CMS proposes to cut provider tax and limit "hold harmless" provision

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The Centers for Medicare & Medicaid is inching closer to a lower maximum allowable Medicaid bed tax rate.

CMS has proposed a rule to cut the maximum allowable healthcare-related tax to 5.5%, from its current 6%, of net patient revenues, which would codify a provision of the Tax Relief and Health Care Act of 2006. The Tax Relief and Health Care Act of 2006 was signed into law by President Bush in December. The so-called provider tax is one method states use to gain matching Medicaid funds. The administration originally had proposed cutting the rate to a 3% ceiling.

CMS also proposed a clarification of the standards used for determining the existence of a "hold harmless" arrangement under the positive correlation test, Medicaid payment test and the guarantee test.

The proposed rule may allow CMS too much interpretive authority in determining whether or not a state is in compliance with the positive correlation test, according to Susan Feeney, spokeswoman for the American Health Care Association. This may affect the interpretation of indirect payments from the state to nursing homes and force states to tie reimbursement more closely to provider costs, Feeney said.

CMS is scheduled to publish the rule in the Federal Register on Friday and will then take comments on it for 60 days. For more, visit