March 2019
Polsinelli is pleased to announce a major victory for our client, the Colorado Hospital Association, in a landmark case that challenged the constitutionality of the funding for Colorado’s Medicaid system. The Colorado Hospital Association was represented by Gerry Niederman, Sean Gallagher and Ben Cohen of Polsinelli. The outcome in this case promotes the financial stability of the Medicaid program in Colorado and protects medically vulnerable Medicaid beneficiaries and the providers who serve them.

Medicaid is a shared federal and state program. Federal and state dollars are combined so states can furnish Medicaid health coverage to poor and disabled Coloradans including many who need nursing facility care. Colorado’s Medicaid program is funded in part by fees collected from hospitals that allow the state to obtain funds from the federal government while using fewer state general funds so those funds can be used for other spending priorities like schools and transportation. Fees collected from hospitals enabled Colorado to expand eligibility for Medicaid to more people who earn no more than 138% of the federal poverty line. Supplemental payments can also be made to hospitals to reduce the amount of uncompensated medical services that the hospitals provide. This system supports Medicaid services for more than one million Coloradans.   
Colorado has strict tax and spending limits embedded in the state’s constitution (the “Taxpayers Bill of Rights” or “TABOR”) which subject many innovative programs to judicial scrutiny. An established advocacy group, the TABOR Foundation, filed suit in Denver District Court challenging the constitutionality of this Hospital Provider Fee and the subsequent Hospital Affordability and Sustainability Fee (HASF), alleging that they are actually taxes that could only have been imposed if approved by voters in a statewide ballot initiative. If the plaintiff had been successful, the state would have had to disgorge more than $6 billion in unlawfully collected “taxes,” which could have destroyed the Medicaid system in Colorado, forced some Medicaid providers to discontinue serving patients, and might have led Colorado into insolvency.  
The Colorado Hospital Association intervened in the case to support these important coverage programs and assisted with discovery and briefing of cross-motions for summary judgment. On March 5, the Court entered an order granting the motions for summary judgment filed by the state and the Colorado Hospital Association, and denying the Tabor Foundation’s request to deem the fee unconstitutional. Judge Ross Buchanan ruled that the Hospital Provider Fee and HASF are in fact fees, not taxes. The Court concluded that the purpose of collecting the fees “was to allow the state to literally double or even triple its money in TABOR-exempt federal matching funds, and then redistribute the aggregate amount among the hospitals based upon a formula designed to fulfill the statutory purposes of reducing the burden of uncompensated or under-compensated medical care, providing a public insurance payer for patients which previously had none, and reduce the number of uninsured Coloradans.”

While this decision will likely be appealed, this is a real victory both for the state and for the Colorado Hospital Association. To illustrate, the state had been unable to issue $600 million in transportation bonds in 2018 because underwriters were unwilling to underwrite the state’s debt while this lawsuit was pending. Polsinelli will continue to be involved in any appeal process to support our hospital and other clients in their advocacy for Medicaid beneficiaries and to promote the well-being of both the state’s overall budget and its health care system.