Courtesy of the Lamont administration

HARTFORD, CT (Updated 8:45 a.m.) – It’s been years in the making, but Gov. Ned Lamont, Attorney General William Tong, and the Connecticut Hospital Association said Thursday that they have reached a deal that would result in the withdrawal of pending legal claims against the state.

The lawsuit, filed in New Britain Superior Court in 2016, says that starting in 2013 Connecticut abandoned the idea of giving the hospitals back some of the money it leveraged with the hospital provider tax through federal matching grants. A chart included with the release suggests that that hospitals’ position will improve by about $1.8 billion over the course of the seven-year agreement, while the state’s revenues will decline by $871.5 million.

“Over time, the State’s payments to hospitals from Hospitals Tax revenues have decreased, federal matching funds have decreased, and the State has utilized the Hospitals Tax to balance the budget,” the original complaint states.

The new, seven-year agreement stabilizes user fee revenues for both the state and the hospitals. The agreement, according to both parties, also provides stability in the Medicaid payment system for hospitals and resolves potential state liability.

Settling the legal claims helps both the state and the hospitals avoid the financial risk and uncertainty of litigation.

The deal still needs to be approved by the General Assembly because the settlement exceeds $2.5 million in value.

Under the deal outlined Thursday in a joint press release from the Connecticut Hospital Association and Lamont’s office, the hospital user fee will drop from $900 million a year to $820 million a year in 2026.

The rate paid by the state for Medicaid services will also increase by 2% for inpatient services, and 2.2% for most outpatient services.

The state’s supplemental payments to hospitals will increase to $548.3 million in fiscal year 2020-21, up from the $453.3 million budgeted for 2019-20. The payments are slated to reach $568.3 million for fiscal years 2022-26 – an increase of $115 million over fiscal year 2020-21. The hospitals also will receive a one-time payment of $70 million in user fee refunds and $9.3 million in Medicaid payments.

The agreement also guarantees no changes to hospitals’ current tax exemptions, including municipal property taxes, corporation business tax, sales and use taxes, and motor vehicle fuels tax. It also guarantees that no more than 15% of revenue from new or amended taxes can come from hospitals.

The agreement, which has bipartisan support, is also contingent on approval by the federal government, which regulates the state Medicaid plan.

“This agreement represents a new chapter in the state’s relationship with its hospitals,” Lamont said. “Throughout this process, my administration and the Connecticut Hospital Association have been respectful and honest, which has proven instrumental in reaching this settlement. This historic agreement will reduce our state’s potential exposure to billions of dollars in liability and removes that uncertainty for years to come. It is my hope that we can continue down this path to work with our hospitals and providers to increase the quality of care while simultaneously addressing the cost of that care.”

Former Gov. Dannel P. Malloy’s administration had an adversarial relationship with the hospitals and Lamont’s administration struggled to find its footing in its first few months.

“We want to thank Governor Lamont, his administration, and the legislative leaders and legislators of both parties for their years of support,” said Jennifer Jackson, CEO of the Connecticut Hospital Association. “This agreement is a win for patients, hospitals, and the state. Governor Lamont has paved the way for a new, collaborative relationship in which we are working together to provide patients with quality healthcare and strengthen Connecticut’s economy.”

The settlement is one of the items lawmakers are expected to address in a special session the week of Dec. 16.