Financing Medicaid Payments: Past, Present, and Future After the OBBBA

Catherine Kirkland, Partner, King & Spalding LLP, and Baxter Morgan, Senior Counsel, Husch Blackwell LLP, discuss the landscape of Medicaid financing a year after the passage of the One Big Beautiful Bill Act, now known as the Working Families Tax Cut Act. They cover provider taxes and impending cuts, the hold harmless rule and litigation involving Florida and Texas, and potential alternative sources of Medicaid financing. Catherine and Baxter spoke about this topic at AHLA’s 2026 Institute on Medicare and Medicaid Payment Issues in Baltimore, MD. 

Watch this episode: https://www.youtube.com/watch?v=AbYL51fGuPQ

Learn more about AHLA’s 2026 Institute on Medicare and Medicaid Payment Issues: https://www.americanhealthlaw.org/medicaremedicaid

Learn more about AHLA’s 2026 Medicare and Medicaid eProgram: https://educate.americanhealthlaw.org/local/catalog/view/product.php?productid=1759 

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Transcript

SPEAKER_01 0:04

This episode of AHLA Speaking of Health Law is brought to you by AHLA members and donors like you. For more information, visit americanhealthlaw.org.

SPEAKER_02 0:16

Hello and welcome to the AHLA podcast. My name is Kat Kirkland. I'm a partner at King and Spaulding and was one of the presenters at this year's AHLA Medicare and Medicaid Institute in Baltimore for the 2026 conference. I helped present with my co-presenter who will introduce himself shortly on Medicaid financing. So we talked about the past, present, and future of Medicaid financing.

SPEAKER_00 0:52

Thanks, Cat. Hi, everybody. My name is Baxter Morgan. I'm senior counsel with Hush Blackwell in Austin, Texas, and worked with CAP for a number of years. And both of us have spent a long time in the Medicaid payment and finance space working on these issues. And this is, you know, as as much as being a Medicaid nerd, as much as it sounds like being a Medicaid nerd, this is a very exciting time for Medicaid law in the United States because of the developments through the One Big Beautiful Bill Act and the letters and now rulemaking that started from CMS in this process. So glad to be with you here today, Kat, to talk about the presentation we did back in March and then kind of where these things are now and where they're going.

SPEAKER_02 1:34

Absolutely. I feel like we have had so many updates since we last talked about this, just because there's been more rulemaking, there's been more kind of informal guidance from CMS regarding the programs that are financed by Medicaid, but also provider taxes and implications of the one big beautiful bill. We've had, you know, a flurry of proposed rules in the past week that implicate so much of what we do. So we have a lot of ground to cover and talk about today.

SPEAKER_00 2:09

I guess do you do you want to start maybe with sort of the high level of like how we got here? I mean, I kind of kick off like what I'm thinking and then throw it over to you. Like, you know, the Medicaid is a state and federal partnership. And so the idea is that the federal government is more than willing to put in a majority in most cases of the cost of covering indigent patients' healthcare services in the United States. Um, but they expect states to put in a share as well. And so that non-federal share of each Medicaid payment, demonstrating the expenditure uh by the state or unit of government uh towards treating Medicaid beneficiaries and the other folks in that community, uh, that's a critical part of this. And so when, you know, over the years, this there have been sort of evolving fights over what that means, you know, where can you get these sources of funds? There, but there have been some kind of constant threads throughout that, that it really is a partnership and operating within the boundaries uh that CMS has established over the years, you know, they're more than willing to finance large portions of these services, but they're expecting this to be a true partnership and not uh a mechanism for states to just rely on Medicaid as an extra funding source and draw down funds that the government, the federal government really doesn't think are tied to treating the indigent. And so, you know, the two main ways that we see uh Medicaid payments get financing, well, three really, the biggest one is obviously um general revenue from the state legislatures. But because each state has a balanced budget requirement, um generally states are not able to put in as much money as they might want because you know, healthcare is expensive. And when states are looking at their expenditures either from a fee-for-service basis or on a managed care side, there's just a limit to what they can put in. And so that's where a lot of payments on the supplemental side come in. You know, if it's from the Medicaid dish program, it's from uncompensated care programs, UPL programs, waiver programs, direct-to-payment programs like we see today. Um, all of those require that non-federal share. And so that was what the presentation that Kat and I did in March focused on. There was another presentation and others related to more the payment side. And I think we'll touch on some payment issues, but really we want to talk about these finance mechanisms and what's going on there. Um, Kat, I don't know what you what do you what do you think about that and kind of what are your initial thoughts?

