Critical-access hospitals fight CMS over rulemaking on provider taxes
CMS officials are looking to crack down on what they consider to be double-dipping on the part of critical-access hospitals, but advocates for the largely rural hospitals say the CMS isn’t being fair.
The CMS in recent rulemaking drew a new line in the sand by stating that critical-access hospitals, which receive Medicare reimbursement based on their costs—plus a little extra— should not be adding state hospital provider taxes into those costs if they also lead to greater Medicaid reimbursement.
Hospital advocates strongly disagree, saying the CMS has changed its rules and bypassed standard procedures for doing so. As a result, providers and their representatives have fought the interpretation through Medicare administrative appeal, in federal court, in meetings with CMS Administrator Dr. Donald Berwick and in Congress.
The issue is a potentially big one for criticalaccess hospitals, which are reimbursed by Medicare at 101% of their allowable costs, and depending on the state in which they are located, might be paying a healthy amount of provider taxes.
At least 22 states with critical-access hospitals currently charge or are planning to charge a provider tax that could be used to draw on additional federal Medicaid matching funds, according to data from the National Conference of State Legislatures, the National Rural Health Association and the Flex Monitoring Team, a group composed of three rural health research centers that monitor and evaluate a Medicare grant program. In those states, there are an estimated 697 critical-access hospitals with more than 15,600 beds (See map).
The payment of a hospital provider tax often is part of a complicated state financing maneuver that leads to greater federal payments for Medicaid. Hospitals pay the provider tax to the state, which then uses the receipts to fund Medicaid spending while drawing an increased federal match of that spending.
There are federal limits on how much can be charged in taxes, and the move is not universally popular. South Carolina Gov. Nikki Haley on Feb. 16 ruled out plans to raise state hospital bed taxes to help cover a Medicaid deficit, according to the Associated Press. Haley said hospitals are “immoral” for backing what she says amounts to passing the buck to consumers.
Regardless of whether the taxes are good policy, critical-access hospital advocates argue that the provider taxes should count as a Medicare cost as they have historically, and say that the CMS is not following proper procedure in raising the issue as part of what it calls a clarification in rulemaking for the inpatient prospective payment system.
“The clarification as it were that CMS came out with last year … is very troubling,” says Brock Slabach, senior vice president for member services at the National Rural Health Association, Kansas City, Mo. “It’s a significant change in policy by the CMS.”
The question arose when the CMS in its proposed inpatient prospective payment rule— published in the May 4, 2010, Federal Register — stated that CMS officials believe taxes paid into Medicaid pools that draw federal matching funds are in part, if not completely, offset by increased Medicaid funding to the sector. For that reason, the taxes are not necessarily a cost for Medicare purposes, and just the net amount between what is paid in taxes and what the hospital is reimbursed for by Medicaid from that pool should be classified as a Medicare cost, the CMS states in its proposed and final inpatient prospective payment rules.
“In situations in which payments that are associated with the assessed tax are made to providers specifically to make the provider whole or partly whole for the tax expenses, Medicare should similarly recognize only the net expense incurred by the provider,” the CMS