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SUITS CHALLENGE N.Y. SURCHARGE

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ALBANY, N.Y.-The furor over controversial New York surcharges on hospital treatments and other medical care is moving into the courtroom.

A labor union welfare fund has filed suit against the state, charging the surcharge is pre-empted by the federal Employee Retirement Income Security Act of 1974.

The union wants a declaratory judgment ruling the New York Health Care Reform Act, which included the surcharge, null and void.

In a second suit, the New York State Clinical Laboratory Assn. charges that the act unfairly singles out laboratories to pay the surcharge; it forces labs to pay the surcharge if the patients or insurers refuse to pay; and that as labs operate on a profit margin of about 4.5%, many of them could be forced out of business by the surcharge.

The suits are part of volley of protest from health care plan administrators over the implementation of the surcharge, which varies between 5.98% and 8.18% depending on the category of payer. The most controversial aspect of the surcharge is the hefty potential penalty of up to 57.27% of the bill imposed if employers do not pay the surcharges directly to a state health care pool administrator.

The surcharge and another charge-called a covered-lives assessment-will pay for the training of medical residents and care for the poor in New York.

The surcharge also will be imposed on plans that do not have employees in New York but whose employees are treated in a New York hospital.

The law triggered outrage from plan administrators when the New York health department last November announced a Dec. 2, 1996, deadline to opt to make direct payments.

Administrators protested the size of the surcharge and the short period they were given to file (BI, Nov. 25, 1996). The New York Department of Health is accepting filings, but they would only protect payers from surcharges for bills incurred after April 1, a spokeswoman said. By last week more than 20,000 plans had filed to pay the surcharges to the pool administrator.

The lawsuits contest the legality of the law.

The Cement & Concrete Workers District Council Welfare Fund in Flushing, N.Y., alleges in a suit filed last month in the U.S. District Court for the Eastern District of New York that the NYHCRA violates ERISA by requiring the fund to pay directly for the care of the poor and medical training.

"The act contravenes Congress' intent that the assets of an ERISA fund be used for the exclusive purpose of providing benefits to participants and their beneficiaries," court papers say.

The laboratory association suit was filed late last month in the New York Supreme Court, a trial-level court, in Albany. The association argues the surcharge is unfair because it will only be levied on payments to general hospitals, clinical labs, and diagnostic and treatment centers. The association fears patients will go to other laboratories whose charges aren't subject to the surcharge, such as physician-owned labs.

"Clinical laboratories want to do their fair share to support failing hospitals, but when such a small group is taxed the tax burden is not shared and is too great. Tax all non-hospital providers or tax none of them. We will not be of much help to failing hospitals if we go out of business," said Thomas Rafalsky, president of NYSCLA.

The surcharge will discourage patients from having tests that may lead to the early detection and treatment of diseases, the court papers say. "NYSCLA is entitled to a declaration that the classification of clinical laboratories as the only non-hospital provider subject to the tax is arbitrary and capricious and violates the constitutional guarantees of equal protection of law."

The Department of Health would not comment on the suits.