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Implementing Coverage and Payment Initiatives: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2016 and 2017

Provider Rates and Taxes

Key Section Findings
  • Provider rate changes are often tied to the economy. In FY 2016, more states implemented rate increases (45 states) compared to rate restrictions (38 states). For FY 2017, fewer states adopted rate increases (40 states) than rate restrictions (41 states). States were more likely to increase rates for outpatient hospital, primary care physicians, specialist physicians, dentists, MCOs, and nursing facilities and more likely to restrict rates for inpatient hospitals. A growing number of states are adopting reimbursement policies to reduce potentially preventable readmissions and early elective deliveries.
  • All states except Alaska rely on provider taxes and fees to provide a portion of the non-federal share of the costs of Medicaid. In recent years, states made very few changes to the number of provider taxes but increased the level of provider taxes. Fifteen (15) states increased one or more provider tax rates in FY 2016 and 13 states have made or plan to make increases to one or more provider taxes in FY 2017. Eight of the expansion states (Arkansas, Arizona, Colorado, Illinois, Indiana, Louisiana, New Hampshire, and Ohio) reported plans to use new or increased provider taxes or fees, including premium tax revenues, to fund all or part of the state costs of the ACA Medicaid expansion beginning in January 2017.

Tables 14 through 16 provide complete listings of Medicaid provider rate changes and provider taxes and fees in place in FY 2016 and FY 2017.

Provider Rates

Provider rate changes are often tied to the economy. During economic downturns and budget shortfalls, states often turn to rate restrictions to contain costs, while during periods of recovery and revenue growth, states are more likely to increase rates. This report examines rate changes across major provider categories (hospital inpatient, nursing facilities, MCOs, outpatient hospital, primary care physicians, specialists, and dentists). States were asked to report aggregate changes for each major provider category. In FY 2016, more states implemented rate increases (45 states) compared to rate restrictions (38 states). For FY 2017, the number of states with planned or implemented rate restrictions (41 states) is one greater than the number of states with planned rate increases (40 states). FY 2017 is the first year since FY 2012 with a greater number of states planning or implementing rate restrictions than rate increases (Figure 8).

Figure 8: Provider rate changes implemented in FY 2003 – FY 2016 and Adopted for FY 2017

Figure 8: Provider rate changes implemented in FY 2003 – FY 2016 and Adopted for FY 2017

The number of states with rate increases exceeded the number of states with restrictions in FY 2016 and FY 2017 across all major categories of providers (physicians, MCOs, and nursing facilities) with the exception of rates for inpatient hospital services1 (Figure 9).

Figure 9: Provider Rate Changes Implemented in FY 2016 and Adopted for FY 2017

Figure 9: Provider Rate Changes Implemented in FY 2016 and Adopted for FY 2017

For the purposes of this report, cuts or freezes in rates for inpatient hospitals and nursing facilities are counted as restrictions. Only three states in FY 2016 and five states in FY 2017 had implemented or planned inpatient hospital rate reductions; the vast majority of hospital rate restrictions were freezes in rates. The number of states increasing nursing facility rates dropped in FY 2016 compared to previous years. While four states cut nursing facility rates in FY 2016, only one state indicated a plan to cut nursing facility rates in FY 2017. The other nursing facility rate restrictions are rate freezes.

Capitation payments for Medicaid Managed Care Organizations (MCOs) are generally bolstered by the federal requirement that states pay actuarially sound rates. In FY 2016 and FY 2017, the majority of the 39 states with Medicaid MCOs implemented or planned increases in MCO rates. Four states reported MCO rate cuts in FY 2016, and six states plan to cut MCO rates in FY 2017. Several of these states also reported provider rate reductions in their FFS programs. Three states could not report MCO rate changes for FY 2017 because rate development was not complete. States are increasingly moving to calendar year MCO contracts. The effect of FFS rate restrictions for hospitals, physicians, and nursing facilities rates may have less of a direct impact on providers in states that rely heavily on managed care; however, even states with small FFS programs may use FFS rates as the base for setting MCO rates.

For calendar years 2013 and 2014, the ACA provided funding to increase Medicaid primary care physician (PCP) rates in all states to Medicare rates, with 100 percent federal funding of the rate differential. As a result, recent surveys did not ask about state-initiated Medicaid rates for primary care physicians. This year’s survey included FY 2016 and FY 2017 information about PCPs, specialist physicians, dentists, and outpatient hospital services. Rate increases are more prevalent than rate reductions for FY 2016 through FY 2017 for ambulatory Medicaid providers; however, fewer states adopted rate increases in FY 2017 compared to prior years.

