New rule details cut in Medicaid provider taxes

Federal reductions in allowable provider taxes were detailed in a newly issued proposed rule.

The rule would implement One Big Beautiful Bill Act (OBBBA) reductions in the allowed amount of provider taxes in Medicaid expansion states from 6% to 3.5%.

The $220.3 billion reduction in 10-year Medicaid payments to providers from implementing the provisions would include:

• $163.7 billion less paid by providers in taxes
• $56.6 billion net decrease in Medicaid revenue

Starting in FY28, Medicaid expansion states must lower tax thresholds by 0.5% per year until reaching the new statutory limit of 3.5%.

Comments on the rule are due Sept. 21.

Appeals court implications on federal 340B rebates

An appeals court recently barred rebate programs by drug manufacturers if not approved by the Health Resources and Services Administration (HRSA).

The decision also confirmed that HRSA has the ability to permit rebates, so long as they are approved by the agency.

“So, this decision did not at all limit HRSA's ability to proceed with the rebate pilot program that they are currently in the process of working on,” said Jeff Davis, a partner with the law firm Bass, Berry and Sims.

Following HRSA’s withdrawal of a federal 340B rebate pilot earlier this year — after hospitals challenged it in court — the agency has launched an effort to retry it. That new effort includes a recently concluded information collection request that solicited feedback on the pilot.

Source: Johnson & Johnson, HRSA finds 340B-covered entity purchases have eclipsed $100 billion, July 17, 2026

Biggest SDP recipients raise concerns about implementing rule

Hospitals in the states that receive the most funding from state-directed payments (SDPs) identified the range of impacts from a proposed rule and suggested alternative approaches.

For instance, Kentucky is only the 26th most populous state but its $4.3 billion SDP is tied with two other states as the sixth largest, according to a KFF tracker. Medicaid cuts are especially significant in Kentucky because Medicaid is the second-largest payer for inpatient stays and the third largest for outpatient services, according to the Kentucky Hospital Association (KHA).

“Resource reductions of this magnitude could lead to service losses and hospital closures, which would impact everyone in our community, not just those individuals who are served by the Medicaid program,” said Melanie Landrum, interim CEO of the KHA.

Landrum wrote that SDPs are used to address chronic underpayments in Medicaid by managed care organizations.

Source: KFF, Spending on Medicaid State Directed Payments Before New Limits Take Effect, June 15, 2026

NUMBER TO KNOW

The maximum annual penalty for health plans that fail to meet pricing disclosure rules in advancing legislation, the Patients Deserve Price Tags Act. LEARN MORE

Crucial Dates

REGULATORY

July 31: Deadline for comments on the CMS interim final rule with comment period implementing a new Medicaid work and community engagement requirement

Aug. 31: Deadline for comments on the CMS 2027 proposed rule for the hospital Outpatient Prospective Payment System and ambulatory surgical centers

LEGISLATIVE

July 29: Senate Homeland Security and Governmental Affairs Committee hearing featuring Anthony Fauci, former director of the National Institute of Health's National Institute of Allergy and Infectious Diseases

July 30: Senate Health, Education, Labor and Pensions Committee vote on confirmation of Erica Schwartz to lead the Centers for Disease Control and Prevention and Sean Kaufman as assistant secretary for preparedness and response for HHS