Increased 'bed taxes' on nursing facilities warrant stricter federal oversight, report states

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States have been increasingly taxing skilled nursing facilities and other healthcare providers to fund Medicaid in recent years, and federal authorities should look more closely at this trend, according to a government report released Tuesday.

Nursing homes, hospitals and other healthcare organizations paid about $19 billion in so-called “bed taxes” in fiscal year 2012, a Government Accountability Office analysis determined. This figure was about $10 billion in 2008.

The federal government is concerned about the cost-shifting effects of these provider taxes. The taxes are a way for states to avoid drawing on their general funds to support Medicaid, the report stated.

Medicaid is funded by a combination of federal and state dollars. States use bed tax revenue to boost Medicaid payments to providers, which in turn causes the federal government's Medicaid contributions to escalate. The idea is that the healthcare providers ultimately come out ahead.

For instance, Illinois implemented a tax on nursing facilities that allowed the state to increase payments to these providers by $220 million in state fiscal year 2012, according to the GAO report. This triggered an estimated $110 million increase in matching Medicaid funds from the federal government. Nursing facilities experienced a net payment increase of $105 million, taking into account the bed taxes they paid.

Despite outcomes like this, nursing homes and hospitals would prefer not to pay provider taxes, according to trade association officials quoted in the report. Providers generally have worked out acceptable arrangements with their state governments, the officials said. The arrangements usually include assurances that the bed tax revenues will be used for Medicaid payments.

The Centers for Medicare & Medicaid Services should collect more robust data to ensure provider taxes are being collected in accordance with the law, the GAO recommended. Oversight should include facility-specific data about the sources of Medicaid funding.

CMS did not concur with the recommendations. Current review procedures generally are adequate and initiatives already are underway to shore up some aspects of oversight, Health and Human Services Assistant Secretary for Legislation Jim R. Esquea wrote in a response to the report.

In an unrelated memorandum, CMS recently raised concerns that provider taxes on Medicaid managed care organizations in some states run afoul of federal statutes and regulations.

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