SPEAKER_02 4:25

No, I think that sounds great. Um, so you know, just to build off of what you said, I think what we talked about in Baltimore was really kind of an intro level of here is how that financing works, how that state and federal partnership, each kind of having a buy-in works, um, how the state share is determined based off of the federal match and how that percentage changes from year to year. Um, but I think, you know, today to get into really that nitty-gritty that you're talking about, Baxter, of what are the sources of that state share and how have those, you know, could changed over the years and are being kind of you know directly implicated by changes from the One Big Beautiful Bill and federal rulemaking, um, I think would be a great, a great way to focus our efforts. Because I think, you know, one of the main topics of our conversation in Baltimore were provider taxes. Um and just to level set, you know, provider taxes, typically what we see are taxes on hospitals, usually net patient revenue, it can be assessed by other uh metrics as well. But there has been um historically a 6% cap on provider taxes for lack of a better word, in terms of um if you can tax up to 6% of net patient revenue without having to um meet different federal requirements. I'm probably saying this too elementary, but that provider tax, that percentage assessment on providers has really come under fire by the government.

SPEAKER_00 6:11

The idea is that the, you know, we we have sort of the provider taxes after general revenue is a source of financing. The provider taxes are a huge element. I mean, it was like before OB3 passed, I think it was 49 states were using provider taxes in some way, shape, or form. And Alaska was the one that did not. And I think that was just a logistical issue of Alaska being so big and the way their healthcare system is set up that it's not really, it wasn't really feasible for them to use a provider tax. And also, I think Alaskans are a little tax averse to begin with, since they actually get a payment from their state government rather than paying taxes in most of the time. But uh, so 49 states were using these in a varying degree on different service lines, but really it was the the states and then smaller units of government. So you know, a city, a county, a hospital district were using taxes on be it inpatient hospital services, outpatient, nursing facility services. I think there's a few that relate to managed care organizations and the finance and the funds that run through those. But the the general idea is that the the state or the unit of government was able to assess a tax that could then be used to provide the non-federal share of these supplemental payments. And for a long time, you know, the the push was how do we get providers paid more or at least, you know, at least closer to cost for the services they're providing? Because that does function as an overarching limit on all of these programs, is that if a hospital is participating in the Medicaid Dish program, which is sort of a fundamental program for protecting the indigent, and in some states with a waiver program that, you know, they apply this as well, but there's a limit that you can only get paid from Medicaid what your cost of treating the Medicaid and uninsured patient population is, just as general rules. And still, even with these escalating limits, supplemental payments, most providers were still underpaid because of the low base rates that they treat and because of the huge uninsured patient populations they have. I mean, in Texas, it's something like a quarter of our patients are uninsured. We've got over a million uninsured kids in Texas and just a ton of folks who are, you know, often the neediest both financially and on the medical service side, but lacking the mechanism to get the providers reimbursed for treating them. So CMS and the states work together to sort of get these closer to covering that cost. But it's all, you know, it becomes like a you know, one bucket filling the other and pushing one thing down and getting another. So we we saw increases up to cost on certain payment programs, like in the fee-for-service space. But then starting around 2016, um, states began to be able to use these Medicaid managed care add-on payments in state-directed payment programs that allowed states to pay up to an average commercial rate for the services provided through those managed care relationships, with the idea being that you know, CMS and the states wanted Medicaid managed care to be a competitive product with a regular commercial line and wanted state, you know, you can't discriminate against patients, but if you're not getting paid for treating some folks, you're going to find ways to avoid treating those folks. That's just reality. And so the opportunity to pay these additional rates, which still, you know, weren't getting hospital providers or others up to their cost overall, um, it required that non-federal share. And so states became increasingly reliant on provider taxes. And like Kat said, you know, that that threshold of a 6% standard sort of became a default. We viewed it as a cap, but really what it was was a safe harbor mechanism that said, as long as you're under that, there's a presumption that this is not a hold harmless arrangement. And so, I mean, I think this kind of goes to one of the main limits you see as you're thinking about provider taxes, which is this is going to become even more important as we go forward, that you know, taxes have to be uniform, they have to be broad-based, and they can't constitute a hold harmless arrangement. And so CMS looked at that 6% line as sort of a okay, you know, you're under 6%, you're probably not constant, you're probably not an indirect hold harmless. Because if you think about it, a state would love to tax hospital providers, you know, 20% of revenue, use that to draw down all this money, and then only pay the hospitals a limited portion of it. And so I think the CMS and the policymaking side was look, we need to find a limit that minimizes that risk that says, okay, look, you can tax this, you use this money. Um, and as long as it's, you know, we we can see the line going from provider to state to patient services, you know, that's gonna be okay. But you know, what happened over time was these programs grew and grew and grew. And so when um when CMS and Congress, well, when Congress and the and the administration really were looking at ways to reduce federal expenditures overall, it didn't matter where it came from, um, healthcare expenditures and Medicaid were probably the easiest target. And this sort of funding mechanism of using a tax to finance the non-federal share of these ever-increasing managed care payments just became an easy target for reductions. And so that led to, you know, a bunch of the cuts that we saw. I don't know if Kat wanna throw it over you and see if you want to maybe talk about those cuts and sort of what those limits are and how that's how that's coming in.

