Connecticut has overhauled key parts of its health care provider tax framework. On May 26, 2026, Governor Ned Lamont signed Public Act No. 26-68, a budget implementer that revises how the state taxes and funds certain health care providers, among other changes related to the state’s health care system (see here, here, and here for our analyses of other aspects of that legislation impacting health care providers). Public Act No. 26-76, signed the next day, made conforming and clarifying revisions. This post refers to the two acts collectively as the “Act.” The Act affects Connecticut’s hospital provider tax, Medicaid supplemental payment financing, and provider taxes and fees for nursing homes and intermediate care facilities.
Hospital Provider Tax Rate Changes and Revenue Targets
The Act sets new rates for inpatient hospital services. The tax rate is 4% for FY 2027 through FY 2031. Beginning in FY 2032, the rate drops to 3.5%.
The Act also creates a five-year schedule for determining which federal fiscal year is used to calculate the tax base for inpatient and outpatient hospital services. FY 2027 through FY 2031 use federal fiscal year 2024, FY 2032 through FY 2036 use federal fiscal year 2029, and later five-year periods use the federal fiscal year ending in the calendar year two years before the applicable period begins.
For outpatient hospital services, the Act does not set a fixed statutory rate tax. Instead, it sets a statewide revenue target which will be used to calculate each individual hospital’s outpatient tax rate. The rate is generally calculated by subtracting the total inpatient hospital tax imposed on all hospitals from the statewide revenue target, then dividing the remainder by the total audited net outpatient hospital revenue of hospitals required to pay the tax, subject to specified adjustments. The revenue target starts at $974 million in FY 2027 and increases to approximately $1.073 billion by FY 2031. For FY 2032 and later fiscal years, the revenue amount stays at $1.073 billion unless modified by law.
Remaining Hospitals Do Not Pick Up the Tab for Certain Status Changes
Beginning in FY 2027, the Act prevents certain hospital status changes from increasing the tax burden on the remaining hospitals. Hospital dissolutions, cessations of operations, and changes in taxpayer status will no longer trigger a recalculation that shifts the affected hospital’s tax revenue to other taxpaying hospitals.
Instead, if a hospital dissolves or ceases to be subject to the tax, the tax revenue attributable to that hospital is simply not collected for the fiscal year in which the event occurs or any later fiscal year. The total hospital tax revenue amount used to calculate the outpatient hospital services tax rate is reduced by the amount attributable to that hospital, and the outpatient tax rate for the remaining taxpaying hospitals stays the same.
Children’s General Hospitals Must Pay While CMS Review Is Pending
The Act directs the Department of Social Services (DSS) commissioner to seek approval from the Centers for Medicare and Medicaid Services (CMS) to remove the hospital tax exemption for children’s general hospitals. Under current law, children’s general hospitals would become subject to the hospital tax only if CMS approves the exemption removal. The Act changes that approach by requiring children’s general hospitals to begin paying the hospital tax on July 1, 2026, while federal approval is still pending. If CMS ultimately denies approval, those hospitals will be entitled to a refund under the Act.
New Hospital Supplemental Payment Account Channels Tax Revenue to Medicaid Payments
The Act creates a hospital supplemental payment account to serve as a dedicated funding stream for Medicaid supplemental payments. Hospital tax revenue received for calendar quarters beginning on or after July 1, 2026, must be deposited into this separate, nonlapsing account. DSS must use the account to make Medicaid supplemental payments to hospitals, hospital-affiliated medical groups, and faculty practice plans.
The Act also creates a backstop if the account is projected to run short. If the Office of Policy and Management (OPM) secretary determines that the account will have insufficient funds to make required supplemental payments, OPM must consult with the Department of Revenue Services (DRS) and DSS. The agencies must determine whether unpaid taxes can feasibly be collected from delinquent hospitals, taking into account each hospital’s ability to pay and any resulting impact on patient health. If collection is feasible, DRS must act to collect the unpaid tax.
If those steps do not close the gap, OPM must certify the shortfall amount and ask the Finance Advisory Committee to approve a General Fund transfer to the hospital supplemental payment account. The state comptroller must then transfer the certified and approved amount from the General Fund’s unappropriated resources to the account.
The account also includes a required FY 2027 General Fund transfer. By June 30, 2027, the comptroller must transfer $10.7 million from the account’s FY 2027 resources to the General Fund as FY 2027 revenue. DSS must also report annually to the Appropriations, Public Health, and Finance, Revenue and Bonding committees on amounts collected for deposit into the account and on the use of account funds.
Hospital Reporting Rules Add New Compliance Pressure
Hospitals have a short-term reporting obligation under the Act. For FY 2027, each hospital subject to the hospital provider tax was required to submit to DRS, within 30 days after the Act’s passage, information the DRS commissioner needs to calculate audited net inpatient revenue, audited net outpatient revenue, and audited net revenue for federal fiscal year 2024. If DRS does not begin an audit before July 1, 2026, the hospital’s reported figures become the accepted figures for calculating the hospital tax.
If DRS begins an audit, timing matters. The hospital must comply with requests for additional information within 30 days after the request, although the commissioner may grant an extension if the hospital asks for one. A hospital that misses the deadline or otherwise fails to comply with an additional information request is subject to a penalty of $1,000 for each day the failure continues.
The reporting obligation continues after FY 2027. For later years, hospitals must report required information by June 1, 2030, and every five years thereafter. This schedule aligns with the federal fiscal year schedule used to calculate the hospital provider tax.
Hospitals that disagree with a DRS determination of additional audited net revenue have 30 days to file an administrative protest.
Nursing Homes and ICFs Stay With Quarterly User Fees
For nursing homes and intermediate care facilities for individuals with intellectual disabilities, the Act keeps the familiar quarterly user fee system in place. These facilities will continue paying a fee based on resident days, rather than moving to a new quarterly tax equal to 6% of facility revenue.
The applicable fee depends on the facility type. The quarterly user fee is $16.13 for municipally owned nursing homes and nursing homes with more than 230 beds, $21.02 for all other nursing homes, and $27.76 for intermediate care facilities. Each facility calculates its payment by multiplying the applicable fee by its resident days for the calendar quarter.
Takeaways for Connecticut Providers
Providers affected by the Act should assess how the revised provider tax framework, supplemental payment account, payment requirements, retained user fee structure, and reporting obligations affect their finance, reimbursement, and compliance strategies.