Taxes on health professionals targeted in Medicaid reform bill

States often use the taxes to generate additional federal Medicaid dollars to avoid cuts or plug budget holes in the program.

By Jennifer Lubell — Posted July 9, 2012

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States no longer would be able to leverage taxes to health care professionals and intergovernmental transfers to boost federal matching funds artificially under a proposal to overhaul Medicaid’s financing.

Rep. Bill Cassidy, MD (R, La.), on June 20 introduced a bill aimed at achieving more accountability and efficiency for Medicaid funding by instituting a formula that caps and more evenly distributes federal Medicaid dollars among the states, while taking steps to improve patient outcomes. “As a practicing physician in a safety-net hospital, I know firsthand that a Medicaid card offers the illusion of access without the power of care. Medicaid is one of the major drivers of America’s debt crisis, yet the financing of the system has not been updated since 1964,” Dr. Cassidy, an associate professor of medicine at Louisiana State University, said in a statement.


Rep. Bill Cassidy, MD (R, La.)

The legislation would save money by separating the Medicaid population into four groups that are deemed more representative of the costs associated with certain patient populations: the elderly, the blind or disabled, children, and adults, according to a summary of the bill. For each of these populations, a per-person capitated payment would be made to the state to address their health care needs.

Quality bonuses would be awarded to top-performing states in each of those categories according to patient outcomes.

Dr. Cassidy also is proposing to reduce the portion of the Medicaid bill that states must pay to the lowest rate required under the federal matching assistance program, or FMAP. Mississippi currently contributes at the lowest rate.

In return for this consideration, states no longer would be able to leverage taxes to health care professionals and intergovernmental transfers to increase the amount of federal funding they receive for Medicaid. Such taxes on doctors, hospitals and others often are paid back in the form of higher pay rates, or they can be used to avoid implementing pay cuts that otherwise might be necessary.

The National Conference of State Legislatures reported in February that in fiscal 2011, “the number of states with some type of Medicaid-related provider taxes has increased to 46 states” plus the District of Columbia.

In the event states no longer were allowed to use taxes to health care professionals for this purpose, “it would certainly limit funds available in the program,” said Stacey Mazer, a senior staff associate with the National Assn. of State Budget Officers.

It’s difficult to predict whether the discontinuation of provider taxes would manifest in reduced health professional pay rates, benefits changes or other events, Mazer said. “It’s certainly a resource that states have been relying on and continuing to rely on. Clearly it’s an area that has been under scrutiny and potentially one that could be affected by deficit reduction plans.”

President Obama has proposed saving money for the federal government by restricting the ability of states to use provider taxes. Obama and congressional Democrats, however, generally have opposed Medicaid block grant proposals or other bills that, like Dr. Cassidy’s, would cap federal contributions to Medicaid.

The American Academy of Family Physicians plans to have its Commission on Governmental Advocacy study Dr. Cassidy’s legislation before issuing a position on it. The legislation was referred to the House Energy and Commerce Committee.

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A new plan to reform Medicaid

Rep. Bill Cassidy, MD (R, La.), has proposed legislation to restructure the financing of Medicaid. Under the bill:

  • Federal per capita Medicaid payments to states would be standardized based on the mean of all states’ current payments for a given service category plus or minus 10%. The adjustment would take place over 10 years.
  • All recoveries from anti-fraud and abuse efforts would be retained by the states.
  • States would retain all savings from delivering Medicaid under projected costs.
  • The state portion of Medicaid funding would be reduced to the lowest required under federal statute.
  • States no longer would be allowed to use taxes on health care professionals or intergovernmental transfers to boost their federal matching dollars.
  • A state option would be established to combine Medicare and Medicaid payments for full-benefit dual eligibles in order to align program incentives and improve outcomes.

Source: Medicaid Accountability and Care Act of 2012 (HR 5979), June 20 (link)

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External links

“Health Care Provider and Industry Taxes/Fees,” National Conference of State Legislatures, February (link)

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