By Cody Smart
New York is eyeing a move straight out of California’s playbook, considering a Managed Care Organization (MCO) tax that aims to funnel a massive $4 billion in federal funds into its Medicaid budget. But as savvy as it sounds, there’s a big question mark hanging over it—will the feds give it the thumbs up?
Here’s the deal: The state wants to tax MCOs but then give the money right back to them through increased capitation rates. This financial dance will double the money via federal match, all without costing state taxpayers a dime. If you've been in healthcare finance long enough, you've seen this game before. Hospitals have played a cat and mouse game with CMS on various overly-clever Federal match techniques since the 90's (and probably before).
While this plan mirrors California's successful MCO tax tactic, it's not without its potential pitfalls. For one, CMS sent a side letter to California essentially scolding them for bucking the spirit of the law. The recent Medicaid Managed Care Final Rule from CMS may add another layer of complexity. This rule tightens regulations on how states can finance their Medicaid programs, specifically targeting arrangements that might seem like “hold harmless” setups.
Despite the state's creativity, the real crux lies in whether CMS views NY's proposed MCO tax as another clever but questionable maneuver to pull more federal dollars, or as a legitimate fiscal strategy. If it gets the green light, New York could see a significant increase in available Medicaid funds. If not, it could mean a return to the drawing board, and frankly a defeat for Governor Hochul.
So, will New York manage to secure approval for its MCO tax under the watchful eyes of CMS, especially with the new rules potentially in play? The state is betting it can replicate California’s success before any regulatory doors slam shut. It’s a high-stakes move that could either be a game-changer for Medicaid funding in New York or a lesson in regulatory compliance. Either way, stakeholders are holding their breath to see if this fiscal strategy will pay off or fizzle out. The additional dollars would likely benefit NYS hospitals in the form of higher state FFS and MCO reimbursement rates, so here's to hoping...