gavel court law lawsuit

The Colorado Court of Appeals has upheld a Denver District Court dismissal of a lawsuit challenging the constitutionality of Colorado's Hospital Provider Fee, but scolded the lower court for not dismissing the lawsuit in its entirety.

The lawsuit was brought by The Tabor Foundation, the Colorado Union of Taxpayers and two individual plaintiffs in 2015, and against the Colorado Department of Health Care Policy and Financing .

The hospital provider fee is a state program started under legislation adopted in 2009. Under the program, hospitals pay a fee to the state and the state then draws down matching dollars from the federal government. That money is pooled with the hospital fees and then distributed back to the hospitals to pay for unreimbursed medical care and Medicaid costs.

In 2017, the program was converted to an enterprise — a state-run business — under Senate Bill 17-267. As an enterprise, monies collected under the program are not counted toward the state's revenue cap under the Taxpayer's Bill of Rights .

In the 2015 lawsuit, as cited in the appeals court ruling, the plaintiffs claimed that the program violated TABOR because the money paid by the hospitals "constitutes taxes that were not approved by the voters," as required by TABOR.

The plaintiffs also claimed the programs, including the 2017 enterprise, are an unlawful enterprise, that they violated TABOR's excess state revenues cap, and that the programs were unconstitutional because they violated the Constitution's single-subject requirement.

The 2017 legislation was titled "Sustainability of Rural Colorado," an omnibus bill with sections on the provider fee, funding for rural transportation and schools, business personal property tax relief and a hike in marijuana sales taxes.

Judge Ross Buchanan of the Denver District Court ruled in March 2019 that the provider fee is made up of "fees, and not taxes, and therefore are not subject to TABOR." The difference, according to Buchanan, is that if the statutory language indicates that the primary purpose of the charge is “to raise revenues for general governmental spending,” the charge is likely a tax."

But "if the language states that the charge’s primary purpose 'is to finance a particular service,' it is likely a fee," and that is what applies to the hospital provider fee.

Buchanan's ruling also said the 2017 legislation did not violate the single-subject law. 

While the Denver District Court dismissed part of the lawsuit, the ruling allowed that the plaintiffs had standing to sue and the lawsuit continued. 

The Nov. 5 unanimous ruling by the three-member Appeals Court disagreed, stating the plaintiffs lacked "standing," a term that refers to damages sustained by plaintiffs in a lawsuit. The plaintiffs claimed they had standing both as individuals and as taxpayers, and that the foundation had "associational standing."

The Denver District Court agreed, stating the member plaintiffs' standing is "based on their challenge to the constitutionality of the subject provisions under TABOR” and that the foundation plaintiffs have associational standing based on their members’ standing. 

That's where the appeals court differed, not only in dismissing the lawsuit on its merits but finding that the plaintiffs all lacked standing.

"There is no evidence in the record that individual taxpayer dollars are used by the programs in any way," the appeals court decision said. "Simply put, the unrebutted evidence is that the programs are funded solely by the hospitals and matching federal dollars. Thus ... there is no nexus between the member plaintiffs’ taxpayer dollars and the hospital programs."

The plaintiffs argued that the program is funded with general fund appropriations, an argument dismissed by the appeals court because the plaintiffs provided no evidence to back up their claim.

In fact, the ruling said, "there is significant, unrebutted evidence in the record — including annual financial reports and uncontroverted deposition testimony by Department officials — demonstrating the opposite: no taxpayer funds were used by the programs, including no comingling of taxpayer dollars with the hospital payments."

Another argument advanced by the plaintiffs and addressed by the ruling: whether individual plaintiffs faced higher hospital bills because of the program. The plaintiffs theorized that their hospital bills increased when they received hospital care from facilities that paid more in fees than they got back from the program. The hospitals' response was then to increase hospital bills, the plaintiffs claimed.

The appeals court rejected those arguments, too, pointing out that hospitals have a variety of avenues from which to cover losses, not just by increasing hospital bills, and that the plaintiffs were speculating that hospitals increased bills to patients.  

The Colorado Hospital Association also rejected the plaintiffs' arguments, stating in an amicus brief that there is "no pass-through or linear relationship between the hospital provider fee and hospital charges."

Once the appeals court dismissed the standing of the individual members, the associational standing from the Foundation no longer existed, the court ruled.

Former state Rep. Penn Pfiffner, who leads the TABOR Foundation, said they are still weighing options on whether to appeal the lawsuit on the standing issue. He told Colorado Politics that the ruling from the appeals court "spoke only to the issue of the bed tax and a sideways glance on enterprise." He noted  the complaint was amended with all the significant issues from SB 17-267, such as the "$400 million taxation authorization that voters never got to vote on," which refers to the provider fee program and a reset of the TABOR revenue base.  The court ignore that, he said, as well as the Medicaid copays, the certificates of participation, marijuana taxation and the single subject issue. "I am beyond puzzled as a plaintiff that the court could talk about one piece of the lawsuit and ignore standing for all the other pieces."

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