The American Hospital Association has pushed back on multiple elements of CMS’ proposed rule that would overhaul how Medicaid provider taxes are calculated and monitored, suggesting that these changes could result in financial instability for both hospitals and states.
In a Sept. 21 open letter to CMS Administrator Mehmet Oz, MD, AHA said the organization supports the agency’s effort to impose new limits on Medicaid provider taxes under Section 71115 of Public Law 119-21, which prohibits the provider tax indirect hold harmless threshold beginning in federal fiscal year 2027, phasing it down for expansion states starting in fiscal year 2028 by 0.5% points annually.
“The hold harmless threshold will be the lower of the existing percentage in a state or: 5.5% in federal FY 2028, 5.0% in federal FY 2029, 4.5% in federal FY 2030, 4.0% in federal FY 2031, and 3.5% for federal FY 2032 and subsequent years,” the letter said.
The proposed rule would set new state- and provider class-specific hold harmless threshold percentages for existing provider taxes. It would also change how the threshold is calculated and monitored moving forward. CMS would most notably replace the existing prospective, estimate-based system with a retrospective reconciliation approach, adding new one-time and ongoing reporting requirements that AHA said would result in heavy administrative burdens for states, providers and CMS.
“As such, the AHA is concerned that some proposals in this rule could create serious financial and operational disruption for states, hospitals and the patients they serve,” the letter said. “We are particularly concerned that CMS’ proposal to require retrospective reconciliation of actual tax collections and net patient revenue will create significant unpredictability for state Medicaid programs, as well as unnecessary and costly administrative burden for states, providers and the agency. Moreover, we are concerned that other proposals in this rule would unnecessarily compound the financial and operational impact of the statutory changes already required under P.L. 119-21.”
AHA also urged CMS to:
- Preserve the prospective, estimate-based approach for ongoing compliance monitoring, and to limit the retrospective actual-data requirement to the one-time threshold calculation required by statute.
- Delay the Dec. 31 interim reporting deadline to give the agency more time to review comments, finalize the rule and issue detailed guidance needed for accurate and complete data submission.
- Throw out a proposal to sunset the 75/75 test. AHA said it exceeds CMS’ statutory authority given Congress codified the test in 2006 and did not repeal it under P.L. 119-21.
- Let state flexibility align with the administrative calendar year used for the threshold calculation with other state fiscal calendars, like state or federal fiscal year, subject to CMS review and approval.
- Provide additional clarification on the proposed health insurer permissible class, including its distinction from the existing managed care organization class — and how it would apply to taxes not used to finance the non-federal share of Medicaid expenditures.
