Hartford Business Journal

24 Hartford Business Journal • March 30, 2015 www.HartfordBusiness.com OpiniOn & Commentary editorial Democrats need new budget-crisis playbook S tate Democrats floated a trial balloon last week to test the electorate's appetite for a slate of tax increases to help close next fiscal year's $1.3 billion deficit. You could hear the air whistling out of the balloon almost instantaneously. In fact, the loud popping sound should have reverberated throughout the State Capitol's golden dome. Higher income taxes, capital gains levies, and expanded business sales taxes are all on the table, according to the CT Mirror, as Democrats draw from their typical revenue raising playbook to combat the looming deficit. Any or all of those measures would further deteriorate Connecticut's business cli- mate, but it seems legislators don't actually care about the state's competiveness when it comes to keeping or attracting employers. Yes, lawmakers will pay lip service to the notion of job creation through grant and loan programs that provide corporate greenmail to businesses looking to hire workers or make capital investments, but when it comes to creating a stable business environ- ment that encourages private sector investment — without the help of state government — we seem to dig ourselves in a deeper hole every time the legislature is in session. Whether it's new employer mandates, higher taxes or fees, or other restrictions, lawmak- ers consistently find ways to give employers reason to search out greener pastures. The latest threat of tax hikes is particularly troublesome because it could throw a wet towel on Connecticut's recent economic recovery. Some economists will argue that the state, under the Malloy Administration, has done more to encourage long-term job growth than Connecticut's last few governors combined. There is truth to that. Malloy has put in motion some grand economic devel- opment initiatives — Bioscience Connecticut and Next Generation CT — that many predict will help the state add jobs in the growing fields of science, technology, engi- neering, and math. His pledge to remake Connecticut's transportation infrastructure over the next three decades also holds promise, if the Democratic governor can find a smart, reasonable way to pay for the $100 billion pricetag. But if the legislature continually increases the cost of doing business in this state, the impact of those major economic development investments will be stunted. Connecticut needs a long-term plan to make the business environment more amiable to all companies, not just a select few that are able to counteract the state's high operat- ing costs with subsidies and tax breaks. That process starts with a comprehensive look at state spending and the state budget. It's acutely evident that Connecticut's budget is fundamentally broken. Even the largest tax increase in state history in 2011 couldn't stop the cascading flow of red ink. Yet legislators fail to come up with long-term fixes; instead they pass patchwork plans to temporarily fill budget holes that eventually become uncorked. The only way Connecticut is going to achieve a more stable fiscal footing is through private-sector growth and an expansion of the tax base. A budget needs to be embedded with policies that support job creators, not punish them with higher costs. We understand that government budgets are moral documents that reflect society's values and that cutting the social safety net to counteract deficits puts at risk the state's neediest residents. But if we don't institute pro-growth policies, the social safety will slowly but surely erode over time. We are already seeing this happen. Malloy's budget plan, for example, cuts millions of dollars to social service programs. Democrats need to put aside the notion that further tax increases will solve the state's fiscal crisis and do the much harder task of aligning Connecticut's budget and economic growth priorities. n rule of law Medicaid funding fight puts hospitals in legal bind By John Horak R eaders may not realize that something can be legal but unlawful. Lawyers make this argument by comparing something that is legal (a statute, for example) against a higher order principle of law, and arguing that the statute is inconsistent with the superior principle. This occurs most commonly when a lawyer argues that a statute violates the constitution (the higher order principle); and, on a more abstract basis, there are jurists who maintain that there are unwritten higher order principles of fundamental fairness and morality ingrained in nature against which even written consti- tutions can be tested. Law is much more fluid and less fixed than people realize. The contradistinction between legality and lawfulness is timely because several state hos- pitals have recently filed appeals with the Con- necticut Department of Social Services (DSS), challenging the lawfulness of the manner in which DSS has established (under applicable