HARTFORD — State Reps Mitch Bolinsky (R-106), JP Sredzinski (R-112), and State Senator Tony Hwang (R-28) have voted to support an agreement between Connecticut hospitals and the state settling a nearly five-year-old lawsuit that threatened to expose the state to a roughly $4 billion liability.

The administration of Governor Ned Lamont pulled back the curtain Friday, December 13, on the negotiations that produced a tentative settlement of a massive hospital tax lawsuit that would pay Connecticut’s hospitals $1.8 billion over seven years, while costing the state $872 million.

Administration officials told lawmakers in an informational hearing that the settlement is structured to limit the state’s liability by leveraging $1 billion in federal funds.

“This lawsuit was a mess inherited from a previous administration and legislature, and in light of the damage the state could have confronted, I think we avoided a real fiscal catastrophe with this agreement,” Rep Bolinsky said in a release. “We are now on a better footing with the hospital industry, which provides a vital service to our communities and represents one of the fastest-growing job sectors in the state.”

“This settlement will help taxpayers avoid a $4 billion potential liability for the state,” said Sen Hwang. “It was wrong that Gov Malloy abused the hospital tax system for many years. Promises were broken and hospitals were taken advantage of to balance past budgets, ultimately hurting patients and employees and undercutting stability to our healthcare centers. This settlement recognizes that the last administration’s actions were wrong and it will help taxpayers avoid paying even more for those mistakes.”

Rep Sredzinski, in an e-mail received December 19, said, “As I watched this process unfold over the last few years, it became clear to me that this agreement is the best way to rectify missteps taken by previous legislatures. Ideally, we wouldn’t be in this situation to begin with, but given that the hospital industry provides an essential service to our community and is one of the fastest-growing job sectors in the state, we as a government owe them fairness and transparency.”

Rep Sredzinski added that the suit and its protracted resolution is a lesson learned.

"We can’t continue to kick the can down the road to avoid our budgetary problems," said the lawmaker, whose district covers southern Newtown and Monroe. "As I’ve said all along, fiscal responsibility, not tax increases and more spending, is the only way to dig the state out of the mess that it’s in.”

Settlement Specifics

The settlement, which was approved during a December 18 Special Session, raises Medicaid rates by 14 percent over seven years, and it makes supplemental payments the officials say are Medicaid eligible. The deal will not be deemed final until reviewed and accepted by federal Medicaid officials.

“This settlement is perhaps one of the most significant to come before you for your consideration,” Attorney General William Tong told lawmakers during the earlier hearing. “It is the product of hundreds, if not thousands, of hours of negotiations on some of the most complex financial arrangements involving our state.”

The litigation is an outgrowth of a hospital taxing scheme devised by the administration of Governor Dannel P. Malloy to increase federal reimbursements. As originally conceived in 2011, hospitals would pay $350 million per year to the state, an expense that would generate federal reimbursements.

The intent was to return the tax money and a share of the added reimbursements to the hospitals.

But as state deficits spiked between 2013 and 2017, the tax grew while the payments back to the industry shrank. By 2017, hospitals were paying $514 million to the state and getting a collective $78 million in return. Under a new agreement, they paid $900 million and received back about $493 million last year.

At the December 13 public hearing, Rep Bolinsky, who sits on the legislature’s Appropriations Committee, asked budget secretary Melissa McCaw about the state’s long-term ability to pay for the agreement given projected budget deficits over the next biennium.

“This agreement settles years of disputed and held-back Medicaid reimbursements,” said Rep Bolinsky. “It’s a forward-paying look back, though, into…errors of the past. Have we, in light of this agreement, also taken a look forward, not just in the impact of the settlement itself, but how it’s going to dovetail with future reimbursements and the state’s ability to manage that?”

Ms McCaw, who heads the state’s Office of Policy and Management, responded that, while the settlement does place fiscal liability on the state, that amount is far outweighed by the potential debt service it could have incurred had the lawsuit gone unsettled.

