By Ana Radelat,

Dollar Money Sack And Stethosc 100749995Two state agency heads have ruled against Connecticut hospitals’ claims that the state tax on hospitals is illegal, clearing the way for the industry to take the state to court.

Hospitals have long bristled at the tax, imposed during a budget crisis in 2011 and increased by hundreds of millions of dollars since then. Last year, 24 hospitals and the Connecticut Hospital Association challenged the tax, seeking declaratory rulings on its legality from the departments of social services and revenue services.

Recently, Social Services Commissioner Roderick L. Bremby and Revenue Services Commissioner Kevin B. Sullivan issued a 179-page ruling rejecting the hospitals’ arguments that the tax violated the Connecticut and U.S. constitutions, as well as state statute.

The hospital association called the ruling “unfortunate but not unexpected,” and said it and the hospitals “intend to pursue every legal option at our disposal as we continue our efforts to challenge the tax.”

In the first year the tax was imposed, fiscal year 2012, hospitals paid $349.1 million and received $399.5 million back – a net gain for the industry. But since then, the state has reduced what hospitals get back (which also reduces the amount of federal funding the move generates, since the federal government only matches the money paid to hospitals).

More recently, the state has also increased the amount collected. In the 2013 fiscal year, hospitals paid $26.3 million more than they received back. This fiscal year, the tax on hospitals is expected to total $566.1 million, although the amount the state expects to collect is lower because hospitals use tax credits to reduce their payments. Hospitals are slated to receive $117.6 million as part of the tax – a net tax of $448.5 million.

“The hospital tax, which now totals a staggering $556 million a year and is nearly 30 times what any other organization pays, is bad public policy,” the hospital association said in a statement. 

“The Malloy administration has argued that hospitals have benefited from a significant growth in Medicaid spending since the implementation of the federal health law, although hospitals say that, since Medicaid pays less than it costs to care for patients, treating more Medicaid patients doesn’t help their bottom lines. The administration also has pointed to hospital executive pay and the industry’s overall profitability in defending the tax, while critics say focusing on total industry performance obscures the fact that many hospitals have struggled financially.

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