Connecticut hospitals have hit a multimillion-dollar pothole in the path to deregulation.
Although hospital rates were partially deregulated in 1994, remnants of the old system remain. Under state law, hospitals must settle differences between the revenues they collect and the amounts they are authorized to collect under net revenue caps.
In the past, these so-called "compliance" payments have been deducted from future rate increases. This time, hospitals are being asked to make cash payments.
On Oct. 31, New Haven Superior Court Judge Jon C. Blue rejected the Connecticut Hospital Association's request for a temporary restraining order to prevent the state from collecting the first quarterly installment of compliance payments.
The CHA and 10 member hospitals brought suit on Oct. 29, claiming that the disputed payments for the period ended Sept. 30, 1995, amount to a new $21 million tax. In the past, "hospitals never had to pay cash out of their pockets at all," said Maureen Weaver, a partner in the New Haven office of Wiggin & Dana, the CHA's legal counsel.
However, in a motion to dismiss the case, the state attorney general's office contends that $19.5 million is owed and that the payment is not a tax. According to the motion, the Office of Health Care Access, which is the state regulatory body that established the revenue caps, "is merely seeking to prohibit (hospitals) from keeping amounts they were not authorized to collect from patients in the first place."
An OHCA spokeswoman said the agency doesn't comment on pending litigation.
The CHA maintains that it had reached a verbal agreement with Republican leaders in the state Senate and the House Speaker during the 1996 legislative session that future compliance payments would be repealed.
In seeking an injunction, the association contended that hospitals should not have to make the payments because it would be impossible to recover those funds should hospitals prevail in their legal challenge. The CHA now says an assistant attorney general has agreed to waive the state's immunity against damages and the judge has concurred.
Earlier this year, the state Legislature passed a law that repeals the compliance process effective Oct. 1, 1997, said Wiggin & Dana's Weaver. But that apparently doesn't resolve hospitals' financial burden for the year in dispute. On Oct. 31, 12 hospitals paid $21.5 million, according to the CHA's government affairs office. The 10 hospitals in the suit paid $13.7 million of that.
"I guess it's an example of an antiquated approach to rate regulation that doesn't make sense in the current market," Weaver said. Instead of repealing the law piecemeal, they should have repealed it all at once, she said.