Related: \u2018Seismic\u2019 Medicaid changes will be rough on rural hospitals<\/a><\/p>\n\u201cWe were trying to fund our way out of a financial mess,\u201d Schindler said.<\/p>\n
The cost of the Medicaid program, known as Medical Assistance in Minnesota, is shared between the state and federal governments. That means the federal government is required to contribute a percentage of the cost of Medicaid. In Minnesota, it averages at about 62%.\u00a0<\/p>\n
Boosting the cost of Medicaid payments to hospitals and other medical providers forces the federal government to pay more for Medicaid services. Under one provider tax scenario, states recoup their part of the cost share by taxing those hospitals and medical providers for the state\u2019s share of the cost.<\/p>\n
Currently, Minnesota implements a 1.56% hospital surcharge that applies to outpatient and inpatient services. Another provider tax, in the amount of 1.8%, applies to both hospitals and a long list of other medical services. That tax funds the MinnesotaCare program, a state health care program for Minnesotans with low incomes, but whose incomes are too high to qualify for Medical Assistance.\u00a0<\/p>\n
The new hospital provider tax, approved by the Legislature earlier this year,\u00a0would raise the total surcharge to hospitals to 5.75%.<\/p>\n
Yet the plan to raise hospital provider taxes ran into trouble when the One Big Beautiful Bill Act banned new provider taxes and capped existing provider taxes at 3.5% for states like Minnesota that expanded Medicaid services under the Affordable Care Act.<\/p>\n
The previous caps on provider taxes for states like Minnesota was 6%.\u00a0<\/p>\n
A\u00a0 \u2018rip off\u2019\u2019 of taxpayers?<\/p>\n
Although permissible by law, some say provider taxes are a way to game the system. The conservative Paragon Health Institute argues that these provider taxes are a taxpayer \u201crip off\u201d that create loopholes and a lack of transparency.\u00a0<\/p>\n
Minnesota was hoping to collect about $800 million annually in taxes from hospitals and use the money \u2014 and the 62% federal match \u2014 to increase the payments hospitals receive from treating Medicaid patients. So the new $800 million hospital tax would raise $1.8 billion in federal reimbursements to hospitals.<\/p>\n
But the plan had not been approved by the Centers for Medicare and Medicaid Services (CMS) by July 4 of this year, when the federal budget bill was signed by President Donald Trump into law, banning new provider taxes and directed payment plans, which are similar ways to leverage federal dollars.<\/p>\n
The Minnesota Department of Health said it advised CMS of its intent to levy the new provider tax on July 3, a day before the deadline.<\/p>\n
The new cap on provider taxes does not go into effect until 2032. But states like Minnesota are required to start bringing them down in 2028.<\/p>\n
The Minnesota Hospital Association hoped the new 5.75% tax could be implemented, both fully or in part, until 2032. But CMS has not given the state a go ahead.\u00a0<\/p>\n
\u201cIf the state is permitted to implement new taxes that were authorized in the 2025 session, those taxes may need to be reduced (starting in 2028) according to the schedule described in federal statute\u201d the Minnesota Department of Health said in a statement.\u00a0<\/p>\n
The Department of Health also said the state \u201chas not yet determined how that process would work because additional guidance is expected from CMS.\u201d<\/p>\n
Schindler said rural hospitals and others with large percentages of Medicaid patients are going to feel the most pain and that Minnesota hospitals may have to curtail services, including eliminating labor and delivery and mental health services.<\/p>\n
Hospitals are also stressed by inflation and escalating labor costs that are rising faster than Medicare and Medicaid reimbursement rates.\u00a0<\/p>\n
The OBBBA established a $50 billion Rural Health Transformation Program to stabilize rural hospitals by providing funding for workforce shortages and infrastructure. But Schindler said the program will provide \u201ca token amount of money\u201d to solve rural hospital woes.<\/p>\n
The only chance Minnesota\u2019s hospitals have to leverage more money from the federal government is for Republicans in Congress to agree to repeal all of the Medicaid-related provisions in the OBBBA, something Democrats want in return for support of a GOP stopgap bill that would reopen the shuttered federal government. But that\u2019s not likely to happen.<\/p>\n
So, for now, Minnesota\u2019s hospitals, and hospitals across the nation, are waiting for CMS to finalize the new regulations on provider taxes mandated by the federal budget bill.\u00a0<\/p>\n
\u201cA lot of people and states don\u2019t know how this is going to work out,\u201d said Alice Burns, associate director of the Kaiser Family Foundation\u2019s program on Medicaid and the Uninsured.<\/p>\n
Coupled with the OBBBA\u2019s Medicaid cuts, which are expected to result in an increase of uninsured patients at hospital emergency departments and other federal cuts to health care, the crackdown on provider taxes are expected to shake the financial stability of many American hospitals.<\/p>\n
\u201cThe effect will be big,\u201d Burns predicted. \u201cBut we don\u2019t know when and where we\u2019ll start to feel them.\u201d<\/p>\n
\u2018Couldn\u2019t take the risk\u2019<\/p>\n
One of the most financially vulnerable hospitals in the state is Hennepin Healthcare in Minneapolis.<\/p>\n
It is considered a safety net hospital that serves many low-income and uninsured patients. About 45% of its patients are covered by Medicaid.<\/p>\n
Yet Hennepin Healthcare decided it would be the only one of the state\u2019s 140 hospitals to not participate in the Minnesota Hospital Association\u2019s new provider tax plan.<\/p>\n
\u201cWe wanted to but couldn\u2019t take the risk,\u201d said Charles Esler, the hospital\u2019s vice president of finance.<\/p>\n
The reason? Hennepin Healthcare already had its own plan, which has been to leverage more Medicaid money from the federal government which has been given the green light by CMS since its inception in 2021.<\/p>\n
Related: Emmer spins Dems\u2019 Medicaid position in casting blame for shutdown<\/a><\/p>\nEsler said the hospital was loath to give up its plan in favor of a new one that might not pass muster with the Trump administration \u2014 especially since the implementation of the OBBBA.<\/p>\n
All of Minnesota\u2019s Medical Assistance patients have managed care plans. That means they get their health care through privately run plans that contract with specific networks of doctors and hospitals to provide services at reduced rates.<\/p>\n
But Hennepin Healthcare pays the state a 1.8% tax every month on its Medical Assistance revenues, money that is boosted by the federal match and is paid in the form of higher premiums to managed care companies. In turn, hospitals receive higher payments from managed care companies for their treatment of Medicaid patients.<\/p>\n
Esler said he hopes Hennepin Healthcare made the right choice in keeping its current plan to increase Medicaid reimbursements. But, since that plan must be approved every year by CMS, he has some doubts.<\/p>\n
\u201cThe one thing that we don\u2019t have is certainty,\u201d Esler said.<\/p>\n
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