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posted: October 17, 2006

Medicaid%20Provider%20Tax%20Debate.jpgThe Bush Administration remains intent on issuing new regulations to implement several Medicaid budget cuts proposed in the President’s FY 2007 budget last February. Most notably, the Administration wants to reduce state use of provider taxes by capping assessments at three percent, instead of the current six percent. This could be done by mandating that states phase down state provider assessment rates over three to five years.


The current six percent cap was set in federal rules 14 years ago. Provider assessments, commonly a tax on hospitals or nursing homes, generate revenue for many state treasuries. These tax receipts are then matched with federal dollars, thereby doubling or even tripling or more the dollars available. That is, depending on the state’s federal Medicaid matching rate, one dollar raised from a provider tax can ultimately generate anywhere from two dollars to nearly five dollars in new Medicaid funding.


The total is used in Medicaid to fund provider rates increases and other state Medicaid budget priorities. In 1991, Congress enacted limits on state use of provider taxes to generate federal Medicaid funds. In 1992, federal rules imposed a six percent cap on assessment rates, with any tax higher than six percent presumed to be out of compliance.


Cutting the maximum assessment in half would reduce federal Medicaid funding by about $6 billion and create big budget holes for affected states. The Administration has drafted the rule but is expected to wait until after the election to publish it, if then. While CMS and the White House are interested in the federal savings such a rule would generate, they are even more interested in the leverage it would provide over states. Specifically, it would encourage more states to come to the table and make deals for major Medicaid reforms using section 1115 waivers.


A majority of House members and many in the Senate are opposed to the proposal. Therefore, there’s a chance the Congress may block, at least temporarily, any rule to cut state use of provider taxes. As part of the annual appropriations bill for the Departments of Health and Human Services, Labor, and Education, the House Appropriations Committee included a provision prohibiting CMS from issuing the rule during FY 2007.


Because getting a statutory change is so difficult, riders to appropriations bills are another way to stop an Administration action. If passed, such a rider makes it illegal for CMS to spend any staff time issuing or enforcing a particular policy during that fiscal year.


The full House plans to take up the Labor-HHS-Education appropriations bill in November. However, the Senate would need to agree to the language and there is a good chance the entire appropriations process could fall apart after the election.


Meanwhile, the Senate Appropriations Committee passed its version the Labor-HHS-Education funding bill for FY 2007. In it, they included a provision asking CMS to hold off issuing new rules curtailing the ability of schools to claim Medicaid payments for administrative and transportation services for children with disabilities. The Committee wants HHS to study the possible impact of proposed cuts to school-based services, with a report on March 1, 2007. They want CMS to take no action until the Committee reviews the study.


Congress will try to resume the appropriations process after the election. But the two chambers will need to pass their respective versions of the Labor-HHS-Education bill and then resolve differences in a conference. And, given the political environment, that may be tough.

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In ancient China, physicians were paid only when their patients were kept well and often not paid if the patient got sick. If a patient died, a special lantern was hung outside the doctor's house. Upon each death, another lantern was added. This is the first known use of the two most powerful drivers for health care performance - incentives and transparency.
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