statutes) the hospitals' Medicaid reimburse- ment rates. Medicaid is a joint federal and state pro- gram that pays for the health care of certain low-income people, and it is adminis- tered by DSS. DSS's r e s p o n s i b i l i t i e s include admitting applicants into the program, and estab- lishing the rates hos- pitals are paid for the services provided to them. Hospitals are legally required to serve Medicaid patients, which means DSS has the legal authority both to tell the hospitals who they will treat and to set the prices for the services provided to them. The hospitals have challenged the law- fulness of the rate setting method because the rates have not increased since 2008 and cover only 60-70 percent of the actual costs incurred to provide the services. To state it frankly, the hospitals are being compelled to sell services at a loss. There are two relevant sets of statutes. Set one includes statutes under which DSS sets rates; and set two includes those under which the hospitals have appealed. The unlawful- ness in this statutory one-two punch is a function of the fact that the first set of stat- utes gives DSS almost unfettered discretion when setting rates, and the second does not afford the hospitals an adequate means to appeal DSS's discretionary decisions. Before turning to DSS specifics, let's frame the issues with a more reader-familiar hypothetical. On Jane Doe's drive to work one morn- ing she is ticketed by a policeman after driv- ing past a speed limit sign that says "Do not exceed a reasonable speed." Jane is outraged because she is an experienced driver, the fine is expensive, the ticket will go on her record, and she was simply keeping pace with traffic. She appeals the ticket to court where the judge tells her that the statutes create a legal presumption that the policeman's interpreta- tion of the term "reasonable speed" is correct (because he is a trained public safety officer), and that under other statutes Jane is permitted to obtain and present only a limited amount of evidence in challenging the policeman's inter- pretation. The judge rules against Jane. The appealing hospitals are in a predica- ment similar to Jane's. The statutory language under which DSS is empowered to set rates (similar to Jane's speed limit sign), is subjective and leaves DSS almost unfettered discretion when doing so. Here is some sample language: the rate-setting method must be consistent with "efficiency, economy and quality of care," and rates must be "based upon the reasonable cost to the hospital." While everyone acknowl- edges that rate setting by its nature involves subjective judgments, interpreting the lan- guage to keep rates flat and below cost for years is dubious on its face. If the DSS's exercise of rate-setting discre- tion is dubious, the appeals process is daunt- ing. Jane Doe was able to take her appeal to court. The statutes require hospitals to file their appeals with DSS itself — where they will be decided by a "hearing officer" who is an employee of DSS. Second, the hos- pitals are not entitled to the pre-trial "dis- covery" (depositions of officials, inter- rogatories, requests to admit, and docu- ment production) that is necessary to make a complete and thorough case. Third, if the DSS hearing officer rules against the hospitals, the statutes give hos- pitals two options: arbitration (a retired judge would be the swing vote) or an appeal to the superior court. However, under both options the factual record is limited to what the DSS hearing officer found (and remember no "discovery" is allowed), and the statutes create a presumption in favor of the DSS hearing officer's conclusions. The point is that while DSS is acting legally (following the statutes), it seems fundamentally unfair and unlawful for the statutes to be inter- preted and applied in a manner which compels hospitals to sell services at a loss and without the ability to obtain full judicial oversight. The inconvenient truth, of course, is that what is legal in this case serves the interest of the state well because it does not have the money to fulfill its Medicaid obligations and the statutes in question give it a legal way to offload them on the hospitals. While I don't foresee a day when, for example, statutes are enacted requiring individual physicians to treat Medic- aid patients as a condition of licensure, one does wonder how far the state might go to find ways to fulfill the obligations it has undertaken. n John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own. HartfordBusiness.Com Poll In five years, where are you most likely to gamble? ● CT casinos ● Mass./N.Y. casinos ● CT off-track-betting parlor ● CT Lotto ● I don't gamble To vote, go online to HartfordBusiness.com. Last week's poll results: Is Hartford Yard Goats a good team name? 9% Yes 91% No John Horak ▶ ▶ If the DSS's exercise of rate-setting discretion is dubious, the appeals process is daunting.

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