Advocacy Alert

Urge Your Lawmakers to Support Essential Health System Designation

New Bulletin on Medicaid, Health Care–Related Taxes

Julie Kozminski
February 23, 2023

The Centers for Medicare & Medicaid Services (CMS) on Feb. 17, 2023, issued a new Center for Medicaid and CHIP Services (CMCS) Informational Bulletin advising that arrangements among providers to redistribute Medicaid payments violate the hold harmless provisions of the law and asserting that this is the agency’s longstanding interpretation.

In these hold harmless arrangements, providers with relatively high levels of Medicaid services redistribute a portion of their Medicaid payments to providers with relatively low Medicaid percentages, with a “reasonable expectation” that providers will receive all or a portion of their tax cost back, according to the bulletin. The bulletin reiterates CMS’s position, recently articulated in correspondence with certain states and in court filings, that these arrangements are not allowed under federal statute or regulations and their existence requires a reduction in federal matching funds. This includes oral or written arrangements and payments paid directly or indirectly to taxpayers with or without the involvement of the state or local government imposing the tax.

The bulletin notes that CMS intends to ask states about potential redistribution requirements in the course of its review of state payment proposals. The agency expects states to provide documentation regarding any such arrangements and to work with providers to ensure that information is available. The authority for requiring such information derives from various statutory and regulatory provisions obliging states to provide information to CMS upon request, and providers to respond to requests from the state, according to the bulletin. Where CMS determines that hold harmless arrangements exist, it will take enforcement actions.

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

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