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Why Colorado hospitals just sued the Polis administration over the health care reinsurance program

The hospitals are challenging a rule that requires them to pay fees to support the reinsurance program in the first half of 2020

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The association that represents Colorado’s hospitals filed a lawsuit Tuesday against the Polis administration over the state’s new health care reinsurance program — a fresh challenge to a program that has been one of Gov. Jared Polis’ signature achievements but is also facing a clouded budget picture.

The reinsurance program, which is currently planned to run for two years, has helped reduce what some people who buy health coverage on their own pay in insurance premiums and is financed in part by $40 million in new fees on hospitals per year. The Colorado Hospital Association’s lawsuit specifically targets a regulation telling hospitals they have to collectively pay the first year’s installment of $40 million in the first half of this year.

The hospital association argues that the rule was enacted through an “improper and illegal” process that didn’t provide the requisite notice or opportunity for public comment. The lawsuit says collecting the fees in the first half of the year — instead of the second half — will hurt cash-strapped smaller hospitals that have already set their budgets for the 2019-2020 fiscal year.

And the hospital association also takes issue with a provision in the regulation that would allow the state’s Division of Insurance to potentially revoke the license of a hospital that doesn’t pay on time. 

“(T)he Division enacted the emergency regulation in an improper and unlawful attempt to increase the Division’s jurisdictional and enforcement authority over Colorado hospitals,” the lawsuit argues.

The suit does not name Polis — instead listing the Colorado Division of Insurance and state Insurance Commissioner Michael Conway, a Polis appointee, as the defendants.

In a statement, a spokesman for the division said he could not comment on the substantive details of the lawsuit because they are now part of pending litigation.

“However,” the statement continued, “the division is disappointed that the Colorado Hospital Association has taken this step, clearly motivated by protecting their bottom line. CHA is, unfortunately, attacking a program that is working and will save Coloradans thousands of dollars this year on their health care. The Division of Insurance stands ready to defend the program so that Coloradans can finally stop being ripped off on health care.”

Michael Conway speaks to Colorado Gov. Jared Polis at Red Rocks Community College on Thursday, Dec. 12, 2019, for a stop on his listening tour. (Jesse Paul, The Colorado Sun)

The lawsuit seeks to have a judge block state regulators from enforcing the rule and to have a judge declare that hospital fees for the program can’t be collected until the second half of this year.

But the lawsuit may not turn so much on an interpretation of administrative law as on a reading of whether the regulation is actually real — or if it’s just a proposal still being kicked around.

The Division of Insurance released the payment rule on Christmas Day as an emergency regulation, and the word “Draft” is stamped prominently across its pages. The division’s bulletin said it would accept comments on the draft until Jan. 3, but the regulation had a stated effective date of Jan. 1.

The division says the regulation hasn’t been officially adopted, which, if true, means there’s nothing for a judge to block. The hospital association, meanwhile, says the regulation has been officially adopted — the association cites that Jan. 1 effective date — and was “enacted without compliance with the notice and comment rulemaking procedures” in state administrative law.

The emergency room entrance to Saint Joseph Hospital in Denver, photographed on Oct. 22, 2019. (John Ingold, The Colorado Sun)

The difference of a few months in collecting fees from hospitals might seem like a small matter, but it could have huge impacts on the state’s overall budget, for complex reasons that involve the Taxpayer’s Bill of Rights.

Next fiscal year, which starts on July 1, the state is expected to hit the TABOR cap on how much money it can collect and to have to issue refunds to taxpayers. Thus, any additional money the state brings in next fiscal year will have to be refunded at an equivalent amount.

If state officials collect the hospitals’ first $40 million installment in the first half of this year, they will avoid the TABOR entanglements. If they collect it in the second half of this year, the state would have to squeeze money out of other areas of the budget to pay for the TABOR refunds attributable to the reinsurance funding.

That’s why the hospital’s lawsuit accuses the Polis administration of coming up with its payment plan, “in an effort to avoid a potential violation of TABOR.”

Gov. Jared Polis delivers his big idea pitch — about a state-level “public option” health insurance plan — to the audience at The Colorado Sun’s Big Ideas 2020 Forum at the Cable Center on the University of Denver campus on Jan. 14, 2020. (Eric Lubbers, The Colorado Sun)

Already, one legislative analysis has put the reinsurance program’s total impact on the state’s general fund at a potential $185 million — $165 million more than originally projected. That figure includes direct spending on the program from the general fund, which holds the state’s discretionary dollars, and it also includes the indirect TABOR impacts attributable to the program. The analysis assumes that the first $40 million from hospitals will be collected early — so the figure would rise higher if the hospital association’s lawsuit is successful.

Asked about the lawsuit at The Colorado Sun’s Big Ideas Forum on Tuesday night, Polis suggested it is part of a coordinated attack on his health care plans by hospitals.

“They have a political and a legal strategy to prevent us from making the needed reforms that would make some progress in preventing them from overcharging patients,” he said.