Increased bed taxes warrant stricter federal oversight

States have been increasingly taxing skilled nursing facilities and other healthcare providers to fund Medicaid in recent years, and federal authorities should look more closely at this trend, a Government Accountability Office analysis determined.

Nursing homes, hospitals and other healthcare organizations paid about $19 billion in so-called “bed taxes” in fiscal year 2012. This figure was about $10 billion in 2008. The federal government is concerned about the cost-shifting effects of these provider taxes. The report states that the taxes are a way for states to avoid drawing on their general funds to support Medicaid.

Medicaid is funded by a combination of federal and state dollars. States use bed tax revenue to boost Medicaid payments to providers, which in turn causes the federal government’s Medicaid contributions to escalate. The idea is that the healthcare providers ultimately come out ahead.

The Centers for Medicare & Medicaid Services (CMS) should collect more robust data to ensure provider taxes are being collected in accordance with the law, the GAO recommended. Oversight should include facility-specific data about the sources of Medicaid funding.

CMS did not concur with the recommendations.