Federal regulations provide that States may impose a “tax” (the only reference to “fees” in the regulations relate to those for licensing), 42 C.F.R. § 433.68, language that the General Assembly expressly incorporated in the bills. C.R.S. § 25.5-4-402.3(3) (citing 42 C.F.R. § 433.68). The regulations prove the U.S. Department of Health and Human Services intended that the States impose taxes, not fees, on hospital services. Plus, to stay eligible for federal Medicaid funds, State health care-related taxes must be broad based, uniform, generally redistributive, and cannot violate the “hold harmless” provision of the regulations, that is, a State cannot guarantee it will reimburse a hospital—either directly or indirectly—for taxes paid to the State. 42 C.F.R. § 433.68(f).
Although, under federal regulations, Colorado is legally barred from providing any service to a hospital in exchange for the taxes collected at that hospital, the provision of services in exchange for a fee is what causes a fee to differ from a tax. Instead, Colorado, by federal regulation, charges all of the hospitals in the state uniformly, and then redistributes those funds in a way that guarantees some hospitals will not receive any funds in return.
Contrary to holdings of the Colorado Supreme Court and the Supreme Court of the United States that a fee is for services given, a Jefferson County hospital paid $2.1 million in taxes for no services. Ten Colorado hospitals also paid more in taxes than they received in services from the state.
The TABOR Foundation, which defends the rights of taxpayers, alleges in Denver County Court that its members should have been allowed to vote on whether a “hospital provider fee” could be imposed on Colorado hospitals. Since enactment in 2009, tens of millions of dollars and as much as a hundred million dollars have been collected by the Colorado Department of Health Care Policy and Financing. Although federal law allows States to impose a healthcare assessment to pay for Medicaid services, regulations provide for “taxes” and not “fees” as Colorado calls them to avoid TABOR. Also, although the 2009 act provided that the funds collected would be kept separate from the general fund, in fiscal years 2010, 2011, 2012, and 2013 some tax proceeds were put in the general fund. The Foundation seeks declaratory and injunctive relief and the refund of revenues collected, along with the payment of interest, as required by TABOR. On June 26, 2015, MSLF filed a complaint on behalf of the TABOR Foundation challenging the constitutionality of the imposition of a hospital provider's tax without a vote of the people of Colorado. On September 2, 2015, the Department of Health Care Policy filed a motion to dismiss for standing and failure to state a claim for relief. On October 9, 2015, MSLF filed a response to the motion to dismiss. On October 16, 2015, the Department of Health Care Policy filed a reply brief.
In the closing hours of the 2017 Colorado legislative session, the General Assembly passed SB17-267, which created the Colorado Healthcare Affordability and Sustainability Enterprise within the Department of Health Care Policy and Financing, effective July 1, 2017. The “enterprise” will be responsible for the collecting and administering the hospital provider “fee,” which is now called the “Healthcare Affordability and Sustainability Fee.” Because an “enterprise” is not subject to TABOR, passage of SB17-267 was a ploy to moot MSLF’s lawsuit on behalf of its client and circumvent the voter-approval requirements in TABOR. On June 30, 2017, MSLF filed a motion to amend and supplement its 2015 complaint in light of this legislative change.