Court of Appeals upholds Legislature's shifting of hospital 'safety net' fees

Posted by Brad Shannon on July 29, 2013 

Judge Kenneth Grosse

COURT OF APPEALS

In an apparent blow to the Washington State Hospital Association, the state Court of Appeals rejected arguments that a "hospital safety net assessment" adopted by the Washington Legislature in 2009 was a tax that could not be redirected to other uses. At issue was state lawmakers' bipartisan decision in 2011 to grab $199.8 million of the money for general fund uses as they tried to balance books during the prolonged Great Recession.

The court’s unanimous decision by a three-judge panel is here. It was authored by Judge Kenneth Grosse of the Appeals Court Division I bench and also signed by Acting Chief Judge Michael Spearman and Judge Marlin Appelwick. The hospitals had sued former Social and Health Services Secretary Susan Dreyfus, the Health Care Authority and its former director Doug Porter, and state Treasurer Jim McIntire.

Under the original legislation sought by the hospitals, the state sought to collect a higher fee from hospitals in order to generate higher matching Medicaid payments from the federal government, which it did. But two years later the Legislature grabbed a larger share than agreed to initially, and the hospital association sued.

Hospitals’ lawyers had argued that the hospital fee was actually a tax that could not be diverted to a new use. But the court, which upheld a lower court ruling in King County, said legislatures have “plenary power” that cannot be limited by the acts of previous legislatures, and it rejected the claims. The court also found that the state did not back off the minimum support for Medicaid assumed in the original agreements.

Grosse sums it all up in his introductory paragraph:

A legislature, here the 2010 legislature, cannot prevent a future legislature, here the 2011 legislature, from exercising its plenary power to enact laws, including the amendment or repeal of prior laws. And here, despite what might appear to have been legitimate expectations on the part of the Washington State Hospital Association (WSHA) to a continuing commitment to a funding scheme to maintain and increase state funds available for federal Medicaid matching money, that is all that occurred. The 2011 legislature changed the commitment made by the 2010 legislature. The trial court's summary dismissal of this action is affirmed.

The lower court had already found the bed assessment was a fee and not a tax.

Despite the Legislature’s less than loyal treatment of the hospitals on this issue, both parties entered into another temporary “hospital safety-net assessment” deal in the session that ended in June that is expected to generate $272 million over two years in additional federal revenues for health care, according to terms of the operating budget passed into law in late June.

UPDATE: Cassie Sauer, a spokeswoman for the hospitals group, said in an emailed response to a reporter's question: "We are disappointed in the court ruling.  We will discuss future steps on the lawsuit with our members.  We are pleased, however, that the 2013 re-enacted the Hospital Safety Net Assessment in a way that works for both hospitals and the state."

Sauer said it was challenging for hospitals to step up but the move supported health-care access for many people. She said the additional revenues are a big reason the health-care budget portion of the budget turned out as well as it did.

As for protecting against a repeat switch by lawmakers, Sauer said the arrangement is strengthened against future fund raids by putting in safeguards against raids or higher assessments into contracts that each participating hospital will have with the Health Care Authority.

 

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