Skilled Nursing Operators See Disaster Ahead As CMS Takes Aim at Medicaid-Boosting Provider Taxes

The federal government has proposed a rule governing the use of Medicaid supplemental payments for nursing homes that could have drastic effects on the reimbursement they receive. But the ripples of the rule don’t stop there.

They could also overhaul the taxes that providers pay in several states — taxes that in turn contribute to various payment-boosting programs used to supplement Medicaid rates for skilled nursing facilities.

The Medicaid Fiscal Accountability Regulation (MFAR), which was announced by the Centers for Medicare & Medicaid Services (CMS) in November 2019, would overhaul federal supplemental payment programs for a range of health care providers in order to “ensure that Medicaid spending is directed toward high-value services that benefit patient needs,” according to administrator Seema Verma’s remarks in the announcement of the rule.


The rule would change several different aspects of the supplemental payment program, setting new timelines for the approval of such payments, establishing definitions of several key terms, and laying down new parameters about the funds that states can use to receive federal matches for Medicaid.

The impact of the new funding parameters is particularly significant. Many states make use of a funding mechanism called an intergovernmental transfer (IGT), which converts local, publicly controlled funds into state funds for the state’s share of Medicaid funding, which is matched in some proportion by the federal government.

If MFAR takes effect, many of those funds would become ineligible for the IGT — unless they’re generated by taxes, which multiple SNF stakeholders said could have dramatic financial fallout for nursing homes.


“It would result in closures,” Eddie Parades, senior vice president of Lewisville, Texas-based StoneGate Senior Living, told Skilled Nursing News.

But even if a state doesn’t use IGTs for Medicaid, they could still get hit by the mandates in MFAR if it takes effect. The rule would lay specific boundaries for the implementation of provider assessments, or taxes that providers pay that are then used to draw matching federal Medicaid dollars.

Specifically, the rule would make revisions to health-care related taxes by requiring that the assessments “not impose undue burden on health care items or services paid for by Medicaid or on providers of such items and services that are reimbursed by Medicaid.”

The fiscal impact that the rule would have on state Medicaid programs remains unclear; CMS itself acknowledged that this “is unknown” in the rule’s “Effects on the Medicaid Program” portion of MFAR.

To Brendan Flinn, director of LeadingAge’s public policy and advocacy team, this is concerning, to say the least, even though the rule does have some estimates for physician payments.

“CMS does not conjecture out or make any estimates for what the impact would be for other types of providers, including nursing facilities,” he told SNN. “And that’s troubling, because these are really significant policy changes, particularly for these states where there are tax exemptions and half-discounts that could be jeopardized as a result of this proposed rule.”

LeadingAge is an association that represent non-profit senior living and care providers, including SNFs and continuing care retirement communities (CCRCs). And the tax provisions for the latter setting could be altered as a result of the proposed rule.

Under MFAR, the government would specifically take aim at states that treat separate group of taxpayers differently, declaring the taxes to be “unduly burdensome” if:

  • Any of the taxpayer groups defined by Medicaid activity level are excluded or taxed at a lower rate than other taxpayer groups defined by relatively higher levels of Medicaid activity
  • The tax rate imposed on any Medicaid activity is higher than the tax rate imposed on any non-Medicaid activity, within each taxpayer group.
  • The tax excludes or imposes a lower tax rate on a taxpayer group with no Medicaid activity than on any other taxpayer group (with some exceptions).

While much of MFAR’s most drastic effects will be seen in states that make use of IGTs to fund the state share of their Medicaid funds, the provider assessment changes could make an impact that is “quite significant,” American Health Care Association president and CEO Mark Parkinson told SNN in a recent interview.

“CMS is putting some parameters around how provider assessments can be implemented that, if the rule was finalized in its current form, would make the provider assessment in about half the states invalid,” he said. “Now, that’s not as bad as it might sound, because in a number of those states, we would be able to go into the state and make the provider assessment compliant with the CMS rule. But there’s about 10 or 12 states where getting into compliance would be really, really hard.”

Even though the rule is still in the proposed stages, it’s already drawn hundreds of comment letters — with just a few days until the February 1 comment deadline.

The hope is that CMS will take a step back, but that decision isn’t up to providers.

“This is what they want to do,” Jeffrey Davis, chairman and president of the lender Cambridge Realty Capital Companies, noted. “It’s going to be hard to tell them not to do it.”

Millions in taxes affected

According to the Medicaid and Children’s Health Insurance Program (CHIP) Payment and Access Commission (MACPAC), 45 states use at least one tax for their nursing facilities as a source of funding for state Medicaid programs.

In Indiana, where approximately $1 billion in supplemental payments could be on the chopping block, the tax issue also raises questions for providers in that state, according to Indiana Health Care Association president Zach Cattell.

