MM Curator summary
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[MM Curator Summary]: In which Maine considers stopping a provider tax scam. I have never heard of this happening, and am doubly amazed that CMS actually put it in its sights a few years ago. Wonders never cease!
May 10, 2023
Among other provisions, the Governor’s budget change package proposes to eliminate a disputed tax that funds Medicaid (i.e., MaineCare) services, to limit the State’s liability going forward and clear the path for payment rate reform. This reflects Governor Mills’ commitment to responsible State budgeting and support for MaineCare which provides vital services to residents with health and long-term service and supports needs.
Maine’s Service Provider Tax was created in 2004 and applies to some health providers, among other entities. Some of the revenue supports MaineCare services. According to KFF’s State Health Facts, 48 states had at least one provider tax as a financing source for Medicaid in 2022.
In a September 2018 letter, the federal Centers for Medicare & Medicaid Services (CMS) raised concerns about the Service Provider Tax’s application to private non-medical institutions (PNMI) and similar home- and community-based providers in Maine. CMS asserted that this health care tax was an impermissible source of the non-federal share of funding that is used to finance Medicaid services. CMS relied, in part, on a July 25, 2014 State Health Official letter (PDF), that cautioned states against selectively taxing Medicaid managed care organizations (“MCOs”). However, the affected providers in Maine are not MCOs. Additionally, Maine’s Service Provider Tax is not on the federal government’s list of either prohibited or permitted provider taxes and the Department has argued that it meets the tests set forth for other types of permissible provider taxes.
As Maine sought clarification, in November 2019, the Trump Administration proposed the Medicaid Financial Accountability Regulation (MFAR) that would have made major changes to provider taxes and supplemental payments – preventing Maine from developing a path forward in light of the uncertainty, as explained in a report to the Legislature (PDF). Although the federal government withdrew this proposed rule in the fall of 2020, in December 2020, CMS initiated a compliance action on the State of Maine by “deferring” or delaying payment of federal funds associated with the questioned tax effective back to July 1, 2020. Such deferrals, which are the first step toward a penalty or “disallowance,” continued quarterly and totaled $28.5 million as of April 2022.
The Department appealed the deferrals. If a disallowance is issued, Maine could also appeal it. However, few administrative appeals are successful and the process is lengthy. Without repealing the Service Provider Tax on health providers, the potential disallowance from the federal government could be over $100 million through this fiscal year, with approximately $34 million more each subsequent year.
As such, the change package proposes to repeal the Service Provider Tax on health providers and remove all documented add-on amounts associated with the tax that are built into MaineCare reimbursement, effective January 1, 2025. The change package would use nearly $20 million in ongoing general funds from the updated May 2023 revenue forecast to replace the lost revenue that supports MaineCare services. Additionally, the change package would add a one-time $6.5 million to the Medicaid Stabilization Fund in the event that CMS issues a disallowance for past use of the tax, bringing the total in that Fund to $29 million.
Repealing the health components of the Service Provider Tax would solve a dispute that dates back years. Consistent with facilitating re-certification of the Riverview Psychiatric Center and paying the federal disallowance incurred under the previous administration, Governor Mills is addressing this long-standing issue, not passing it along to future administrations. The change package would improve fiscal responsibility and the financing of MaineCare.
It is also consistent with Maine’s award-winning comprehensive rate reform system. Under PL 2021, Chapter 639, MaineCare is working toward rates that are based on adequate, equitable and data-driven reimbursement; reward quality, cost-effective care; promote accountability for cost and performance; and reduce administrative burden. The providers currently paying this tax have had or are scheduled for a comprehensive review and update of how MaineCare reimburses them. The proposed change takes another step toward rates that meet the reform law’s goals.