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CMS Shares Enforcement Guidance on Health Care–Related Taxes

September 16, 2024
Julie Kozminski

The Centers for Medicare & Medicaid Services (CMS) described its enforcement approach for existing health care–related taxes in recent subregulatory guidance to states on how CMS will distinguish new and existing arrangements in line with an April 22 informational bulletin (CIB).

The agency detailed its approach in a slide presentation, Overview of CMS Enforcement Discretion Regarding Existing Health Care-Related Tax Programs with Impermissible Redistributions.

In a February 2023 CIB, CMS described its view that arrangements among providers to redistribute Medicaid payments violate the hold harmless provisions of the Medicaid statue. In the April CIB, the agency indicated it will delay enforcement of this interpretation for existing hold harmless arrangements until Jan. 1, 2028. CMS further indicated that new provider payment redistribution arrangements that do not meet federal requirements might be disapproved.

The slide deck provides further information on CMS’ implementation approach to new and existing provider distribution arrangement determinations. Between April 22, 2024, and Jan. 1, 2028, CMS will identify and track all existing arrangements when possible and assist states to identify and transition to allowable sources of nonfederal share financing.

Arrangements will be considered as existing arrangements if:

  • The redistribution is both existing and not tied to a new state plan amendment (SPA), state directed payment (SDP), or a waiver.
  • The payment or tax change is a nominal increase and aligned with historical practice.
  • Should the tax change, such as provider classes or tax rates, the tax shifts marginally with the goal of maintaining the status quo and is consistent with historical practice.
  • In statewide initiatives, such as a change in authority or delivery system, the status quo is maintained and the redistribution, structure, or tax and payment amounts are essentially the same as the preceding system.
  • State legislative, regulatory or administrative action creates a standard, ongoing update and redistribution is incidental to a larger statewide initiative or renewing a tax due to expired legislation.

Arrangements will be considered as new arrangements if:

  • The redistribution is itself new, implemented after the April CIB, or is tied to a new SPA, SDP, or waiver.
  • The SDP, payment, or tax arrangement is increased in amount or proportion in a manner not aligned with historic practices when compared with other or prior SDPs, prior payments, or taxes.
  • Should a structure of the tax change, such as provider classes, tax rates, or new provider inclusions or exclusions, the tax change is in a fundamental, unanticipated, or nonroutine manner.
  • In statewide initiatives, such as a change in an authority or delivery system, the redistribution, tax, or payments are altered from the preceding system.
  • State legislative, regulatory, or administrative action is a significant departure from historical practice.

CMS is offering states technical assistance to avoid impermissible redistribution arrangements and suggests states distribute provider attestations for signature.

Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.

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