Colorado's hospital provider fee does not violate the Taxpayer's Bill of Rights (TABOR), and legislation passed in 2017 to move the fee into an enterprise fund is also legal, a Denver District Court judge has ruled.
The TABOR Foundation initially sued the state Department of Health Care Policy and Financing, then-Treasurer Walker Stapleton and the Colorado Hospital Association in 2015, claiming the hospital provider fee is a tax, not a fee.
But in his ruling Tuesday, Denver District Court Judge Ross Buchanan rejected all of the foundation's arguments. The TABOR amendment doesn't actually define what a tax is, nor does it define fees, Buchanan pointed out.
"As the courts have defined it, a tax is a charge levied for general government spending, while a fee is a charge intended to finance a particular government service," Buchanan wrote.
To determine whether something is a tax or a fee, the criteria is the intended purpose. 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, Buchanan wrote, citing existing case law.
"On the other hand, if the language states that the charge’s primary purpose 'is to finance a particular service,' it is likely a fee."
The statutory language of both 2009 and 2017 legislation spoke to specific purposes for those funds, and a specific category of entities that would pay the fee (hospitals), making the HPF a fee, he wrote.
Under TABOR, adopted by voters in 1992, tax increases must be approved by voters, and the hospital provider fee was never sent to voters for approval.
The fee was set up through legislation in 2009, levying hospitals a charge for every overnight patient stay and for certain outpatient visits. That money was pooled, matched with federal funds under the Affordable Care Act, and redistributed to hospitals, in part to cover health care costs for uninsured and Medicaid patients.
By 2017, the fee was drawing about $600 million per year and pushing the state over its TABOR revenue limits, which could result in a refund to taxpayers. It also would mean a budget cut to hospitals — up to a dozen rural hospitals complained they could not survive such large budget cuts and would be at risk of closing.
To solve the looming crisis, in 2017, a bipartisan group of lawmakers (then House Majority Leader KC Becker of Boulder, Republican Rep. Jon Becker of Fort Morgan, Senate Minority Leader Lucia Guzman of Denver and Senate President Pro tem Jerry Sonnenberg of Sterling) came up with Senate Bill 17-267.
Under that law, the provider fee would be moved into an enterprise — in effect, a state-owned business — that would take the $600 million out from under the TABOR revenue cap and spare the hospitals what would have been a $1.2 billion cut, when matching funds are taken into account.
Republicans opposed to the provider fee have long argued that the fee was instead a bed tax, which became the basis for the lawsuit. The plaintiffs, the TABOR Foundation, also claimed Senate Bill 267, titled "Sustainability of Rural Colorado," violated the state's single-subject law, which requires legislation to stick to one subject.
In a statement Wednesday, Kim Bimestefer, executive director of the Department of Health Care Policy and Financing, said with this ruling, "Medicaid is able to pay higher reimbursements to hospitals, which is especially important to rural hospitals.
"The second thing it does is continue funding both the Medicaid and CHP+ expansions, which helped lower the uninsured rate to 6.5 percent," Bimestefer said. "Just those two things – lower uninsured rate and increased hospital reimbursements – are powerful drivers of the economy while allowing us to take care of people who need it most.”
State Treasurer Dave Young also cheered the ruling.
“Senate Bill 17-267 was a critical step towards supporting the sustainability of rural Colorado," he said. "I am pleased to learn that the court affirmed the legislature’s intent of improving the lives of Coloradans across the state.”
As did Steven Summer, president of the Colorado Hospital Association.
"This decision is a significant victory for Colorado hospitals and the communities they serve in support of the Medicaid program," he said.
But Summer also said he believes the decision will be appealed.
That's a decision that has not yet been made, according to Lee Steven of Cause for Action, which represented the TABOR Foundation in the lawsuit. "
“We’re disappointed with the judge’s decision and committed to protecting Colorado taxpayers and upholding the Taxpayer’s Bill of Rights," Stevens told Colorado Politics in a statement. "We strongly contend the General Assembly improperly bypassed voters when it created this bed tax. We are studying the court’s opinion and considering our next steps.”