DHHS Addresses Long-Standing MaineCare Financing Issue

January 18, 2024

The Maine Department of Health and Human Services announced today that it is bringing closure to a long-standing financing issue dating back to 2018 in Maine’s Medicaid program by eliminating a CMS-contested tax on health care providers (MaineCare). This reflects Governor Mills’ commitment to responsible State budgeting and sustainable long-term financing for MaineCare, a program that provides health and long-term service and supports to over 400,000 Maine residents.

Yesterday, the Governor signed a financial order to enable the Department to pay a $28 million disallowance, or penalty, received in December 2023 from the federal Centers for Medicare & Medicaid Services (CMS). This penalty was expected, which was why last year the Governor’s budget requested and the Legislature transferred sufficient funds to make this payment from the MaineCare Stabilization Fund.

This action was supported by the Legislature, which repealed the health components of the Service Provider Tax in the biennial budget. Eliminating this tax effective January 1, 2025 stopped additional accrual of penalties that would have totaled over $100 million to date, and prevented additional annual penalties of about $34 million each subsequent year.

Seven months ago, the Governor’s budget change package proposed the plan to eliminate this CMS-disputed tax that funds MaineCare services. Maine’s Service Provider Tax was created in 2004 and applies to some health providers, among other entities. Some of the revenue supports MaineCare services. Most states (PDF) use at least one provider tax as a financing source for Medicaid.

In a September 2018 letter, CMS raised concerns about the Service Provider Tax’s application to private non-medical institutions (PNMI) and similar home- and community-based providers in Maine. CMS asserted that this health care tax was an impermissible source of the non-federal share of funding that is used to finance Medicaid services.

As Maine sought clarification, in November 2019, the Trump Administration proposed major changes to provider taxes – preventing Maine from developing a path forward, as explained in a spring 2020 report to the Legislature (PDF). Although the federal government withdrew this proposed rule in the fall of 2020, in December 2020, CMS initiated a compliance action on the State of Maine by “deferring” or delaying payment of federal funds associated with the questioned tax effective back to July 1, 2020. Such deferrals, which are the first step toward a penalty or “disallowance,” continued quarterly and totaled $28 million as of April 2022.

The Department engaged with CMS on development of a plan which halted additional deferrals. That plan was enacted in the biennial budget ( PL23, Chapter 412 (PDF) and repeals the Service Provider Tax on health providers and removes all documented add-on amounts associated with the tax that are built into MaineCare reimbursement, effective January 1, 2025. The budget also appropriates $18.9 million in ongoing general funds to MaineCare to replace the lost revenue starting in state fiscal year 2025. Additionally, last year’s change package transferred $6.5 million to the Medicaid Stabilization Fund to plan for the likely disallowance, bringing the total in that Fund to $29 million. The budget was signed into law on July 11, 2023, was effective October 25, 2023, and the CMS disallowance was received on December 6, 2023.

Resolving the longstanding dispute over the Service Provider Tax is consistent with the Mills Administration’s commitment to addressing financing challenges head on rather than unduly prolonging the process and potentially increasing amounts owed. Similar actions were taken to avoid passing along debts to future administrations, working to facilitate re-certification of the Riverview Psychiatric Center and pay the $80 million federal disallowance incurred under the previous administration.