“Remember, too, that this rule impacts health care-related taxes that are based on waivers, and Indiana’s nursing facility quality assessment fee is also impacted and in jeopardy,” he wrote in response to e-mailed questions from SNN. “That health care related tax generates $488M in total dollars, 70% of which is used for nursing facility base rates.”

If MFAR takes effect, it could hammer facilities in Maryland that care for some of the most vulnerable older adults in that state, Joseph DeMattos, president and CEO of the Health Facilities Association of Maryland (HFAM), told SNN. HFAM is the local affiliate of the American Health Care Association, which represents SNFs and assisted living facilities across the U.S.

That state has a provider assessment for skilled nursing and rehabilitation centers, he explained. And based on the structure of that tax, it could be out of compliance with MFAR.

“In Maryland, we structured the provider assessment system so it benefited disproportionately the top five Medicaid providers of long-term care,” he said. “When we did our provider assessment, as a way to encourage that type of participation in being a public safety net, they pay a lower provider tax than do the rest of the 230 providers in Maryland.”

In addition, Maryland exempts skilled nursing and rehab beds in CCRCs from the provider tax, since those communities don’t obtain their beds under the standard SNF licensure process. The state also exempts SNFs with small numbers of beds — such as facilities with 40 beds or fewer – from the provider assessment, DeMattos said.

All those exemptions are legitimate under the current system. But because CMS is looking to see if states are creating an undue burden on the federal budget, “those systems might not be kosher under the new rule,” DeMattos told SNN.

On January 13, LeadingAge and the National Continuing Care Residents Association released a letter aimed at senators and congressmen from states where the current rules for taxation, or the current assessment exemptions, would be out of compliance with MFAR. According to that letter, 18 states with nursing home provider assessments exempt CCRCs, while five states with SNF provider assessments give CCRCs a discount.

But under MFAR, those exemptions for CCRCs might come to an end.

“The way that the provider tax proposed language is written, it appears that it would be very difficult — if not impossible — for states that made the decision that it was in their best interest to provide those exclusions or provide those exemptions,” Flinn told SNN. “They would not be able to maintain that if the rule were to be finalized as written. That could have really have serious implications for CCRCs and their ability over time to offer nursing home care.”

Indeed, many CCRCs have already made the decision to cut SNF care from their continuum in the face of dwindling reimbursements. In Wisconsin, one CCRC had to end long-term nursing home services at three of its four communities to try to survive; it had lost a total of $5 million to $7 million a year for several years caring for long-term residents covered by Medicaid.

Overall financial hit remains murky

What CMS is trying to do is understandable, DeMattos told SNN. It’s essentially looking at three payment regimes — provider assessments, IGTs and the effects of upper payment limits — to see if states are boosting the federal government’s bill unnecessarily.

But given the programs in Maryland, which DeMattos would argue are good public policies, the benefits of the system far outweigh the burden.

“In looking at our system, which we’ve been reviewing for years now, we think that potentially the undue burden to the federal government relative to Maryland is something in the range of 20 or 30 cents a Medicaid day,” he told SNN.

Caring for those vulnerable Maryland patients in the hospital would cost Medicaid much more, DeMattos added, raising the question of whether the changes necessary would be worth the 20 to 30 cents per day in Medicaid savings.

“Today in Maryland, the provider assessment provides $19 of the [Medicaid] rate,” he said. “That’s what’s at risk. And that’s significant. That’s 7% of the rate.”

In MFAR, CMS noted that the fiscal effect on the Medicaid program is “unknown,” but argued that the rule would not notably affect small businesses and providers.

“This rule establishes requirements that are solely the responsibility of state Medicaid agencies, which are not small entities,” the agency said in MFAR. “Therefore, the Secretary certifies this proposed rule would not, if promulgated, have a significant economic impact on a substantial number of small entities.”

Flinn disagrees with that assessment, telling SNN that it “is simply inaccurate.” For one thing, the state Medicaid agencies, though they would be responsible for carrying out the rule, are not the only ones affected by it.

“The [U.S. Small Business Administration’s] small business size standard is measured by average annual receipts,” he noted. “For CCRCs, the small business size standard is $30 million in that average annual receipts. And some of the research and data that LeadingAge has that average for CCRCs across the country at $12.2 million.”

Flinn, DeMattos, and Parkinson are all hoping that CMS will reconsider the rule; Flinn and Parkinson particularly zeroed in on the issue of time, with both provider advocates arguing that states and providers need a minimum of three years to adjust to any changes.

CMS did provide some estimate of the financial effects of the rule, but noted that there are ways the impact could be mitigated or offset.

“The estimated impact of this proposed provision is a reduction in payments of $222 million in total computable Medicaid reimbursement,” the rule reads. “However, this potential decrease in Medicaid reimbursements could be mitigated if states take action to increase Medicaid provider base payments, which would thereby increase the amount that could be paid out in Medicaid practitioner supplemental payments. Depending on state action in response to this provision, we estimate that the impact on Medicaid reimbursements could range from $0 to $222 million.”

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