes wrote. “Indeed, the provisions of the tax, rate, and supplemental payment provisions were negotiated with the hospital association, who represented to the administration and legislature that the impacted hospitals were in agreement with the terms of the budget and implementing statute.”

Barnes was correct.

Senate legislative leaders were surprised by the development that imperils the first bipartisan budget deal in a decade.

“This is a thoroughly disappointing and shocking development,” Senate Presidents Martin Looney and Len Fasano said in a joint statement. “Democratic and Republican leaders incorporated the agreement negotiated in good faith between the Office of Policy and Management and the Connecticut Hospital Association into the bipartisan budget.”

They said the General Assembly had taken significant steps to ensure hospital funding was there every time Malloy’s administration tried to reduce it.

“We consistently have supported Connecticut hospitals; however, today we learned that the Connecticut Hospital Association did not even have the respect or the courtesy to come to the legislative leaders to explain why they would contemplate going back on their agreement,” Looney and Fasano said. “We fear this about-face by the members of the Connecticut Hospital Association and betrayal of the agreement will endanger federal reimbursements and hurt the viability of our smaller hospitals.”

But not all lawmakers felt the same way.

House Minority Leader Themis Klarides, R-Derby, who is on the board of Griffin Hospital, said the hospitals never gave up their right to appeal a rate increase in agreeing to changes in the reimbursement structure.

“We have been staunch supporters of our Connecticut hospitals that provide vital services to every family in our state,” Klarides said. “It is our understanding the Hospital Association, during negotiations over reimbursement rates, did not relinquish its right to challenge any future rate increases with the state.”

At an event in Manchester, Malloy said he didn’t know how the Centers for Medicare and Medicaid Services would handle the latest development. However, he also expressed concern federal approval for higher reimbursements based on the new rates might not come to fruition.

Malloy who has had a rocky relationship with the hospitals said his administration thought legislative leaders should know the latest.

Jennifer Jackson, CEO of the Connecticut Hospital Association, said that they appreciated the bipartisan legislative support for the agreement.

“We didn’t renege on the agreement,” Jackson said. “We stand by the agreement and, in fact, filed documents with the state, with a copy to CMS, supporting the state plan amendments.”

Jackson added that the rate appeals “represent hospitals going through a standard process to protect their rights.”

She said the rate increases being appealed were going to be funded by an increased tax on hospitals.