AHA recommends changes to CMS’ Medicaid provider tax proposed rule

The AHA commented Sept. 21 on the Centers for Medicare & Medicaid Services’ proposed rule to implement the changes to Medicaid provider tax policies that were included in the July 2025 reconciliation law. Beginning in fiscal year 2027, all states are prohibited from increasing the provider tax indirect hold harmless threshold above the rate that was in place on the date of enactment. The indirect hold harmless threshold is the maximum percentage of net patient revenue that states can gather from healthcare provider taxes without triggering federal penalties or reductions in Medicaid matching funds. The hold harmless threshold for hospitals in expansion states will be reduced by 0.5 percentage points annually beginning in FY 2028. The AHA shared concerns that some of the proposed changes in the rule could create financial and operational disruption for states, hospitals and patients.

“We are particularly concerned that CMS’ proposal to require retrospective reconciliation of actual tax collections and net patient revenue will create significant unpredictability for state Medicaid programs, as well as unnecessary and costly administrative burden for states, providers and the agency,” the AHA wrote. “Moreover, we are concerned that other proposals in this rule would unnecessarily compound the financial and operational impact of the statutory changes already required under P.L. 119-21.”

The AHA raised questions about CMS' interpretation of the term “imposes,” expressing concern that an overly narrow reading could disqualify legitimate, lawful taxes. The AHA urged CMS to preserve the prospective, estimate-based approach for ongoing compliance monitoring and limit the retrospective actual-data requirement to the one-time threshold calculation mandated by statute. Among other recommendations, the AHA also suggested that CMS deduct the amount exceeding the threshold from the state’s claimed medical assistance expenditures.