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The Centers for Medicare and Medicaid Services has released new guidance on provider taxes.
CMS issued the preliminary guidance in light of new federal requirements. The One Big Beautiful Bill Act cut provider taxes that hospitals use for additional revenue.
CMS has issued limits on healthcare-related taxes and the closure of a tax loophole. Both are projected to save taxpayers $200 billion over 10 years, the agency said.
CMS said it was providing this guidance now to allow states time to meet the requirements of the bill that’s also called the Working Families Tax Cuts legislation. CMS said it will be developing additional policies, guidance and regulations.
WHY THIS MATTERS
CMS guidance sent by letter provides details regarding limits on new or increased healthcare-related taxes. It also includes information about transition periods related to the closure of a financing loophole and the next steps for compliance.
In line with the changes made under the legislation, CMS will generally prohibit new or increased healthcare-related taxes and end financing practices that it said previously allowed certain states to inappropriately draw down federal matching funds.
“CMS is restoring the federal-state partnership by ensuring that Medicaid dollars are spent responsibly, transparently, and in service of the beneficiaries who depend on this program for their health and dignity,” said CMS Administrator Dr. Mehmet Oz. “While closing a loophole that some states were taking advantage of to shift billions in costs onto federal taxpayers, we have crafted policy that gives states time to transition as the new tax limits are implemented.”
Previously, states taxed hospitals and then put the money into their Medicaid programs. This got states more federal dollars.
For every dollar that states spent on Medicaid, they got $1 to $3 from the federal government, according to The Wall Street Journal.
The money was then returned to hospitals in Medicaid payments, with hospitals getting more than what they paid in provider taxes.
The American Hospital Association had voiced opposition to cuts to provider taxes.
THE LARGER TREND
CMS analysis shows that improper use of these financing mechanisms inappropriately generates billions of dollars annually.
CMS said it understands this shift will require a transition and is committed to providing guidance to states on how their existing structures will be addressed under the changes made by the legislation.
Email the writer: SMorse@himss.org