After watching a state tax designed to boost hospitals actually siphon more than $1.6 billion from the industry, Connecticut officials spent the past seven years trying to stem the bleeding, if not reverse the damage altogether. But now, even as the industry seeks a new multiyear financial arran gement with Connecticut, both are threatened by huge cuts in federal Medicaid assistance. And with no relief from Washington on the horizon, Gov. Ned Lamont’s administration is reluctant to pledge more state aid to hospitals beyond the next year. Meanwhile, lawmakers and Lamont hope to reach common ground with industry leaders who want to be sure Connecticut won’t repeat past mistakes. “We would like to lock in some certainty, for as much time as possible,” Paul Kidwell, the Connecticut Hospital Association’s senior vice president for policy, told the Connecticut Mirror. “We think that just makes prudent sense for all of us.” But Lamont’s budget director, Office of Policy and Management Secretary Josh Wojcik, said the administration can’t ignore federal Medicaid cuts expected to take hundreds of millions from Connecticut next fiscal year and more after that. “While we understand … the benefit of the hospitals having predictability out into the future, we are operating in an environment of unpredictability,” he said. Though the association wants Lamont and lawmakers to fix taxes on hospitals — and payments back to the industry — for the next five years, Wojcik said a commitment of that length is a challenge. “We’re more focused on what we can do in the next year and then be able to kind of assess from there,” he added. A hospital tax in name only? At the center of both state officials’ and industry leaders’ concerns is the hospital provider tax, which — despite the title — was supposed to be a tax in name only. Nearly every state employs a provider “tax” as a tool to secure federal assistance through Medicaid. In Connecticut, the 2011 General Assembly and then-Gov. Dannel P. Malloy approved a $350 million tax on the industry and agreed to redistribute those funds back to hospitals. Why the back-and-forth arrangement? Connecticut then could claim some of that $350 million payment to as a health expense and qualify for $200 million extra in federal Medicaid reimbursement. The state then shared one-quarter of that bounty with hospitals, leaving the industry $50 million ahead and Connecticut up $150 million. But as the state struggled with a sluggish economy and frequent budget deficits, the arrangement didn’t last. The tax grew and hospitals’ share of federal funds shrank. By 2015, as the industry was losing more than $250 million a year, it sued the state, arguing Connecticut’s provider tax didn’t follow the objectives set forth by federal Medicaid rules. When Lamont took office in early 2019, with the industry down more than $1.6 billion in total and Connecticut nearly $3.3 billion ahead, he settled the lawsuit and got lawmakers to agree to a seven-year plan to end the drain on the industry. By 2024, hospitals were again gaining from this arrangement, albeit modestly. And this year, the industry expects its share of federal Medicaid reimbursement to be about $120 million — while state government keeps $500 million from Washington. Will hospitals win or lose? But the terms of that legal settlement expire on June 30. And while Connecticut officials insist they aren’t returning to a tax that weakens the industry, hospital leaders say the state’s math doesn’t add up. Lamont supports a $100 million tax hike on hospitals next fiscal year but also an extra $140 million increase in payments back to the industry. That’s a net gain of $40 million for hospitals. But it comes with a few caveats. Waterbury Hospital would not be taxed. The former owner of that facility, Prospect Medical Holdings, owes about $127 million in taxes dating back to 2022. Prospect sold the facility in February to UConn Health, which also operates John Dempsey Hospital in Farmington. But though Waterbury Hospital wouldn’t pay provider taxes under the governor’s plan, it would be a big recipient of supplemental payments. About 38% or $15 million of the $40 million funding gain proposed for the industry would go to Waterbury. Wojcik said the administration is trying to protect the financial viability of a hospital that is vital to the greater Waterbury area. But Kidwell said the association is worried the governor’s plan wouldn’t do enough to assist an industry under increasing financial pressure. Connecticut hospitals were struggling due to the provider tax and shrinking federal support well before the coronavirus pandemic placed them under unprecedented economic strain in 2020 and 2021. Hospital operating margins were only 0.2% in the 2023-24 fiscal year, the state Office of Health Strategy reported in February. The industry estimates it loses $1.5 billion annually from Medicaid payments that fail to meet the full cost of delivering service. And there’s a similar gap when it comes to Medicare. Kidwell said any new federal dollars leveraged by raising state taxes on hospitals “should go back to the supporting hospitals [that pay the tax] to chip away at that” $1.5 billion Medicaid gap. Connecticut officials long have countered that hospitals inflate the cost of providing services to offset, a least in part, insufficient Medicaid rates. State government faces fiscal uncertainty as well The state government faces its own financial uncertainty just over the horizon. Congress hasn’t enacted a new budget that would show Connecticut exactly how much Medicaid funding its state government stands to lose. But the omnibus measure Congress and President Donald Trump approved last July would cut about $1 trillion — mostly from Medicaid — by 2034, to help finance back federal tax cuts. And Connecticut officials expect the state’s share of those losses to be in the hundreds of millions of dollars starting next fiscal year, and then grow. Kidwell says the state could try to counter that somewhat by leveraging more aid from Washington. Specifically, the association suggested Connecticut tax hospitals even more, but then use the extra revenue to make new payments to facilities that treat large numbers of low-income patients and also to medical groups affiliated with hospitals. Those extra payments, in turn, would qualify the state for more Medicaid reimbursement from Washington, Kidwell said. But Wojcik said Connecticut cannot count on federal Medicaid administrators, who most approve any changes to states’ provider tax systems, going along with an expansion. Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance, Revenue and Bonding Committee, wouldn’t speculate on what specific tax or supplemental payment levels lawmakers might approve before the regular session ends on May 6. But she and Sen. Cathy Osten, D-Sprague, co-chair of the Appropriations Committee, both predicted that legislators would find middle ground that respects the industry’s concerns and state government’s needs. “Within the legislature there’s a great desire” to assist hospitals more, Horn said. “We ought to take seriously the opportunity to maximize the sustainability and health of our hospitals.” ...read more read less