In an effort to avoid having to repay money later, Connecticut hospitals have asked a federal court to overturn two taxes designed to help the facilities.
The action by the Connecticut Hospital Association asks U.S. District Judge Alfred Covello in Hartford to outlaw a general sales tax and a tax on hospital revenues. The association is arguing that the levies are prohibited under the federal Employee Retirement Income Security Act, which governs self-insured health plans.
The taxes generate an estimated $360 million to reimburse hospitals for their uncompensated-care expenses.
Some payers already have successfully challenged uncompensated-care funds on the ERISA grounds, saying they force private plans to pay for the care of those not in the plans.
Hospitals don't want to be liable for refunding payers if the taxes are challenged, said Michael Eisner, a partner with the New Haven law firm of Wiggin & Dana, which is representing the CHA's 35 hospital members. The state will have to find a revenue source that's consistent with ERISA, he said.
A spokesman for the Connecticut Department of Revenue Services, one of the defendants in the suit, referred calls to the state attorney general's office, which had no immediate comment. Also named was the Commission on Hospitals and Health Care, now called the Office of Health Care Access. Officials there were unavailable for comment.
Earlier this year, the state General Assembly ended hospital rate-setting after a federal court judge said the system of shifting uncompensated-care costs to nongovernmental payers violated ERISA (April 11, p. 8).
To alleviate the problem, lawmakers created a new uncompensated-care payment mechanism funded through a 6% sales tax on all nongovernmental gross revenues and an 11% tax on hospitals' gross revenues.