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Judge considers constitutionality of Arizona Medicaid expansion's hospital assessment

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PHOENIX — A lawyer representing 36 Republican lawmakers told a judge Thursday that keeping a hospital assessment in effect to help fund the state's Medicaid expansion would gut a voter-approved law requiring a two-thirds vote for tax increases.

Christine Sandefur, of the Goldwater Institute, urged Maricopa County Superior Court Judge Douglas Gerlach to rule that the hospital assessment that became law in 2013 was unconstitutional because it passed with only a bare majority. A 1998 constitutional amendment called Proposition 108 requires tax increases to be passed by a supermajority.

"The voters passed Prop 108 specifically to have it apply across the board, even in emergency situations, even programs for the poor," Sandefur told Gerlach. "And to exempt the provider tax here really creates a serious loophole. It leads the court to read two provisions contrary to each other and allows the Legislature to give ultimate discretion to an unelected, appointed administrator."

A lawyer representing state Medicaid Director Tom Betlach said a provision of Proposition 108 exempts the type of fee imposed to help fund Medicaid expansion from the supermajority requirement. Attorney Douglas Northup told Gerlach that Sandefur was trying to convince the judge that an assessment set by a state agency benefiting those who pay it qualifies as a tax.

"They're asking you to read words into the constitutional provision that don't exist," Northup said.

The 2013 law pushed by then-Gov. Jan Brewer, a Republican, passed after a historic statehouse battle. It was designed to provide coverage to an estimated 300,000 low-income Arizonans, and the hospital assessment paid for the state's extra costs.

Medical centers are pleased to pay it, according to a friend-of-the-court brief filed by several hospital chains and the state hospital association.

In the nine months after the assessment went into effect in January 2014, hospitals paid $143 million to the state, but they collected $488 million in payments for caring for patients that previously didn't qualify for Medicaid insurance, according to records from the Arizona Health Care Cost Containment System.

Gerlach said he's trying to rule quickly, but regardless of what he decides, he's certain of an appeal.

"The way it works is there is no way to get your case to the Supreme Court right away, so we had to go through this exercise," he said. "I enjoyed it, but the fact of the matter is I appreciate the fact that my decision probably has as much meaning as the outcome of a spring training game."

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