SPEAKER_02 11:16

Absolutely. So, you know, when the one big beautiful bill, OB3, as we're both probably going to refer to it, um came out, it adopted massive cuts to provider taxes. And it really depends on if you're an expansion state, which 41 states are, or if you're a non-expansion state, which we've got nine of those left. Um, and so for expansion states, uh, the one big beautiful bill requires if you are at that 6%, you've got to ratchet down to 3.5%. Um, so it reduces taxes. If you're anything over 3.5% of a tax on net patient revenue, you've got to reduce your provider tax. Um and that starts January 1st, 2028, those reductions. And they would decrease that half a percentage until you hit the 3.5%. For non-expansion states, the One Big Beautiful bill essentially froze uh wherever you are, provider taxes. You can still tax up to 6%, but the One Big Beautiful bill essentially said no new taxes. Now, how that's been interpreted, that I think you know is a little different than we discussed in Baltimore, is that CMS has been interpreting that as saying starting with fiscal year 2027. And so we've seen implementation of additional taxes or changes to taxes that have gone through that were not in place by the 1B Beautiful bill. And it's it's given some more runway, right, for maybe taxes or waiver requests that were pending with CMS as of the 1v beautiful bill. Um and those have gone through now. So that that's provided some flexibility. I feel I think we took kind of a harder look at it based off some early CMS guidance when we were in Baltimore. But since then, we CMS has taken a little more of a relaxed point of view with the implementation on the no new taxes and the freeze that's come out since then.

SPEAKER_00 13:31

Yeah, and I think those I think what we're gonna see now that we we finally, you know, we got like dear stakeholder letters over the past few months related to the payments and then the taxes. And now we've seen the first rule published that's really just dealing with the payment side of the OB3 issues. I do think it's funny, Kat, you know, you mentioned the name and the the rule says CMS refers to this as the working families tax cut relief act because I guess they get embarrassed by calling it OB3. Um, it's a it's a beautiful name, it's the biggest, it's the beautiful most beautifulest. I don't know what the problem is. But yeah, I think we're all kind of we we all learned to say shorthand for it, and it's it's gonna be difficult to change, kind of like I still call it Twitter instead of whatever they call it now.

SPEAKER_02 14:14

Right.

SPEAKER_00 14:16

But uh those, you know, those tax limits, it is interesting. I think one of the you know the other aspects is gonna be as you know, it used to be that you would generally just have taxes that were, you know, just all the providers in a class are getting taxed at this rate, with some limited exceptions where you'd go get a waiver. And CMS does allow waivers, but I do think some provide some states are gonna become more reliant on waivers, both from the payment side, from the tax side and the payment side, because if you're trying to, you know, shape the delivery of funds to different communities, you've got to use different tools that are still available. And I think those waivers will probably be one, but I think you're gonna see increased scrutiny on the waivers. I think there was language on that in the the bill, and there was a rule passed before the bill that addressed some of the you know tightening up on waiver requirements. Um, but you know, generally, if you you know want to find a way to make it happen, you can generally make it happen. But I think these rules are gonna make it more challenging. But what that's done is, and I think part of what Kat was alluding to here is that the political machine is starting to come into play where individual providers and individual communities in certain states with perhaps powerful senators or members of the House of Representatives are saying, hey, whoa, what about this? What about this? And I think we're starting to see some whittling on the edges for these. And I think that's really going to be the biggest way that they affect change in these is through the the uh the political process rather than through the comment process. Although I do think you know everybody's working on comments right now for the payment rule, and I think there will ultimately be litigation on that rule and different aspects of it. Um there's a big one where it you know it clearly goes outside of the scope of the uh the statute by expanding these payment reductions to every class of providers rather than just the four original classes of providers, and it also imposes limits on some fee-for-service programs, whereas the bill was really targeted at uh at managed care programs. But you know, regardless, that there's it's it's a it's it really is the sausage making in process, is where we're at now. So I don't know what what do you see on that front?

