Hospitals are urging the Trump administration to implement Medicaid provider taxes as outlined in last year’s One Big Beautiful Bill Act “with the least possible disruption,” with calls this week to more closely stick to statute and existing policy in order to limit administrative burden and uncertainty.
The Centers for Medicare and Medicaid Services (CMS) in July shared its proposed rule addressing the process states use to draw healthcare funds from the federal government—namely a matched tax on providers and Medicaid managed care companies that’s later returned to providers. It outlined a multi-year wind-down of thresholds on the revenue being collected via state provider taxes (hold harmless thresholds), including implementation timelines, the sunsetting of alternate calculations for the taxes, new data reporting requirements and other codifications of statutory terms in regulatory text.
CMS in July said the proposed implementation would shave $246 billion of federal government expenditures over the coming decade and “supports the Administration’s priorities to promote financial integrity in the Medicaid program.” Other proposed regulations would restrict how states use revenue generated through provider taxes and limit the types of organizations that can be subject to those taxes.
The hospital industry in 2025 unsuccessfully opposed legislation to reduce its Medicaid funding, and is now imploring the agency to ease its impact by sticking to the status quo where possible.
“As proposed, the rule would reach beyond what the statute requires and would add cost, complexity, and uncertainty for states and providers, and ultimately for the patients and communities our members serve,” the Federation of American Hospitals (FAH), which represents the industry’s for-profits, wrote in a public comment letter submitted this week. “Congress directed that the new indirect hold harmless thresholds be established as 'the Secretary determines,' and we urge CMS to use that flexibility to implement [the legislation] with the least possible disruption.”
The American Hospital Association (AHA), in its comment letter, said its chief concern is the agency’s proposal to require a shift from a prospective, estimate-based approach to monitoring compliance with a retrospective look at collected taxes and net patient revenues.
Such an approach has been in place for decades and would represent a departure from CMS’ longstanding practices, AHA, FAH and America’s Essential Hospitals (AEH) told the agency. In addition to the increased measurement burden, CMS’ plans to announce final thresholds about two years after the updated thresholds are being applied introduce uncertainty and could put states in noncompliance even if they make no changes to their tax rates—then opening the door to the added work of tax collection refunds and recouped payments.
AEH contended that the change wouldn’t bring “any increase in program integrity,” and per AHA “directly contradicts the goal of maintaining stable Medicaid financing for the patients and communities hospitals serve.” FAH added that the legislative text on the topic was “fairly modest” and “did not require an overhaul or provide great detail regarding the calculations and applications of the provisions.”
Elsewhere, the hospital groups’ letters urged the administration to let states align required threshold calculations in line with their own fiscal year rather than the Oct. 1 federal fiscal year, which they said would promote compliance and limit administrative burdens.
In regard to determining states’ initial hold harmless thresholds ahead of the annual reductions, the groups called on CMS to further adjust its proposed definitions of “enacted” and “imposed” in the rulemaking. The agency’s proposed interpretations would in some cases exclude state policy changes that were effectively in the works as of July 4, 2025 and, per the hospital groups, are otherwise unnecessary, confusing or not in accordance with Congress’ plain wishes.
Other suggestions floated by the hospital groups include delaying the Dec. 31, 2026 interim reporting deadline to allow more time for rulemaking and guidance, maintaining an alternative hold harmless calculation called the “75/75 Test,” striking new limits on intergovernmental transfers and further clarify terms and classes.
In regard to CMS' various rulemaking around the One Big Beautiful Bill Act's sweeping policy changes, the hospital industry has also railed against the agency's proposed approach to Medicaid state-directed payments. Though the adjustments as described in statute are set to slash states' Medicaid budgets, the administration is looking to extend the restrictions to a broader array of services in order to save hundreds of additional federal dollars.