By Rebecca Mayo, J.D.
The Arizona Supreme Court found that an assessment levied on hospitals to cover the cost of expanding Medicaid coverage in the state was not a tax or administratively set fee that required an two-thirds vote to pass under the Arizona Constitution. It reasoned that, because the assessment was imposed by the director on hospitals, a narrow class, and directly benefitted hospitals by expanding coverage for uninsured patients and increasing payments to hospitals, it was not a tax. It was further exempted from the two-thirds vote requirement because the administratively set assessment is set by the director and not statutorily prescribed by formula, amount, or limit (Biggs v. Betlach, November 17, 2017, Bales, S.).
Background. Under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), states that chose to expand Medicaid eligibility were able to receive federal funding as long as states shared in the cost. To cover the state share of the expanded coverage, Arizona enacted House Bill 2010, which required the director of Arizona Health Care Cost Containment System (AHCCCS) to levy an assessment on Arizona hospitals. Legislators and some citizens who opposed the bill filed a lawsuit seeking to enjoin implementation of the hospital assessment, arguing that the bill was unconstitutional (see Assessment on hospitals to fund Medicaid expansion not a tax, August 27, 2015). The superior court ruled that the bill was properly enacted, the court of appeals affirmed, and the opponents appealed to the state Supreme Court.
Tax. The opponents to the bill argue that the hospital assessment constitutes a tax and as such, the Arizona constitution requires that it must pass with a two-thirds approval vote instead of a simple majority. To determine if the assessment is a tax, the court looked at three things. First, an assessment imposed directly by the legislature rather than by an administrative agency is more likely to be a tax. While the legislature enacted the bill that requires the director to levy the assessment, the assessment is still imposed by the director and not the legislature. Second, an assessment imposed upon a broad class of parties rather than a narrow class, is more likely to be a tax. If the assessment applied to all Arizona hospitals, this would be considered a narrow class. However, the director has the authority to establish modifications or exemptions based on various factors and as implemented, the assessment does not apply to many types of hospitals making the class even more narrow.
Finally, an assessment that has some reasonable relation to the service to be performed on the payor’s behalf, is less likely to be a tax. This assessment is "to be used for the benefit of hospitals for the purpose of providing health care for persons eligible for coverage funded by the hospital assessment." The assessment allows hospitals to receive payments for treating more than 250,000 additional persons who may have been unable to pay for treatments provided by the hospitals otherwise, thereby reducing costs for uncompensated care. Based on these factors, the court agreed with the superior court ruling that the assessment is not a tax and therefore does not require a two-thirds approval.
Administratively set fees and assessments. A two-thirds approval vote is also required for a new administratively set fee. However, "fees and assessments that are authorized by statute, but are not prescribed by formula, amount or limit, and are set by a state officer or agency" are exempted from the two-thirds vote requirement. The court interpreted "authorized by statute" to mean statutorily authorized under the usual legislative process. Here, that would be a simple majority vote which occurred. The bill instructs the director "adopt rules regarding the method for determining the assessment and modifications of exemptions from the assessment" and provides a list of factors that the director may consider. The director must "present the methodology to the joint legislative budget committee for review" but is not required to obtain preapproval of the assessment or modifications. Therefore, the statute does not prescribe a "formula, amount or limit" for the assessment. Finally, the court found no dispute that the hospital assessment is set by the director. The court held that the bill met the requirements for the exemption to the two-thirds approval vote.
The case is No. CV-17-0130-PR.
Attorneys: Christina Sandefur, Goldwater Institute, for Andy Biggs. Douglas C. Northup (Fennemore Craig, PC) for Thomas J. Betlach, Director, Arizona Health Care Cost Containment System.
Companies: Arizona Health Care Cost Containment System
MainStory: TopStory CaseDecisions NewsFeed AgencyNews MedicaidNews MedicaidExpansionNews ArizonaNews
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