Politics & Government

Gov. Malloy's Plan To Tax Non-Profit Hospitals And Redistribute Money Met With Consternation

Middlesex Hospital Officials Say Tax Could Cost Them Millions

In times of economic distress is it all right to rob Peter to pay Paul?

Several Connecticut hospitals and legislators think that’s exactly what Gov. Dannel P. Malloy is proposing with his call for a 5.5 percent tax on nonprofit hospitals. Yet, hospitals would recover the projected $266.6 million in tax revenues, Malloy’s office counters, because by taxing and then redistributing the money, the state could get matching federal funds.

The tax would jump to 5.71 percent after Sept. 30, 2011. That, coupled with an $83 million cut in Uncompensated Care and DSH pool funding, could tip some hospitals over the edge, opponents of the proposal say.

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Tax could cost Middlesex Hospital

Connecticut’s hospitals employ more than 53,000 people, treat about 1.6 million in the emergency room, and admit more than 430,000 patients each year.

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Middlesex Hospital’s service area includes 250,000 people, and is the largest employer in Middletown, according to the hospital’s president, Vincent G. Capece.

The tax alone would cost Middlesex from $6 million to $8 million dollars from it operating budget, according to Vice President of Finance, Susan Martin.

“We would have less returned to us,” she said, “which is huge for not-for-profit hospital.”

“To me it’s not the best policy,” said state Sen. John McKinney, R- 28th Senate District. “We don’t know if the federal dollars will always be there and once there’s a tax increase it tends not to go away, even if it’s not needed anymore.”

Danbury Hospital says tax could lead to cuts in other services

Many of McKinney’s constituents go to Danbury Hospital, one of the few fiscally sound in the state. But if the tax passes, the hospital would lose about $9 million annually.

That means it must find $9 million in internal savings, said Michael Daglio, Danbury Hospital’s Senior Vice President of Operations.

As such, the hospital just started compiling a list of options, Daglio said.

First, the hospital, Danbury’s largest employer, will soon begin work on a $150 million tower. That means the hospital will start making significant interest payments, Daglio said.

"We have to think of how to get there without laying people off"

“Staffing is our biggest expense and our biggest asset,” he said. “It’s a difficult thing to think about. But yes, we have to consider it. We have to think of how to get there without laying people off.”

Then there are the community clinics.

“We provide a $60 million community benefit in uncompensated care, and bad debt,” Daglio said. “The community clinics run significant money, but it’s the right thing to do.”

Malloy’s proposed cut to the uncompensated care worries many local hospitals.

Martin said that many employers are passing off the cost of insurance to employees who can’t afford it and that the increasing numbers of un- and under-insured patients is having a greater impact on the hospital’s bottom line than ever before. The tax would be an additional burden.

“A lot of people have insurance,” said Capece. “But when you have a $5,000 deductible, do you really have insurance?”

Employees could lose jobs, some say

“These aren’t money-making machines,” state Rep. TR Rowe, R-123rd House District. “Many are scrambling to make ends meet. I haven’t heard one hospital who is in favor of the tax.”

If the tax passes, many employees could lose their jobs, said Rowe.

“A number of constituents work at Yale- New Haven Hospital, St. Vincent’s Hospital, and Bridgeport Hospital. They are cafeteria workers, and pharmacists, and health care providers. The tax would affect the whole operation,” he said.

Stephen Frayne, the Connecticut Hospital Association’s Senior Vice President for Health Policy, called the proposal potentially devastating.

“Let’s be clear that this tax is a also a cut to hospitals – it takes $267 million from hospitals and will, as the administration asserts, ‘in the aggregate return all the money,’” Frayne said. “However this assertion misses the obvious – hospital care for patients occurs locally, not in the aggregate – and when funding for services at the local level is cut, that cut hurts the ability to provide hospital care in that community.’”

Middlesex provides $28 million dollars in community benefit and charity care.

“We wouldn’t be able to afford that level of service,” said Capece, adding that important services like behavioral health and community outreach programs cost more than they are reimbursed.

If the tax passes, Connecticut would give some hospitals more money than they paid and some hospitals less than they paid. For example, while Stamford Hospital would lose about $9.5 million annually, while Norwalk Hospital would gain $1.9 million.

“It would be a net gainer for Norwalk Hospital,” said state Sen. Bob Duff, D-25th Senate District. “Nobody wants to impose more of a burden on hospitals, but a lot of it comes down to the overall budget and what the revenue picture looks like.”

Rep. Perillo says cut government spending instead

Norwalk Hospital wouldn’t comment at this time, said Maura Romaine the hospital’s Director of Community Relations.

State Rep. Jason Perillo, a Republican who represents Shelton in the 121st House District said neither taxes nor fees are the answer. Instead, the state needs to cut government spending.

"Our non-profits are the solution, not the problem. Most specifically, the Governor's proposed hospital tax is a serious concern,” said Perillo, ranking member on the Public Health Committee. “Hospitals are our public health safety net and the proposed hospital tax will have a significant negative impact on most of them.”The tax could also jeopardize fundraising efforts. Donors tend to shy away from ailing institutions.

In the next few weeks, Malloy will hold several more budget hearings. Meanwhile lawmakers are holding their own constituent gatherings for constituents. And it’s likely the General Assembly will go into special session to finalize the budget, said some lawmakers.

 “We have a responsibility to contribute to closing the budget gap,” Danbury Hospital’s Daglio said. “But what we were hoping for was more of a dialogue.”


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