SPEAKER_02 16:20

Well, you know, I think when we think about these cuts and the implications, one of the things that we talked about in Baltimore that I think states are still grappling with is provider taxes are not only used for supplemental payment programs, but they were often used to finance expansion populations, right? And so not only do we have cuts to provider taxes and reductions to you know state directed payment programs that are often funded by provider taxes, but we're gonna have to see states figuring out how to triage a reduction in provider taxes and how do we apply that? Because some states also use those provider taxes to help backfill other budget deficits, get with you know their health and human services type budget or other budgets. Some states will just use it generally for budget backfill, they'll they'll skim some of that provider tax. And so really it's gonna become a question of how are states gonna start planning and triaging for these cuts. If you are at a state, an expansion state who's at 6%, and you know, we're looking down the barrel of January 1st, 2028 and planning for budgets, I think we're gonna start seeing that impact soon because uh you can't just wake up on January 1st and say, oh shoot, our tax has gone down 5%. How are we gonna backfill this? I think over the next 18 months, we're gonna see a lot of decision making from states. And so, to your point about, you know, uh, the sausage and trying to get the political machine rolling, that needs to be done now. We can't wait because states have to plan to have some sort of budget certainty. And how are we gonna triage it? You know?

SPEAKER_00 18:17

I think something that gets kind of lost in this discussion is a lot of times people, well, it is funny. I think Kat and I have both experiences where people, you know, confuse Medicaid and Medicare. And so we get past that level. But you know, Medicaid, a lot of people view it as it's a program just to treat the poor. Right. Okay, that's fair. Um, Medicaid's also the largest insurance program in the country. It covers more lives than any other program. Medicare, treating the elderly, spends more because of the cost of end-of-life care and other issues, but Medicaid is the largest insurer uh nationwide. And it constitutes a huge portion of the patient volumes at hospitals and for other providers around the country. I mean, half of the births in Texas, most states are at least at that level, are Medicaid births. It is just a constant and substantial portion of the patient volume that that states see that that each state sees in their hospitals, in their physician offices. And you know, dropping this off a cliff, which is effectively what it is, because once once you kind of get to the edge, if you reduce, if you take a trillion dollars out of the healthcare system, which is what OB3 is intended to do over the next decade, through reductions in payment limits, through you know, reductions in the ability of states to support those programs, and reductions in the patients who were covered by Medicaid programs. We just saw a rule regarding the work requirements come out that I think also extended beyond what was initially stated in the in the statute. But if you put this together, it constitutes a trillion dollars coming out of the healthcare system over a decade. It's not like states can it's not like providers can just pick and choose where those cuts hit. You can't, you know, it's not like you know, if you're if you're running a farm and you need to reduce your your fields by 30%, you you know, you just start stop planning less. They have to, you know, there's a there's an issue of scale in healthcare where because of the large amount of services just supported by those Medicaid dollars, if those contract, states have to make decisions about reducing entire service. I'm sorry, providers have to make decisions about reducing entire service lines, reducing, you know, closing facilities. I think that one of the biggest consequences of this bill, if it went fully through, would be the increase in health deserts, where you would effectively see rural providers close more and people would become more reliant on, you know, uh going to urban centers to receive treatment. They'd become more dependent on emergency transport. If they are in a crisis trauma situation out in a rural area and have to get to the city, well, you better have an ambulance. Well, if you can't, if you can't pay the ambulance provider to keep their lights on, they ain't gonna do anybody any good, um, what anybody needs or not. And so I think the the loss is not just to, well, it's just the poor people that are gonna lose. This is a sea change in the delivery of healthcare services in America because it is reducing the ability of providers nationwide to cover not just their medicated and indigent populations, but to maintain a base level of services for everyone. And historically, we had seen um commercial insurance companies kind of overpay a little because they knew that they needed to be supporting certain levels of services in places or else their insureds couldn't get coverage. Well, now the biggest insurer in the country is doing a rollback. And so I don't think it's just, well, we'll just, you know, we'll just see less poor people in the emergency department. If anything, you'll see more. Um, and still, and as long as they maintain Imtala, hospitals are obligated to screen and stabilize those patients regardless of their ability to pay. Um, but I think that's it's not just the poor that are going to suffer under these cuts. OB3 was really a tax cut bill, and that's great. Um, but it's it's an accounting game, and the money doesn't necessarily have to come out of the budget today. But when it does come out, it's really hard to put that genie back in the bottle. Um, and I think you will see. Just a monumental change in the provision of services around the country. That's just my vibe on it on it, Cowder.

