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Healthcare “Enterprise” is Unconstitutional, says Taxpayer Group

Jun 30, 2017 | by William Perry Pendley

DENVER, CO.  A Colorado group that defends the rights of taxpayers today filed a motion to amend and supplement its complaint against two Colorado entities and their officials for violation of the Colorado Constitution’s Taxpayer’s Bill of Rights (TABOR).  On June 26, 2015, the TABOR Foundation 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, which since its enactment in 2009, allowed Colorado’s Department of Health Care Policy and Financing to collect tens of millions and perhaps even a hundred million dollars.  Although federal law lets States impose healthcare assessments to pay for Medicaid services, the 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 of the tax proceeds were put in the general fund.  The Foundation sought declaratory and injunctive relief and refund of revenues collected, with the payment of interest, as required by TABOR.  As of October 16, 2015, a motion by the Colorado defendants to dismiss the lawsuit had been briefed fully.  On May 30, 2017, Governor Hickenlooper signed into law S.B. 17-267, which created the Colorado Healthcare Affordability and Sustainability Enterprise to administer the Hospital Provider Charge beginning on July 1, 2017; however, except for the insertion of the Enterprise in this purportedly unconstitutional endeavor, all of the Foundation’s 2015 claims for relief remain virtually identical. 

“S.B. 17-267 is an unconstitutional attempt by the General Assembly to circumvent the Taxpayer’s Bill of Rights by repackaging the Hospital Provider Charge as an unconstitutional tax to be levied and collected by the Enterprise created by S.B. 17-267,” said William Perry Pendley of Mountain States Legal Foundation (MSLF); MSLF represents the TABOR Foundation.

Federal regulations allow States to impose a “tax” (their only reference to “fees” relate to those for licensing), 42 C.F.R. § 433.68, which the General Assembly expressly set forth in its 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 paid more taxes than the State services received.

 Mountain States Legal Foundation, created in 1977, is a nonprofit, public-interest legal foundation dedicated to individual liberty, the right to own and use property, limited and ethical government, and the free enterprise system.  Its offices are in suburban Denver, Colorado.

For more information:  TABOR Foundation v. Colorado Department of Health Care Policy And Financing


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