Payment Matters: District Court Upholds Offset of Medicaid Revenue Against Amount of Allowable Provider Taxes for Medicare Purposes


Many states assess taxes against hospitals or other providers as a means of funding their Medicaid programs. The revenues generated by the taxes are used, with CMS’s approval, to fund Medicaid payments to various providers, and the federal government participates in these Medicaid payments by paying its share (called federal financial participation). Those providers reimbursed on a reasonable cost basis by Medicare have often claimed those taxes on their Medicare cost reports, and Medicare has been paying its share of those taxes. This practice is consistent with the general rule that taxes assessed against providers are allowable costs under Medicare reasonable cost principles. See Provider Reimbursement Manual§ 2122.

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