SPEAKER_02 22:07

No, I feel exactly the same way. I mean, you know, if you were in Baltimore, Baxter and I both caveated that we are hospital attorneys. So obviously we view everything under the gaze of what is best for a hospital. But I couldn't agree more. You know, what you see in a place like, you know, Alabama is a not an expansion state, is that instead of closing the doors, a hospital will close their emergency department because they cannot afford to operate it, because there could be a volume of Medicaid or uninsured folks coming in. They're required under Imtala to treat these folks as they should be. And so they can't afford to do it because the reimbursement is so poor or non existent that they will, to keep the doors open, to keep being a functioning hospital, have to close their emergency department. And so I if you reduce, you know, supplemental Medicaid payments, you reduce the mechanism that could finance those payments such that programs basically are performative and they don't actually pay out anything because you can't, um, then you really are going to see a race to the bottom.

SPEAKER_00 23:23

There's some a couple of specific disputes that are ongoing in this space that I think Kat and I are both working on that have sort of evolved over the past you know few months. And one of them deals with uh, you know, this issue of states had historically, well, that those restrictions we talked about earlier about you know, you have to be broad-based, uniform, and not constitute a hold harmless.

SPEAKER_02 23:41

Sure.

SPEAKER_00 23:42

CMS's earlier efforts to kind of clamp down on the excessive use of funds in these programs really targeted that hold harmless aspect. If it was from intergovernmental transfer programs, they looked at those, you know, through the lens of is this a provider-related donation? Is it creating a you know an increase in the spend because of violation of the federal restrictions on those aspects? And on the provider tax side, you know, they looked at if there's anything where there's a redistribution program, you know, the CMS began to view that as a hold harmless arrangement. And you know, the way the statute and the rules are written, it seems to imply that the state should be the one driving the train on a hold harmless, which kind of makes sense to me that you know the state is the volume actor that would have an incentive to drive additional revenue through its mechanism so it could draw down those funds, like Kat was talking about for other uses. Um and there were cases throughout the past 20 years of CMS disallowing payments related to these hold harmless mechanisms. But some states eventually got to the point where they looked at these programs as a necessary component of the healthcare system in each community that, you know, be it through an association or just through the providers themselves, they needed to find a way to mitigate the burdens and benefits of treating the indigent population. And so you've had systems develop over the past 10, 15 years of these grant programs essentially that help you know providers that are receiving more than they're paying in taxes, um, support providers that are paying taxes but not receiving much in funds because they're all treating Medicaid patients, or they're treating the indigent, or they're treating uninsured patients. Um it's just that, you know, year to year, day to day, the cash flow may be here or there. Um, and so there were systems that helped communities work together on this. And one of the things that's come up is have been bulletins and rules and now litigation dealing with this issue. And Kat, do you want to kind of talk about where that litigation is at on these issues?

