Following the Centers for Medicare and Medicaid Services (CMS) May 15, 2025 release of the Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole Proposed Rule, LeadingAge has reviewed and submitted comments.

The proposal takes a narrower approach than CMS’ efforts in the prior Trump administration’s Medicaid Fiscal Accountability Rule (MFAR) proposed rule to curtail taxes that increase federal Medicaid spending in ways unintended by federal law. With the current proposed rule, CMS cites concerns with specific taxes it has deemed out of compliance based on the taxes failure to comply with the “generally redistributive principle” requirements as codified in the Social Security Act and subsequently released regulations.

CMS uses a number of tools to test state provider tax designs to assess compliance with general redistributions. For taxes to be compliant, they should be broad based- or applying to all providers in a taxed class, uniform in that all providers are paying the same taxable rate, and not exceed a threshold upon which states will ensure providers are reimbursed (hold harmless threshold). States can seek waivers for taxes that would otherwise allow them to exempt some providers; this would be a waiver of the broad-based provision. States can also request CMS to waive uniformity provisions to allow tiered taxation, as we see commonly in nursing home provider taxes. CMS uses statistical tests that assess if taxes utilizing waivers still meet generally redistributive principles by meeting thresholds outlined in existing regulation. Some states were able to structure taxes that passed statistical slope tests (some of CMS’ currently codified tools), but either exempted specific sets of providers or taxed some providers at a significantly lower or higher rate. These structures had the effects of distributing significant portions of the tax burden on the Medicaid program. CMS released this proposed rule with the intention of curbing these practices and better aligning taxes with generally redistributive principles.

Our comments describe the uniquely heavy Medicaid payer mix in nursing homes, as compared to other taxed classes, and explain why we are concerned CMS will be challenged to create standards to assess if taxes are using practices prohibited by the newly proposed rule. Without a path to clear and consistent application of the regulations, we urge CMS to carve nursing home provider taxes out of the new regulatory proposal.

In existing regulation, hospital taxes have a number of exemptions and loop-holes for which a state can carve out specific hospital providers and groups- such as rural or critical access hospitals- from entire tax structures. We urge CMS to consider a way to offer states flexibility to further customize their provider taxes on nursing homes with similar exemptions to those offered for hospitals. It will be difficult to determine how states may want to restructure any nursing home provider taxes, though we believe the increased flexibility could allow for more innovative structures to keep nursing home provider taxes viable for states.

The rule proposes very limited transition periods for taxes CMS has already targeted to be out of compliance. For these taxes, we urge a five year transition to increase states’ opportunities for alternative plans to back fill the revenues these taxes were anticipated to generate.

The language of the proposed rule closely mirrors provisions of the recently enacted budget reconciliation law. It seems CMS and congress were working together closely to ensure their intentions aligned. Because the language in both the proposed regulation and newly enacted law are so similar, we don’t anticipate actions by CMS to retract or delay their objectives with regard to promulgation of this or a similar regulation as final in the coming months.

We will continue to monitor both the rule proposal and guidance corresponding to the recently enacted legislation that could influence these provisions.

Our comments are available here and more information on the provider tax provisions of the recently enacted law are available here.