Tables 14 and 15 provide state level details on provider rate changes in FY 2016 and FY 2017.

Potentially Preventable Readmissions

As state Medicaid programs work to improve the quality of health care, increase beneficiary wellness, and reduce costs, one area of focus is a reduction in admissions and readmissions to hospitals that could have been prevented by the provision of appropriate care. States were asked if they had, or planned to implement, an inpatient hospital reimbursement incentive or penalty policy for potentially preventable readmissions in fee-for-service and managed care.

  • Eighteen (18) states indicated that they had such policies in place in FY 2015 and two more states implemented such policies in FY 2016. One state indicated that they have plans to implement in FY 2017 in FFS.
  • Of the 39 states that use MCOs for part or all of their Medicaid delivery system, eight indicated that they had state directed policies in place in FY 2015. Another three states plan to implement such a policy in FY 2017 and one state plans to implement such a policy after FY 2017. Some MCOs may have their own policies related to potentially preventable readmissions.

Some states reported specific policies related to MCO rates. For example, California adjusts MCO capitation rates to account for incidence of potentially preventable admissions compared to a benchmark for all MCOs. Ohio and Washington reported that capitation rates are based on reductions in potentially preventable readmissions similar to the FFS experience. New York indicated that their Value Based Purchasing model will adjust rates to plans who then can adjust rates to providers.

Early Elective Deliveries

States were asked about reimbursement policies designed to reduce the number of early elective deliveries (EEDs). Nineteen (19) states indicated that they had a FFS policy in place in FY 2016 and one additional state plans to adopt such a policy in FY 2017. For example, states may not pay for any delivery prior to 39-weeks gestation that is the result of either a Cesarean section or induction, unless there is a documented medical reason for the early delivery. Other states pay for these services, but at a reduced rate, or include EEDs as a component of their hospital pay for performance metrics.

Twelve (12) states indicated that as of FY 2016 they required MCOs to have similar policies on EEDs. Two additional states will be implementing such policies in FY 2017. Absent a requirement by the state agency, states report that some MCOs have developed their own policies on EEDs or are following state fee-for-service policy. States are also implementing incentive programs that reward physicians for reducing the rate of early elective deliveries. Some MCOs may elect to have policies that are not directed by the state.

Provider Taxes and Fees

States reported a continued and increasing reliance on provider taxes and fees to provide a portion of the non-federal share of Medicaid costs continued or increased in FY 2016 and FY 2017. At the beginning of FY 2003, a total of 21 states had at least one provider tax in place. Over the next decade, a majority of states imposed new taxes or fees and increased existing tax rates and fees to raise revenue to support Medicaid. By FY 2013, all but one state (Alaska) had at least one provider tax or fee in place.2 In FY 2016, 34 states had three or more provider taxes in place (Figure 10).

Figure 10: States with Provider Taxes or Fees in Place in FY 2016

Figure 10: States with Provider Taxes or Fees in Place in FY 2016

The most common provider taxes in place in FY 2016 were taxes on nursing facilities (44 states), followed by taxes on hospitals (40 states) and intermediate care facilities for the intellectually disabled (36 states) (Table 16). Five states in FY 2016 and four states in FY 2017 added new taxes.

  • For FY 2016, five states added new provider taxes. DC has a new hospital tax, Connecticut added a tax on ambulatory surgery centers, and Utah added a tax on ambulance providers. Both California and Pennsylvania implemented new MCO taxes, replacing prior MCO taxes that did not meet new federal guidelines for Medicaid MCO taxes.
  • For FY 2017, four states are adding new taxes. Louisiana and Wyoming are adding hospital taxes, and Louisiana, Michigan, and Vermont are adding taxes on ambulance providers.

Some states reported changes to existing taxes in FY 2016 and FY 2017. In total there were 15 states that increased one or more provider tax rates in FY 2016 and 13 states have made or plan to make increases in one or more provider taxes in FY 2017. Most notable were rate increases for hospital taxes and fees (six states in FY 2016 and seven states in FY 2017) as well as increases to rates for nursing facility taxes and fees (eight states in FY 2016 and six states in FY 2017). Some states also reported reducing tax rates, again mostly for hospitals (four states in FY 2016 and three states in FY 2017) and nursing facility taxes and fees (one state in FY 2016 and two states in FY 2017).

