CMS moved to codify Medicaid provider tax limits, hospitals pushed back on the work rule, and large systems kept striking deals.
On July 22, CMS proposed a rule to codify the H.R.1 limits on provider and managed care taxes, the second major Medicaid financing rule of the year after May’s state-directed payment proposal. It would replace the long-standing 6% hold-harmless threshold with state-specific thresholds and, in expansion states, phase down allowable taxes by half a percentage point a year starting in 2028 until they reach 3.5% in 2032. It also creates a new taxable class for health insurer services and adds state reporting requirements. CMS projects $246 billion in savings over 10 years. Comments are due September 21. States that rely heavily on these taxes, including California, Illinois and New York, have the most to lose, and so do the hospitals those taxes help fund.
In July 31 comments, the AHA urged CMS to drop the functional-impairment test it added to the medical frailty exemption, arguing a diagnosis-based process would be simpler and closer to the statute. The association also said CMS set too high a bar for good-faith exemptions, and asked that states be allowed to delay based on implementation efforts through December 31, 2028.
Kaufman Hall’s second-quarter report, released July 13, counted 18 announced hospital transactions, up from 8 a year earlier, with $7.7 billion in transacted revenue. Three were mega-mergers, bringing the year-to-date total to six, already more than in all of 2025. The firm noted that larger independent systems are partnering by choice rather than out of distress. Two July announcements fit that pattern:
The same Kaufman Hall report showed the national margin index slipping to 2.7% in May.
CMS also released the CY2027 OPPS proposed rule on July 2 and the FY2027 IPPS final rule on July 31. Both are covered in separate posts.
Executive takeaway: Finance teams should combine the provider tax and state-directed payment proposals into one multi-year Medicaid revenue forecast and share it with state hospital associations ahead of comment deadlines. Boards weighing partnerships should expect more scale-driven deals and closer antitrust review.
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