Some Lawmakers Concerned

Some legislators, including those from cities with tax-exempt hospitals and universities, balked at some elements of the settlement.

Rep Patricia Dillon, D-New Haven, and others quizzed the administration officials about a guarantee of no changes over the life of the deal to the hospitals’ current tax exemptions from municipal property taxes, corporation taxes and sales and fuel taxes.

Robert Clark, the governor’s general counsel, told the legislators the provision was essential to the deal. Without it, he said, the hospitals feared that the General Assembly would finance the settlement by eliminating some of those exemptions — making the hospitals pay for their own settlement.

“We knew this would be difficult and controversial,” Mr Clark said. “This was not lost on us, and it was not something we gave up easily on. It was just something that at the end of the day, we weren’t going to get a deal without it, to be frank.”

Rep Dillon was one of the legislators who expressed concern that hospitals might expand into areas that are now taxable.

“I’m just saying that, like in Tennessee, at one point, it looked like half the state was exempt,” Rep Dillon said. “You know, you had churches running theme parks. And so I just want to make sure that this is not going to be a burden on our towns that already have a lot of tax-exempt property.”

Mr Clark noted that it does not broaden existing exemptions, nor does it protect the hospitals from general tax increases, providing that no more than 15 percent of the revenue from new or amended taxes come from hospitals.

“I understand and sympathize with some of the folks who are not terribly pleased with the fact that it’s a seven-year agreement, but the flip side of that is we don’t have to pay it all once,” Mr Clark said. “We pay it back over the course of seven years, interest free. And so I think you’d have to just weigh that against the alternative, which is a potential catastrophic liability coming due all at once.”

Potential Liability Averted

With a potential liability to the state of $4 billion looming, Ms McCaw, secretary of policy and management, said the deal was structured to leave the state with significant budget reserves in case the economy slips into recession.

The deal would require $180.7 million in the current budget biennium, money that was set aside, she said.

Steve Frayne, the senior vice president of health policy at the Connecticut Hospital Association, urged legislators to look at the settlement in a broader context: Not only did the state renege on a promise to share in the increased federal reimbursements, but it came at a time when hospitals were financially stressed.

“Our rates had been frozen since 2008 for basic medical services, and in addition to that had been cut multiple times,” Mr Frayne said. “So we were in a position where we had gone from an aggregate loss under the Medicaid program of about $300 million a year to, in a very short period of time, that number tripled.

“We were essentially carrying around a loss from Medicaid, delivery of services, plus the losses of the tax of about $1 billion a year,” he added, “and these were enormous changes that were not easily absorbed by the hospitals.”

The deal would provide annual Medicaid rate increases of two percent for inpatient care and 2.2 percent for most outpatient services on January 1 in each of the next seven years.

Mr Frayne said the settlement was the result of compromise on both sides, plus a fresh start in the industry’s relationship with the state under a new governor:

“So, when we look at this — is it everything we wanted? No. Is it as fast as we wanted? No. Is it fair? Yes,” he said. “And it’s done in a way in which all of the parties’ interests are protected, so that we can wind up in a relationship in which in a collaborative way we can begin to work on other things as opposed to where we’ve been over the last several years, which is in constant fights and battles.”

The hearing December 13 was conducted by four committees: Appropriations, Finance, Public Health, and Human Services. They had the opportunity to question two panels of witnesses: the first representing the Lamont administration and the attorney general’s office; the second composed of hospital executives.

Sen Hwang said now that the matter appears settled, he is hoping the Lamont administration and lawmakers learned from the situation and will stop passing policies that expose Connecticut taxpayers to more lawsuits. He also was quick to shout out two of the largest health facilities serving his constituents.

“Hospitals like St Vincent’s and Bridgeport Hospital do so much to serve all of our communities,” said Sen Hwang. “This settlement marks a fresh start for the state’s relationship with our hospitals that will ultimately benefit patients and taxpayers alike.”

Content by Mark Pazniokas & Jenna Carlesso at The Connecticut Mirror, is used in this report.