States were asked whether in the future they planned to use increased provider taxes or fees to fund all or part of the costs of the ACA Medicaid expansion that will occur in calendar year 2017 and beyond when the 100 percent federal match rate for expansion costs starts to decline. Eight of the expansion states (Arkansas, Arizona, Colorado, Illinois, Indiana, Louisiana, New Hampshire, and Ohio) responded that part or all of the non-federal share would be funded with new or increased provider taxes or fees, or with insurance premium taxes.

In addition to the “Medicaid provider taxes” included in this report, several states have more general health care taxes that are used to fund their Medicaid programs. For instance, some states have taxes on insurance premiums or health care claims that apply to all payers. California, Michigan, Ohio, and Pennsylvania are examples of states that had taxes on MCOs that were deemed by the states to be non-Medicaid taxes, but were found by CMS to be non-permissible Medicaid provider taxes. As noted above, California and Pennsylvania have replaced their MCO taxes with ones that meet federal guidelines. The Michigan “use tax,” which applies to MCOs among other entities, is not included in the tables in this report and will end on December 31, 2016. (The Ohio MCO tax is also scheduled to sunset, but not until June 30, 2017.)

Table 14: Provider Rate Changes in all 50 States and DC, FY 2016 

States Inpatient Hospital Outpatient Hospital Primary Care Physicians Specialists Dentists Managed Care Organizations Nursing Facilities Total
Rate Change + + + + + + + +
Alabama X X X X X
Alaska X X X
Arizona X X X X X
Arkansas X X X X
California X X X X X X
Colorado X X X X X X
Connecticut X X X X
Delaware X X X X X X X X X
DC X X X X X X X
Florida X X X X X
Georgia X X X X X X X
Hawaii X X  X X X X  X X
Idaho  X X  X  —  —  X  X  X
Illinois X X X X X
Indiana X X X X X
Iowa X X X X
Kansas X X X
Kentucky X X X X
Louisiana X X X X
Maine X X X X
Maryland X X X X X X X X X
Massachusetts X X X X X
Michigan X X X X X
Minnesota X X X X X X X
Mississippi X X X X X X
Missouri X X X X X X X X X
Montana X X X X X X X
Nebraska X X X X X X X
Nevada X X X X X X X
New Hampshire X X X X X
New Jersey X X X X X X
New Mexico X X X X X
New York X X X X X X
North Carolina X X X
North Dakota X X X X X X X X
Ohio X X X X X X X X
Oklahoma X X X X X X X
Oregon X X X X
Pennsylvania X X X X X
Rhode Island X X X X X X
South Carolina X X X X X X
South Dakota X X X X X X X
Tennessee X X X
Texas X X X X X X
Utah X X X X X X X X
Vermont X X X X X
Virginia X X X X X X
Washington X X X X X
West Virginia X X X X
Wisconsin X X X X X
Wyoming X X X X
Totals 20 31 18 6 17 2 15 1 13 1 26 4 32 19 45 38
NOTES: “+” refers to provider rate increases and “-” refers to provider rate restrictions. For the purposes of this report, provider rate restrictions include cuts to rates for physicians, dentists, outpatient hospitals, and managed care organizations as well as both cuts or freezes in rates for inpatient hospitals and nursing facilities.  There are 12 states that did not have Medicaid MCOs in operation in FY 2016; they are denoted as “–” in the MCO column.
SOURCE: Kaiser Commission on Medicaid and the Uninsured Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2016.

