Two actions this week in DC may be signaling the future of GEMT programs.
First, CMS released a proposed rule Monday, that according to the language in CMS' release, "would end states’ ability to exploit a health care-related tax loophole currently used by seven states to generate billions in federal Medicaid payments—without contributing their fair share or expanding care for Medicaid enrollees".
Second, the House Energy and Commerce Committee released their 160 page heath package for the Budget Reconciliation Act. The legislation would limit states’ ability to levy taxes on providers to finance Medicaid programs and changes Medicaid eligibility to reduce the number of Medicaid enrollees.
The “Provider Tax” limitation language starts on page 64, line 19 of the document here.
News reports related to these two actions are below.
Recall that the CMS OIG is still auditing GEMT cost reports, and are due to release the results from their audits this year (https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000786.asp),
The OIG initiated these audits following a notice from CMS to state Medicaid offices detailing their concerns about non-allowable costs being included in some GEMT cost reports (https://www.medicaid.gov/federal-policy-guidance/downloads/cib08172022.pdf).
Providers who are currently participating in GEMT programs, or are awaiting State Plan Amendment approvals from CMS, should monitor these development closely.
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CMS proposes crackdown on 'money laundering' provider tax policies
Bridget Early
May 12, 2025
https://www.modernhealthcare.com/policy/provider-tax-medicaid-requirements-cms
The Centers for Medicare and Medicaid Services is proposing to close what the agency dubs a "loophole" in an obscure form of Medicaid funding.
In a proposed rule released Monday, CMS seeks to tighten its oversight of state provider tax policies. The agency said it wants to ensure that states' provider taxes are either broad-based and uniform as required by law, or that states applying for a waiver from that requirement are qualified to receive one.
The proposed rule would also ban states from taxing Medicaid dollars higher than other payments and set deadlines for states to wind down existing provider tax policies the agency deems to be noncompliant with federal law.
States tax providers and insurers to help fund their share of Medicaid’s federal-state payment structure.
The system has garnered heavy criticism from spending hawks, who argue the dollars are returned to providers in the form of Medicaid payments down the line.
By law, provider taxes must be broad-based and uniform, meaning they need to apply to a vast swathe of products and services and they need to be applied at the same rate for all healthcare services within a category. States are also prohibited from reimbursing providers more than 6% of their net revenue.
In instances where states seek to levy a tax that doesn't meet the parameters, CMS must conduct a series of statistical tests to ensure the payments are permissible under statute. CMS can waive requirements that these taxes be broad-based and uniform in some instances — for instance, when regulators determine that a state’s tax would be generally redistributive, meaning revenue from taxes on non-Medicaid services would be used to fund the state's Medicaid share.
Now, CMS is looking to tighten its oversight.
The agency says in its proposed rule that it has found loopholes in the statistical test it uses to determine whether states’ provider tax proposals are generally redistributive. Some waivers have passed the test but are not generally redistributive, particularly for taxes on Medicaid managed care organizations, the rule says.
In response, the agency proposes to ban states from effectively taxing provider revenue from Medicaid at higher rates than Medicare or commercial healthcare, even if a state's tax proposal passes the statistical testing required by law.
The agency estimates finalizing the rule would save more than $30 billion in the next five years, according to a fact sheet on the proposal, adding that the issues in its statistical tests represent “a Medicaid tax loophole exploited by states to inflate federal payments to states.”
“States are gaming the system — creating complex tax schemes that shift their responsibility to invest in Medicaid and rob federal taxpayers,” said CMS Administrator Dr. Mehmet Oz in a news release on the proposed rule.
CMS also proposes to ban “vague language” in states’ proposals that it says conceals taxes focused on Medicaid. The agency says it will closely assess “language that does not specify Medicaid explicitly, but appears to invoke it implicitly,” such as language identifying the providers and services that would be taxed.
All states except Alaska have some form of provider tax, according to a March analysis from KFF: 45 states tax hospitals and 46 tax nursing homes, while 20 states have provider taxes on managed care organizations.
