As Congress seeks significant long-term spending reductions, with potential Medicaid cuts in the hundreds of billions, the nursing home industry is bracing for a potential blow: the curtailment of state provider taxes. These taxes, which allow states to levy fees on healthcare providers to boost Medicaid spending and subsequently draw down more federal matching funds, are now under scrutiny.
House Energy and Commerce Chair Brett Guthrie (R-KY) has identified provider taxes as a key target for spending cuts, aiming to find $880 billion in savings over a decade to offset tax cut extensions and other Republican priorities. This move has sparked alarm among governors, providers, and patient advocates, who fear the consequences of losing this crucial funding stream.
“In an era where funding is limited, and with Medicaid not covering the actual cost of care, providers are interested in increasing their rates to cover that gap. This is one of the tools that’s used to do that,” stated Martin Allen, senior vice president of reimbursement policy for the American Health Care Association, in an interview with McKnight’s Long-Term Care News. “A cut’s a cut’s, a cut.”
The potential impact is significant. In Pennsylvania, for example, where nursing homes face a 5.6% provider tax, a mere 1% reduction would result in a $190 million annual loss in Medicaid revenue, according to Pennsylvania Health Care Association President and CEO Zach Shamberg. “That will be a hole in the state’s Medicaid budget. And the question is, are you prepared to fill it?” Shamberg asked legislators during a recent statehouse hearing. “We already have an access-to-care crisis across the state. I think you could expect to see more nursing homes take beds off line, more nursing homes close their doors to new potential residents. And I think you’ll see more bankruptcies, more changes of ownership and, ultimately, more closures.”
The Congressional Budget Office (CBO) indicates that eliminating provider taxes entirely could save $612 billion over a decade, a tempting figure for lawmakers seeking substantial cuts. However, such a move would drastically impact states, as provider taxes account for an average of 17% of a state’s share of Medicaid costs, according to Georgetown University’s Center for Children and Families.
“It’s a key part of providing adequate funding for long-term care programs in various states,” noted Ensign during a public presentation, highlighting the program’s 40-year history.
Every state except Alaska utilizes provider taxes, and the potential loss of these funds raises concerns about states’ ability to maintain current Medicaid service levels. Governors, like Joe Lombardo of Nevada, argue that these mechanisms provide crucial flexibility in addressing their states’ unique needs. “Nevada has demonstrated that federal investment in the state’s Medicaid program has improved both health outcomes and productivity, yet challenges remain,” Lombardo wrote in a letter to Congress. “By leveraging federal funding the state has expanded access to school health services, lowered the uninsured rate, and made significant progress in enhancing behavioral health care for both children and adults.”
However, not all nursing home operators are in favor of provider taxes. Lori Strubbe, CEO of Focused Post Acute Care Partners in Texas, where nursing homes are exempt from these taxes, expressed concerns about the potential impact on rural facilities. “Rural Texas skilled nursing communities operate in a highly challenging financial environment given the predominant number of residents are Medicaid beneficiaries — a fact that renders facilities Medicaid dependent,” Stubbe told McKnight’s. “Should a provider tax be imposed on Texas rural markets, that could be the final nail in the coffin when long-term care providers already have one foot in the grave.”
As Congress debates these cuts, the nursing home industry faces an uncertain future, with potential funding reductions threatening access to care and the financial stability of providers nationwide.