Table 15: Provider Rate Changes in all 50 States and DC, FY 2017

States Inpatient Hospital Outpatient Hospital Primary Care Physicians Specialists Dentists Managed Care Organizations Nursing Facilities Total
Rate Change + + + + + + + +
Alabama X X X
Alaska X X X
Arizona X X X X X
Arkansas X X X X
California X X X X X
Colorado X X X X X
Connecticut X X X X
Delaware X X X X X X X X X
DC X X X X X
Florida X X TBD X X X
Georgia X X X X X X X
Hawaii X X X X X X X X
Idaho X X X X X X X
Illinois X TBD X X
Indiana X X X X X
Iowa X X X
Kansas X X X X X X X X X
Kentucky X X X X X X
Louisiana X X X X X X
Maine X X X X
Maryland X X X X X
Massachusetts X X X X X
Michigan X X X X X
Minnesota X X TBD X X X
Mississippi X X X X X X X X
Missouri X X X X X X X X X
Montana X X X X X X X
Nebraska X X X X X X X
Nevada X X X X X
New Hampshire X X X X X
New Jersey X X X X X
New Mexico X X X X X X X X
New York X X X X X
North Carolina X X X
North Dakota X X X X X X
Ohio X X X X X
Oklahoma X X X
Oregon X X X X
Pennsylvania X X X X X
Rhode Island X X X X X
South Carolina X X X X X
South Dakota X X X X X X X
Tennessee X X X
Texas X X X X X
Utah X X X X X X X
Vermont X X X X X
Virginia X X X X X
Washington X X X X X
West Virginia X X X X
Wisconsin X X X X X
Wyoming X X X X X X X
Totals 15 36 14 4 11 6 8 4 9 4 25 6 32 19 40 41
NOTES: “+” refers to provider rate increases and “-” refers to provider rate restrictions. For the purposes of this report, provider rate restrictions include cuts to rates for physicians, dentists, outpatient hospitals, and managed care organizations as well as both cuts or freezes in rates for inpatient hospitals and nursing facilities. Wisconsin is moving to APR-DRGs in January 2017, which could impact inpatient and outpatient rates. There are 12 states that did not have Medicaid MCOs in operation in FY 2017; they are denoted as ‘–‘ in the MCO column.  TBD – At the time of the survey, calendar year 2017 rates had not been determined for MCOs in Florida, Illinois, or Minnesota.  In addition, Illinois only has a budget for the first six months of FY 2017.
SOURCE: Kaiser Commission on Medicaid and the Uninsured Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2016.

Table 16: Provider Taxes in Place in all 50 States and DC, FY 2016 and FY 2017

States Hospitals Intermediate Care Facilities Nursing Facilities Other Any Provider Tax
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
Alabama X X X X X X X X
Alaska
Arizona X X X X X X
Arkansas X X X X X X X X
California X X X X X X X X X X
Colorado X X X X X X X X
Connecticut X X X X X X X X X X
Delaware X X X X
DC X X X X X X X X X X
Florida X X X X X X X X
Georgia X X X X X X
Hawaii X X X X X X
Idaho X X X X X X X X
Illinois X X X X X X X X
Indiana X X X X X X X X
Iowa X X X X X X X X
Kansas X X X X X X
Kentucky X X X X X X X*  X* X X
Louisiana X X X X X X  X* X X
Maine X X X X X X X X X X
Maryland X X X X X X X X X X
Massachusetts X X X X X X X X
Michigan X X X X X X X
Minnesota X X X X X X X X X X
Mississippi X X X X X X X X X X
Missouri X X X X X X X*   X* X X
Montana X X X X X X X X
Nebraska X X X X X X
Nevada X X X X
New Hampshire X X X X X X
New Jersey X X X X X X X* X* X X
New Mexico X*  X* X X
New York X X X X X X X* X* X X
North Carolina X X X X X X X X
North Dakota X X X X
Ohio X X X X X X X X X X
Oklahoma X X X X X X X X
Oregon X X X X X X
Pennsylvania X X X X X X X* X* X X
Rhode Island X X X X X X X X
South Carolina X X X X X X
South Dakota X X X X
Tennessee X X X X X X X X X X
Texas X X X X X X
Utah X X X X X X X X X X
Vermont X X X X X X X X* X X
Virginia X X X X
Washington X X X X X X X X
West Virginia X X X X X X X* X* X X
Wisconsin X X X X X X X X X X
Wyoming X X X X X
Totals 40 42 36 36 44 44 24 21 50 50
NOTES: This table includes Medicaid provider taxes as reported by states. Some states also have premium or claims taxes that apply to managed care organizations and other insurers. Since this type of tax is not considered a provider tax by CMS, these taxes are not counted as provider taxes in this report. (*) has been used to denote states with multiple “other” provider taxes.
SOURCE: Kaiser Commission on Medicaid and the Uninsured Survey of Medicaid Officials in 50 states and DC conducted by Health Management Associates, October 2016.
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