Two Connecticut regulators last week upheld a controversial state tax on hospitals' net patient revenue, opening the door for dozens of hospitals to take their challenge to court.
Connecticut's Department of Social Services and Department of Revenue Services roundly rejected the Connecticut Hospital Association's and two dozen hospitals' allegations that the so-called hospital user fee was unconstitutional, maintaining the challenge was based on a “fundamental misunderstanding of what a tax rate is.”
“The petitioners appear to be under the mistaken belief that a tax rate must be a percentage and that the act of calculating the amount of tax due from a taxpayer formula set forth in statute is the same as setting a tax rate,” the 179-page opinion said. “Neither position is accurate. Rather, a tax rate can be a formula and the act of calculating the amount of tax due is a ministerial action that is not the equivalent of setting a tax rate.”
The regulators also overruled the hospitals' claims that the tax violated the equal protection clause of the U.S. Constitution or that ineligible services had been taxed under the program.
The tax was initially created by the state's General Assembly in 2011 and has raked in hundreds of millions of dollars to support Medicaid. Although hospitals can lower their tax burden with credits, that relief has shrunk in recent years.
According to CHA, which filed an administrative petition with 24 hospitals challenging the tax last year, the tax revenue has swelled to $556 million per year, which the association alleges is 30 times what other organizations pay.
“(It) is bad public policy,” CHA said after the decision was released on Sept. 22. “The tax results in the loss of hospital services and staff, increases the cost of healthcare and damages the state's economy.”
Gov. Dannel P. Malloy's administration and the hospitals have battled over the controversial tax for years. Although the hospitals maintain they could support thousands of additional jobs if the tax was eliminated, the state has argued hospitals continue to post positive operating margins and can withstand the tax burden. But Malloy has also frozen millions of dollars in state aid for hospitals, hurting their bottom lines.
Now that the administrative process has been exhausted, CHA and the hospitals can take their case to the courts, and CHA said it intends to “pursue every legal option” as it continues to oppose the hospital tax.