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Judge rules in favor of constitutionality of Arizona Medicaid expansion's hospital assessment


PHOENIX — A judge ruled Wednesday that a hospital assessment that pays for the expansion of the state's Medicaid program did not require a supermajority vote of the Legislature to be enacted and is therefore constitutional.

The ruling from Maricopa County Superior Court Judge Douglas Gerlach comes more than 18 months after the expansion went into effect and means about 350,000 Arizonans who have gained coverage will continue to receive health care insurance.

However, the decision will be appealed by the 36 Republican lawmakers who sued, said their attorney, Christina Sandefur of the Goldwater Institute.

The lawmakers argued that the assessment is a tax that required a 2/3 majority vote to be enacted. Sandefur told a judge last month that keeping the hospital assessment in effect would gut a voter-approved law that requires a supermajority vote for tax increases.

"It was never, ever in my mind about the folks who were being funded or not," said Republican Steve Yarbrough, Senate majority leader and one of the lawmakers who sued. "I was indeed focused on the constitutional question, and to me that is the key question — is it a tax? And a Superior Court judge has said apparently that it is not. Well, we'll see what the appellate court ultimately says."

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.

Gerlach came down decisively on Betlach's side. But he also noted that the lawmakers who sued failed because of a presumption in such challenges that an enacted law is constitutional.

"That is because, by any reasonable standard, the arguments in support of HB 2010 are, at a minimum, fairly debatable, and as such, the long-recognized and well-settled presumption in favor of constitutionality dictates the outcome," Gerlach wrote.

The 2013 law pushed by then-Gov. Jan Brewer, a Republican, passed after a historic statehouse battle and earned only a handful of Republican votes while being supported by all the Democrats in the Legislature. 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.

Brewer said the ruling was consistent with Arizona voters' past decisions to expand Medicaid eligibility.

"This initial decision is a huge win for businesses, our health care system and for hard working families in Arizona," Brewer said.

Democratic House minority leader Eric Meyer, a physician, said the ruling was good news for citizens who now have health care after lacking coverage for years.

"I practiced emergency medicine, all those patients came to the ER without insurance. Now they have physicians they can go to in the community," Meyer said.

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.

"We applaud the court's decision while bearing in mind — unfortunately — this is almost certainly not the end of the legal battle involving Medicaid Restoration," Greg Vigdor, president of the Arizona Hospital and Healthcare Association, said in a statement. "Regardless, this is a good day."

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.

Gov. Doug Ducey, an outspoken opponent of President Barack Obama's health care overhaul law, said Wednesday he had just heard of the decision.

"I've been outspoken that I think Obamacare is a monumental disaster, but if the courts have made that decision we'll follow the law," Ducey said.

Sandefur called Gerlach's ruling disappointing and said it "allows a bare majority of legislators to vote to evade a constitutional supermajority requirement, handing an unelected administrator the unlimited power to tax, even though (the) Legislature would need supermajority to impose that same levy itself."

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