The federal government has given all the needed approvals to a $1.8 billion deal between the Lamont administration and the Connecticut Hospital Association that would settle years of litigation over the state’s levy on hospital revenue.
Lamont and the hospitals announced in early December that they reached a deal that would provide $1.8 billion to hospitals over the next seven years, including through higher Medicaid rates and supplemental payments. Just over half of that amount would come from the federal government.
Lawmakers, seeking to avoid a potentially larger court judgement if the case were to proceed, signed off on the deal a few weeks later, but the settlement still hinged on a series of approvals from the Centers for Medicare and Medicaid Services (CMS).
Those approvals — of tax waivers, Medicaid state plan amendments, hospital rate increases and other provisions — were delayed by several months due to the coronavirus pandemic, but were finally secured as of June 22, attorneys wrote in recent court filings.
Lawyers wrote Monday in a joint motion to the court that the settlement is “a milestone in the relationship between the state and over two dozen hospitals that are parties” to it.
“With this court’s approval, the agreement can be fully implemented, bringing a measure of fiscal stability to the state and its hospitals for years to come,” they wrote.
However, the state isn’t as fiscally stable as it was when the deal was negotiated, months before anyone in Connecticut had ever heard the term COVID-19.
The pandemic has opened up a $2.7 billion hole in the fiscal year budget that begins Wednesday, which threatens to wipe out the state’s unusually healthy rainy day fund balance, leaving little for lawmakers to work with when they convene next January to begin crafting the next two-year budget.
The severity of the pandemic-fueled economic downturn is not yet fully known, but with the hospital settlement in place, Lamont and lawmakers won’t be able to lean on hospitals to plug budget holes, as the Malloy administration did after the last recession.
The settlement does include some protections for the state, if financial conditions worsen.
For example, if the federal government cuts Medicaid funding such that Connecticut’s portion of the settlement, currently at approximately $872 million, rises by $100 million or more, the state could pull out of the deal.
Lawyers did not directly mention the pandemic in their court motion this week, but alluded to the safeguards, which allow the parties to try to renegotiate terms. In the event a modified deal can’t be reached, the hospitals could reinstate their litigation against the state, according to the deal.
“We are pleased that we have received all federal approvals and look forward to continuing our improved relationship with the state’s hospitals,” Lamont spokesman Max Reiss said Tuesday.
The hospital association did not immediately respond to a request for comment.
This story has been updated with comment from the Lamont administration.