If finalized, the rule would also set timing requirements depending on when a state’s waiver was last approved. States that have had a waiver approved within the last two years would not be eligible for a transition period, CMS proposes, but any states outside that window would have one year from the date of the final rule to come into compliance.
Some hospital groups are criticizing the proposal, which would come as yet another blow to the Medicaid program. Hospitals have been embroiled in a firestorm of lobbying to stave off sweeping funding cuts.
“While we are still reviewing the proposal, any effort to reduce provider taxes would harm long-term care facilities and hospitals’ ability to care for Medicaid patients. These taxes are essential to keeping state Medicaid programs afloat and enabling hospitals to continue providing critical health care services to their communities,” said Marie Johnson, senior director of media relations for the Catholic Health Association of the United States, in an email.
Republicans on Capitol Hill have set their own sights on provider taxes. Lawmakers are looking to curtail certain provider taxes and eliminate others in a sweeping reconciliation package released Monday as lawmakers look to generate substantial savings from the Medicaid program.
The CMS regulation was first listed in a December 2024 Unified Agenda published by the White House Office of Management and Budget in the final weeks of President Joe Biden’s tenure.
Comments are due in July.
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House Republicans release Medicaid cuts proposal
By: Jakob Emerson
5/12/25
https://www.beckershospitalreview.com/legal-regulatory-issues/house-republicans-release-medicaid-cuts-proposal/
House Republicans unveiled legislation May 11 that would introduce Medicaid work requirements nationwide and stricter eligibility requirements.
The 160-page bill, introduced by the House Energy and Commerce Committee as part of a broader budget reconciliation package, aims to reduce federal spending by hundreds of billions of dollars over the next decade, with Medicaid and ACA programs facing the majority of the proposed cuts.
The legislation calls for more frequent eligibility redeterminations and strict address verification processes to prevent duplicate enrollment across states, and managed care organizations would be required to relay updated address information to Medicaid programs.
A key provision mandates that able-bodied adults aged 19 to 64 without dependents work at least 80 hours per month or participate in community engagement activities to maintain their Medicaid coverage, with exemptions for pregnant individuals and certain other situations. States that fail to verify citizenship or immigration status among enrollees could lose federal funding for those individuals’ benefits. The proposal would also ban the use of Medicaid and CHIP funding for gender transition procedures for individuals under the age of 18.
The bill does not propose per capita caps or a complete overhaul of Medicaid expansion funding, but it does include provisions to penalize states financially if they provide Medicaid benefits to noncitizen residents by reducing their ACA expansion matching rate.
The GOP proposal would also shorten the retroactive coverage period under Medicaid from three months to one and eliminate federal reimbursement for benefits during the “reasonable opportunity” period in which applicants verify immigration or citizenship status, unless verification is completed.
The legislation would limit states’ ability to levy taxes on providers to finance Medicaid programs, which are typically imposed on hospitals, nursing facilities, and physicians.
The bill also includes provisions aimed at pharmacy benefit managers, requiring that contracts between states and PBMs adopt a transparent pass-through pricing model to limit payments for prescription drugs to the ingredient cost and dispensing fees. Additionally, any payments to PBMs for drugs must be fully passed through to pharmacies or providers. The bill would also ban the use of spread pricing within Medicaid programs.
Democratic lawmakers and hospitals have criticized the legislation, pointing to an analysis from the Congressional Budget Office indicating the bill could cut Medicaid and ACA spending by up to $715 billion over the next decade and result in at least 8.6 million people losing insurance coverage by 2034. Hospital and health system leaders have been outspoken about proposed cuts, warning that even without FMAP reductions or per capita caps, the cuts could still deliver a blow to hospitals and their patients.
“Congressional Republicans and President Trump rightly pledged to protect Medicaid benefits and coverage – this bill fails that test,” Federation of American Hospitals’ President and CEO Chip Kahn said. “It is imperative Republicans go back to the drawing board; too many lives depend on it.”
The bill is scheduled for markup in the Energy and Commerce Committee on May 13 and will need to pass in the narrowly divided House and Senate.
