HHS Win on Medicare Taxes Could Hit Hospitals Harder With Medicaid Cuts


The HHS notched another legal victory in blocking Medicare payments to reimburse providers for state taxes that fund Medicaid payments paid back to the same hospitals (Breckinridge Health, Inc. v. Price, 2017 BL 201609, 6th Cir., No. 16-6269, 6/14/17).

The decision, which is consistent with another federal appeals court ruling, bodes ill for hospitals that may face a reduction in federal Medicaid funding in the future even though they are paying increasing amounts of taxes used by many states to fund Medicaid.

The new ruling, a June 14 decision by the U.S. Court of Appeals for the Sixth Circuit, found that Medicaid disproportionate share hospital (DSH) payments funded at least partially by state taxes on health-care providers act in effect as refunds of the taxes paid by providers receiving the DHS payments. Therefore, the court said, Medicare reasonably deducted any Medicaid DSH payments funded in part by state provider taxes from hospitals who claimed Medicare reimbursement for those taxes as a cost of providing care.

Every state except Alaska had some sort of provider tax in place as of fiscal year 2015, according to a report from the Henry J. Kaiser Family Foundation. Current proposed legislation to repeal and replace the Affordable Care Act includes substantial cuts to federal Medicaid spending, which could lead states to lean more heavily on provider taxes to fund their Medicaid programs.

This is the second federal appeals court win on the issue. A similar ruling in HHS’s favor on the issue was handed down by the Seventh Circuit in 2012.

While the two rulings are only applicable to providers in states within those federal circuits, the agreement between the two federal appeals court decisions suggests that the HHS will have success in offsetting hospitals’ claimed Medicare tax reimbursements with any Medicaid DSH payments funded by those state taxes around the country.

With the court rulings and possible reduction in federal Medicaid funding in the future, hospitals already facing critical financial challenges might increasingly find themselves in the difficult position of paying higher state taxes to fund Medicaid yet receiving less in Medicaid tax cost reimbursements.

Read my full story on the Sixth Circuit’s decision here.

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