SPEAKER_02 25:40

Sure. Yeah, we have you know two case studies, um, both non-expansion states, Florida and Texas. Um, and both Florida and Texas brought uh lawsuits against CMS about CMS's guidance um bulletins and information they had released about their interpretation of the hold harmless provision. Basically, CMS's position is that the hold harmless um uh requirements would prevent private hospitals from participating in any sort of like grant program that Baxter mentioned or private mitigation arrangement. And we really have you know dueling opinions at this point. So in Florida, the case was eventually brought up to the 11th Circuit, and the 11th Circuit said, you know, we agree with CMS's reading of the hold harmless, that you can't have a hold harmless of any type. And then in Texas, we have a federal district judge opinion saying the opposite, saying that the hold harmless provision only applies to state or local governments. And so if private parties or private hospitals enter into separate, you know, mitigation or grant arrangements, then that is permissible, that the state has no role in that. CNS appealed that decision, it is pending with the Fifth Circuit, it is an active briefing right now. Um and so we'll have to see what the Fifth Circuit says. But the implication of these decisions is huge. Um because that mitigation, that kind of private arrangement between hospitals is really what can kind of stabilize the program and makes provider taxes uh politically feasible for these hospitals because otherwise you can have major, you know, winners and losers under programs. Um, I think, you know, again, obviously Baxter and I have a hot take on this stuff that is more hospital, more hospital specific. But you know, my my kind of view of the case is that you know, CMS's theory is that private hospitals use their Medicaid payments to effectuate a prohibited guarantee via grant or mitigation or whatever you want to call it. Um but incorrectly, in my view, that kind of incorrectly assumes that Medicaid payments retain their character as the government funds, you know, as their earned pay to private hospitals. So essentially CMS is saying any Medicaid dollar that you receive, if you turn around and have a separate private arrangement with another hospital, that's still a Medicaid dollar. Um, and in my view, how how how would you even call that a Medicaid dollar? Is it a commercial dollar? Is it is it money that you earned in a bank? Um, so I think we kind of get into this nitty-gritty of like what is the nature of a dollar and what actually makes you know a whole harmless arrangement, especially if the state or local government isn't involved in it at all. I'll tell you, Baxter, you and I both work regularly in in Texas, and um the state is not involved in these arrangements at all. They don't, they don't, they're I think they're passively aware of them, but they don't administer them. They don't have, if anything, I think they take an active hands-off, you guys do what you want to do. I don't want to know anything about it.

SPEAKER_00 29:35

Um and I have worked with governmental entities in Texas that not only are passively hands-off, they are actively hands-off. Like, look, we can't be involved in any of this. This is outside of our purview, whatever you guys are doing, that's your business, but don't involve us in any way because this isn't what we do. Um, I think I I kind of think I've my big like 30,000-foot view of those two cases in um the Florida and the 11th Circuit, and then in out of Texas and the Fifth Circuit is that the Texas court was basically saying, like, look, here's what the statute and the regulations say. Like, right, I'm reading the words. I think they're doing what the words say.

SPEAKER_02 30:14

Right.

SPEAKER_00 30:15

The Florida side is more like, I mean, it's like those that the old Supreme Court decision about pornography. It's like, I know it when I see it. Right. We know we know what you guys are up to. This is really, but it's not. And I'm like, look, if you want to bar that practice, change the statute, change the rule, make it say whatever you wanted to say. That's fine. Like, I you can do that. We can have an open notice and comment process about that. We can address that in the context of a larger program. But CMS is kind of taking more and more aggressive stands on reducing the availability of these funds and these programs by you know these enforcement actions. And it, you know, it's through OIG audits and it's through all kinds of reviews and all kinds of processes. But at the end of the day, CMS is looking to keep a lid on federal expenditures, which is their role as a steward of the public dollar. Um, I just I just don't think that this type of program where individual providers outside of the involvement of a governmental entity are you know effectively trying to make it work, um that's not driving up the federal spend at all. Because I think somebody's gonna get those dollars, whether it's hospital A or hospital B, the money's coming in. Now, if the state is churning dollars through its programs to pay for highways, I can understand the concern about that. But here, you know, we're just trying to find the most effective way to treat the largest number of people. And I think that's that's been an effective process through these payment mechanisms and through these finance mechanisms. But you know, if you want to change the rule, that's fine. I just don't think that the rule as it's written is is intended to do what they're trying to do right now. And yeah.

SPEAKER_02 31:49

I I agree. I think CMS's interpretation is extremely broad, extremely broad. It's basically, I don't even necessarily know how CMS could police appropriate what it is suggesting. Would it look at any relationship between hospitals in a community and consider any sort of arrangement or joint venture potentially running a foul? Um I it it it is so broad. And I think there's a reason that Congress limited the hold harmless to state and local governments. Whoever is imposing the tax cannot hold hold harmless those. So I I think there's a reason for that because it can be policed, it can be traced. And um and you have private parties who have a variety of business relationships. Um, you know, some of these mitigation agreements, you know, definitely in grants are are trying to make sure there's no winners and losers under programs, but they can also be used for other means. And so I think it I think it ignores the reality of business relationships. And also, you know, I you when you zoom out and you think about the way the government is trying to control the private to private business relationship, it is difficult to point to other areas, I think other industries where that sort of like a collaboration between two private businesses would be policed in the a similar way, um beyond, you know, beyond zooming out and looking at, you know, um mergers and acquisitions and things like that. And so so to me it's it's a it's an interesting take by CMS. And the stakes could not also, you know, again, not be more high in terms of how how these programs work.

