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Hospitals appeal Connecticut tax ruling to state Superior Court

November 1, 2016 GMT

The Connecticut Hospital Association is asking the state Superior Court to toss out a tax it says puts an unfair burden on local hospitals.

Hospitals asked the state to reconsider last November, but in September it rejected their claim that the tax — which began in 2012 — was “illegal” and “unconstitutional.”

On Tuesday, the hospital association and 20 individual hospitals, including Danbury, Norwalk and Stamford, appealed to state Superior Court in New Britain, claiming that the hospital tax is illegally implemented. They also filed a petition with the Centers for Medicare and Medicaid, arguing that the state’s reimbursement and tax scheme violates the federal Medicaid Act.

The hospitals and CHA have argued that the tax violates state and federal laws, as well as the state and federal constitutions. The tax was adopted as a way for the state to secure matching federal grants that would then be redistributed back to the hospitals.

“In the CMS petition, the hospitals demonstrate how the hospital tax, which now totals a staggering $556 million a year and exceeds by nearly 30 times the corporate tax rate, is not only bad public policy but violates federal law,” according to a statement from the hospital association.

“The petition describes how hospitals continue to be used as a major source of revenue through the illegal, overbroad tax, which restricts access for Medicaid patients, shifts costs to commercial payers, jeopardizes care for everyone, and puts hospitals in significant financial peril,” the statement said.

In 2012, the hospitals paid about $350 million in taxes and received about $400 million in state and federal funds.

But this fiscal year, the hospitals will be taxed $556 million and receive only $117.5 million as the state deals with a significant budget deficit. Last year, the hospitals were taxed $556.1 million and received $164.3 million.

Hospital and CHA officials had said before the state’s ruling last month that they hoped to keep the issue out of the courts.

There is precedent. Hospitals in New Hampshire challenged a similar tax in court and were able to force a settlement that restored the flow of revenue to the hospitals.

State officials have claimed that Connecticut hospitals made more than $900 million in profits in fiscal year 2015 and aren’t struggling under the tax — although the CHA has called that figure misleading.

The state also contended that Medicaid payments to hospitals have increased over the last decade, and that hospitals are seeing fewer patients without coverage because of Medicaid expansion under the Affordable Care Act.