(a) In general.—Section 1903(w) of the Social Security Act (42 U.S.C. 1396b(w)) is amended—
(1) in paragraph (3)(E), by inserting after clause (ii)(II) the following new clause:
“(iii) For purposes of clause (ii)(I), a tax is not considered to be generally redistributive if any of the following conditions apply:
“(I) Within a permissible class, the tax rate imposed on any taxpayer or tax rate group (as defined in paragraph (7)(J)) explicitly defined by its relatively lower volume or percentage of Medicaid taxable units (as defined in paragraph (7)(H)) is lower than the tax rate imposed on any other taxpayer or tax rate group explicitly defined by its relatively higher volume or percentage of Medicaid taxable units.
“(II) Within a permissible class, the tax rate imposed on any taxpayer or tax rate group (as so defined) based upon its Medicaid taxable units (as so defined) is higher than the tax rate imposed on any taxpayer or tax rate group based upon its non-Medicaid taxable unit (as defined in paragraph (7)(I)).
“(III) The tax excludes or imposes a lower tax rate on a taxpayer or tax rate group (as so defined) based on or defined by any description that results in the same effect as described in subclause (I) or (II) for a taxpayer or tax rate group. Characteristics that may indicate such type of exclusion include the use of terminology to establish a tax rate group—
“(aa) based on payments or expenditures made under the program under this title without mentioning the term ‘Medicaid’ (or any similar term) to accomplish the same effect as described in subclause (I) or (II); or
“(bb) that closely approximates a taxpayer or tax rate group under the program under this title, to the same effect as described in subclause (I) or (II).”; and
(2) in paragraph (7), by adding at the end the following new subparagraphs:
“(H) The term ‘Medicaid taxable unit’ means a unit that is being taxed within a health care related tax that is applicable to the program under this title. Such term includes a unit that is used as the basis for—
“(i) payment under the program under this title (such as Medicaid bed days);
“(ii) Medicaid revenue;
“(iii) costs associated with the program under this title (such as Medicaid charges, claims, or expenditures); and
“(iv) other units associated with the program under this title, as determined by the Secretary.
“(I) The term ‘non-Medicaid taxable unit’ means a unit that is being taxed within a health care related tax that is not applicable to the program under this title. Such term includes a unit that is used as the basis for—
“(i) payment by non-Medicaid payers (such as non-Medicaid bed days);
“(ii) non-Medicaid revenue;
“(iii) costs that are not associated with the program under this title (such as non-Medicaid charges, non-Medicaid claims, or non-Medicaid expenditures); and
“(iv) other units not associated with the program under this title, as determined by the Secretary.
“(J) The term ‘tax rate group’ means a group of entities contained within a permissible class of a health care related tax that are taxed at the same rate.”.
(b) Non-application to territories.—The amendments made by this section shall only apply with respect to a State that is 1 of the 50 States or the District of Columbia.
(c) Effective date.—The amendments made by this section shall take effect upon the date of enactment of this Act, subject to any applicable transition period determined appropriate by the Secretary of Health and Human Services, not to exceed 3 fiscal years.