SPEAKER_00 33:53

Yeah. And this, I mean, this issue was dealt, was addressed in uh there was a 2024 Medicaid managed care rule that that imposed an attestation requirement on providers, but that was that said we're not doing any of this stuff, but it was written in a way that said, we the provider signing this agree with the interpretation CMS has of the rule, not we're obeying the rule, which obviously they're gonna do anyway because that's the rule. That provision was delayed until 2028. So that's you know, we've got another sort of cliff coming up on addressing that. And I I am curious to see if if this issue, how it is addressed, if at all, in the rulemaking they're gonna have to do for OB3 issues. Um I I don't know. Um because they they you know that they did take the opportunity to kind of expand beyond what the statute said for the payment side. I could see that applying to the the finance side as well, but you know, we're we're still flipping through those pages right now.

SPEAKER_02 34:44

So right, right.

SPEAKER_00 34:48

Um yeah, I guess the only other things, I mean, I I think you know, we were gonna talk about maybe the next the path forward. I mean, I think that, you know, as provider taxes become a more restricted form of payments, I think states and local governments will have to look back to other mechanisms like intergovernmental transfer programs, which, you know, if done appropriately are still completely legal. And they're and this was not something that was addressed through OB3 or through any of these other issues because it really hadn't been that popular since provider taxes became the all the rage. Um, but I do think um, you know, it's interesting that the the statute has a very clear pronouncement that, you know, the secretary shall not restrict and talks about you know transfers and all these, and it really you know gives strength this idea that the CMS wants this collaboration, this collaborative effort, be it you know state, federal, state, local, local, local, you know, provider to provider, I think is part of that. Um, you know, I'll be interested to see kind of where those go, but I do think that there are alternatives if if provider taxes are ultimately curbed, which they they probably will be at some to some extent over time. Um, I don't care if you have thoughts on those issues.

SPEAKER_02 35:59

Yeah, I think I think for sure. I think um hospitals and states will have to work with CMS to find another permissible source of financing if these changes come about. One, if provider taxes are cut as intended under OB3. And two, if these, you know, if CMS prevails in these lawsuits ultimately. I do think, you know, we're gonna have to tread lightly though. Like, you know, as we were discussing earlier, anytime you have a source of state financing for a Medicaid dollar, well, we need to make sure that is a good and compliant source of a Medicaid dollar. You and I both believe that provider taxes are a good source of that Medicaid dollar. Um, but if that is no longer the best source, then let's work with the federal government and let's collaborate and see what is a good source, what would they prefer? Um and how we how can we do that in a compliant way? Um I do. I think that there is, you know, obviously a lot of uncertainty in healthcare right now, but it's also a very exciting time to do what we do as, you know, um Medicaid attorneys because there is opportunity to maybe get creative and collaborate between the state and federal government. I I don't think that, you know, I I know I have mentioned that I think parts of OB3 are dire. I don't think it's anyone's intent to hurt healthcare, right? Like we want everyone can be jointly aligned that we want to improve healthcare in the United States. I know CMS feels that way. I know states feel that way. I'm I'm sure, you know, the president feels that way as well, that we need to, you know, keep healthcare as a top priority in the United States. But how do we do that um within the confines of the law and in a way that you know everyone views as compliant?

SPEAKER_00 37:56

Um Yeah, I mean, I think there was coming into this legislation last year, there was this idea that, oh, this is all just fraud, waste, and abuse, this is money laundering, this is terrible. And there are bad actors in the system and they should be rooted out, prosecuted, disallowed, you know, funds recouped. Um, I agree completely with that, but I do think that there, the vast majority of providers are trying to operate under these rules nationwide and also trying to serve their mission of treating patients and helping improve our communities um through better healthcare options. So, you know, it's it's a tough balance right now, but I do, I do agree it's you know, it's an exciting time for folks like us. We want to thank you all for joining us uh on today's podcast and hope you'll tune into other AHLA podcasting. Um the folks at AHLA are doing a great job of generating content related to a wide variety of new issues that are affecting the healthcare industry. And you know, this is just one small aspect of it. Thank you all for joining us today and uh really appreciate the time. Thanks, Cal.

SPEAKER_02 38:59

Thanks.

SPEAKER_01 39:04

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