CMS proposes tighter hold-harmless thresholds for state Medicaid provider taxes

CMS published a proposed rule amending the indirect hold-harmless threshold for health care-related taxes used by states to fund their Medicaid programs. The rule would lower the safe harbor threshold, limiting the amount of provider tax revenue states can draw down without risking federal matching fund penalties. Virginia hospitals estimate the change could reduce state Medicaid funding by $31 billion if finalized. States and hospital associations are expected to file comments opposing the rule by the September deadline. The proposed change reflects CMS's broader effort to restrict financial arrangements that inflate Medicaid spending without direct care delivery.