Colorado Taxpayer Bill of Rights Provision Provides No Grounds for Breach of Contract Claim
In 2018, the Center for Wound Healing and Hyperbaric Medicine of Burlington, Colorado (the Center) and Kit County Health Services District (the District) entered into an Administrative Services Agreement (the Agreement). Under the agreement, the Center established a facility at the county hospital, and the District was to pay the Center 80% of the District’s net collections for hyperbaric care and $75 per wound care treatment performed at the Center, subject to a 3%/year increase. The Agreement originally had a seven year term, with provisions for acceleration of payments due in case of breach by either party. In order to comply with Colorado’s taxpayer bill of rights law (TABOR), the Agreement provided:
[A]ny provision of the Agreement . . . that requires payment of any nature in fiscal years subsequent to the current fiscal year, and for which there are no present cash reserves pledged irrevocably for purposes of the payment of such obligations shall be contingent upon future appropriations by [the District] of sufficient funds for purposes of payment of such obligations for any future fiscal year.
In August 2020, the District became concerned about irregularities in the Center’s submissions for Medicare reimbursement. The District then stopped submitting claims from the Center to Medicare for reimbursement. In June, 2021, the Center gave the District notice that it was in material breach of the Agreement. The District responded by terminating the Agreement and ceasing all payments. The Center then sent a demand letter, invoking the Agreement’s provisions for accelerated payments. The District paid its June, 2021 invoice but made no further payments. The Center sued, seeking $8 million under the acceleration provisions. In 2023, the county hospital paid a $3 million fine to the U.S. Department of Health and Human Services for charging the government for services at the Center that were never performed or supervised as billed.
The District filed a motion in the trial court, alleging that the effect of the TABOR provision quoted above was that the District could not be liable where it had made no appropriations. It made no appropriations following the termination of the Agreement. The trial court agreed and dismissed the Center’s claims.
In Ctr. for Wound Healing & Hyperbaric Med. of Burlington, Colo. v. Kit Carson Cnty. Health Serv. Dist., an intermediate appellate court affirmed in part. In so deciding, the court did not need to consider TABOR. The above-quoted language rendered the Agreement TABOR-compliant. However, regardless of TABOR, the provision by itself provided that the acceleration clause would not be triggered where, as here, the District had appropriated no funds in connection with the Agreement. However, questions remained as to payments for services already rendered and as to whether there had been appropriations for the remainder of fiscal year 2021. The court reversed the trial court’s entry of judgment to the extent that it precluded the Center from recovering unpaid sums that the Center claims correspond to fiscal year 2021 and remanded for further proceedings.