The Biden administration wants to crack down on private arrangements among some hospitals to reimburse themselves for taxes that help fund coverage for low-income people. It contends the practice violates federal law.<\/p>\n

Federal regulators say these arrangements \u201cappear designed to\u201d redirect Medicaid dollars away from facilities that treat the poorest patients to those that \u201cprovide fewer, or even no, Medicaid-covered services,\u201d according to a proposed enforcement plan<\/a> released May 3 by the Centers for Medicare & Medicaid Services.<\/p>\n

The practice is typically orchestrated by the lobbying groups that represent hospitals in state capitals \u2014 and is often kept secret. Not even federal regulators know how widespread it is, although programs operate in at least a few states, including California and Missouri. It\u2019s also the subject of a Texas lawsuit that could block the federal government\u2019s proposal.<\/p>\n

\u201cIt does seem like these associations are finding a way to distribute the money in a really weird way,\u201d said Joshua Gordon, the director of health policy for the Committee for a Responsible Federal Budget in Washington, D.C. \u201cBut without the transparency, we don\u2019t exactly know what\u2019s going on.\u201d<\/p>\n

Previous efforts to block these payback arrangements have gone nowhere in the face of opposition from the powerful health care industry and state health officials who fear that clamping down could result in less money for Medicaid, the joint state-federal health insurance program for low-income people. Several Medicaid experts predicted the latest proposal could meet the same fate, or face immediate court challenges if adopted.<\/p>\n

The federal government\u2019s sweeping and contentious proposal would require states to police hospitals, nursing homes, and other health care providers to ensure they made no private agreements to redistribute Medicaid dollars.<\/p>\n

Public and private hospitals argue CMS has no jurisdiction to regulate private transactions and has overstepped its legal authority. Together with state health officials from around the country, they warn the move could strip billions of federal dollars from Medicaid and threaten safety-net coverage for 94 million low-income people<\/a>. Texas alone could lose $6 billion a year, according to Texas Health and Human Services.<\/p>\n

KFF Health News attempted to interview state health leaders and hospital association officials around the country, but they declined to comment or did not respond to repeated calls and emails.<\/p>\n

The federal government\u2019s proposal is part of a broader Medicaid financing package, and it resurrects a long-standing effort by administrations of both parties over the years to rein in Medicaid spending \u2014 which ballooned to $734 billion in 2021.<\/p>\n

In this case, regulators are targeting what are known as provider taxes, which states are increasingly imposing on hospitals, nursing homes, and other health care providers to help states pay for their share of the Medicaid program. The more provider taxes states levy, the more money they can also get in federal funding.<\/p>\n

These taxes are a critical source of revenue that all states except Alaska<\/a> rely on for their Medicaid programs \u2014 and to get federal matching Medicaid dollars. They account for 17% of state Medicaid funding in 2018, according to a 2020 report<\/a> by the Government Accountability Office, which called for more transparency in how the money is collected and spent.<\/p>\n

In California, hospitals have redistributed provider tax funds<\/a> since 2009. Here\u2019s how it works: Hospitals with a significant share of low-income patients get more Medicaid funding back than they pay in the tax, so they donate a small portion of their Medicaid funding to a charity run by the leadership of the California Hospital Association, a statewide lobbying organization. The charity awards grants to the hospitals that treat a smaller share of low-income patients and don\u2019t receive as much funding back as they paid in taxes.<\/p>\n

For instance, Cedars-Sinai in Los Angeles, one of the country\u2019s richest hospitals, paid nearly $172 million in provider taxes in 2022, eclipsing the $151 million it got back in Medicaid dollars. Then, it received nearly $28 million from the hospital association\u2019s charity \u2014 earning about $6.9 million from the program, the hospital\u2019s audited financial statements<\/a> show.<\/p>\n

Meanwhile, faith-based Adventist Health, which serves a larger share of poor people and operates roughly two dozen hospitals in California, Oregon, and Hawaii, paid $148 million in taxes in 2022 and reaped $401 million in Medicaid dollars through the program, according to its independently audited financial statements<\/a>. It then contributed $3 million of that Medicaid money to the charity.<\/p>\n