The Centers for Medicare & Medicaid Services (CMS) finalized a rule Thursday afternoon, clamping down on states’ Medicaid provider taxes.
The changes to address what the agency has described as “loopholes” and “a Medicaid financing gimmick” were floated last May in a proposed rule and since codified by the summer’s One Big, Beautiful Bill Act.
CMS said the tactics have generated an estimated $24 billion in revenue for just seven states, and that heading them off will save the federal government $78.2 billion over the next decade. Some of the final rule’s changes have a Dec. 31 deadline, though some states will have longer depending on the timing of their relevant tax waivers.
“Medicaid only works when every partner meets its obligations,” CMS Administrator Mehmet Oz, M.D., said in a Thursday release. “States that have relied on loopholes to offload their responsibilities onto federal taxpayers undermined the law and directed additional Medicaid spending to favored providers instead of focusing on families who depend on this program. With this rule, CMS is ending these inappropriate schemes and ensuring every federal Medicaid dollar is used as Congress intended.”
So-called provider taxes are funds collected by most states from healthcare providers, and sometimes Medicaid Managed Care Organizations (MCOs) or other Medicaid insurers, that have historically been matched anywhere from 50% to 77% by the federal government. States then distributed the combined funds back to providers under CMS-authorized payment arrangements targeting specific areas of care.
Though the law requires that these taxes are “uniform and broad-based,” states may also apply for a waiver to impose a nonuniform tax that leans on a statistical test designed to ensure a proposal is generally distributive.
While Medicaid providers have said the funds raised under the existing provider tax rules are necessary to preserve care, critics of the approach have said some states are gaming the statistical test by imposing higher taxes on MCOs’ Medicaid businesses that still pass the statistical test.
CMS, in the final rule, noted that such an approach allowed one unspecified state to recently submit a waiver “which increased the tax revenue from approximately $8.3 billion per year to about $12.7 billion per year.”