SEC. 71114. Sunsetting increased FMAP incentive.
Section 1905(ii)(3) of the Social Security Act (42 U.S.C. 1396d(ii)(3)) is amended—
(1) by striking “which has not” and inserting the following: “which—
“(A) has not”;
(2) in subparagraph (A), as so inserted, by striking the period at the end and inserting “; and”; and
(3) by adding at the end the following new subparagraph:
“(B) begins to expend amounts for all such individuals prior to January 1, 2026.”.
SEC. 71115. Provider taxes.
(a) Change in threshold for hold harmless provision of broad-based health care related taxes.—Section 1903(w)(4) of the Social Security Act (42 U.S.C. 1396b(w)(4)) is amended—
(1) in subparagraph (C)(ii), by inserting “, and for fiscal years beginning on or after October 1, 2026, the applicable percent determined under subparagraph (D) shall be substituted for ‘6 percent’ each place it appears” after “each place it appears”; and
(2) by inserting after subparagraph (C)(ii), the following new subparagraph:
“(D) (i) For purposes of subparagraph (C)(ii), the applicable percent determined under this subparagraph is—
“(I) in the case of a non-expansion State or unit of local government in such State and a class of health care items or services described in section 433.56(a) of title 42, Code of Federal Regulations (as in effect on May 1, 2025)—
“(aa) if, on the date of enactment of this subparagraph, the non-expansion State or unit of local government in such State has enacted a tax and imposes such tax on such class and the Secretary determines that the tax is within the hold harmless threshold as of that date, the applicable percent of net patient revenue attributable to such class that has been so determined; and
“(bb) if, on the date of enactment of this subparagraph, the non-expansion State or unit of local government in such State has not enacted or does not impose a tax with respect to such class, 0 percent; and
“(II) in the case of an expansion State or unit of local government in such State and a class of health care items or services described in section 433.56(a) of title 42, Code of Federal Regulations (as in effect on May 1, 2025), subject to clause (iv)—
“(aa) if, on the date of enactment of this subparagraph, the expansion State or unit of local government in such State has enacted a tax and imposes such tax on such class and the Secretary determines that the tax is within the hold harmless threshold as of that date, the lower of—
“(AA) the applicable percent of net patient revenue attributable to such class that has been so determined; and
“(BB) the applicable percent specified in clause (ii) for the fiscal year; and
“(bb) if, on the date of enactment of this subparagraph, the expansion State or unit of local government in such State has not enacted or does not impose a tax with respect to such class, 0 percent.
“(ii) For purposes of clause (i)(II)(aa)(BB), the applicable percent is—
“(I) for fiscal year 2028, 5.5 percent;
“(II) for fiscal year 2029, 5 percent;
“(III) for fiscal year 2030, 4.5 percent;
“(IV) for fiscal year 2031, 4 percent; and
“(V) for fiscal year 2032 and each subsequent fiscal year, 3.5 percent.
“(iii) For purposes of clause (i):
“(I) EXPANSION STATE.—The term ‘expansion State’ means a State that, beginning on January 1, 2014, or on any date thereafter, elects to provide medical assistance to all individuals described in section 1902(a)(10)(A)(i)(VIII) under the State plan under this title or under a waiver of such plan.
“(II) NON-EXPANSION STATE.—The term ‘non-expansion State’ means a State that is not an expansion State.
“(iv) In the case of a tax of an expansion State or unit of local government in such State in effect on the date of enactment of this clause, that applies to a class of health care items or services that is described in paragraph (3) or (4) of section 433.56(a) of title 42, Code of Federal Regulations (as in effect on May 1, 2025), and for which, on such date of enactment, is within the hold harmless threshold (as determined by the Secretary), the applicable percent of net patient revenue attributable to such class that has been so determined shall apply for a fiscal year instead of the applicable percent specified in clause (ii) for the fiscal year.”.
(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) Implementation funding.—For the purposes of carrying out the provisions of, and the amendments made by, this section, there are appropriated, out of any monies in the Treasury not otherwise appropriated, to the Administrator of the Centers for Medicare & Medicaid Services, $20,000,000 for fiscal year 2026, to remain available until expended.
SEC. 71116. State directed payments.
(a) In general.—Subject to subsection (b), the Secretary of Health and Human Services (in this section referred to as the Secretary) shall revise section 438.6(c)(2)(iii) of title 42, Code of Federal Regulations (or a successor regulation) such that, with respect to a payment described in such section made for a service furnished during a rating period beginning on or after the date of the enactment of this Act, the total payment rate for such service is limited to—
(1) in the case of a State that provides coverage to all individuals described in section 1902(a)(10)(A)(i)(VIII) of the Social Security Act (42 U.S.C. 1396a(a)(10)(A)(i)(VIII)) that is equivalent to minimum essential coverage (as described in section 5000A(f)(1)(A) of the Internal Revenue Code of 1986 and determined in accordance with standards prescribed by the Secretary in regulations) under the State plan (or waiver of such plan) of such State under title XIX of such Act, 100 percent of the specified total published Medicare payment rate (or, in the absence of a specified total published Medicare payment rate, the payment rate under a Medicaid State plan (or under a waiver of such plan)); or
(2) in the case of a State other than a State described in paragraph (1), 110 percent of the specified total published Medicare payment rate (or, in the absence of a specified total published Medicare payment rate, the payment rate under a Medicaid State plan (or under a waiver of such plan)).
(b) Grandfathering certain payments.—In the case of a payment described in section 438.6(c)(2)(iii) of title 42, Code of Federal Regulations (or a successor regulation) for which written prior approval (or a good faith effort to receive such approval, as determined by the Secretary) was made before May 1, 2025, or a payment described in such section for a rural hospital (as defined in subsection (d)(2)) for which written prior approval (or a good faith effort to receive such approval, as determined by the Secretary) was made by the date of enactment of this Act, for the rating period occurring within 180 days of the date of the enactment of this Act, or a payment so described for such rating period for which a completed preprint was submitted to the Secretary prior to the date of enactment of this Act, beginning with the rating period on or after January 1, 2028, the total amount of such payment shall be reduced by 10 percentage points each year until the total payment rate for such service is equal to the rate for such service specified in subsection (a).
(c) Treatment of expansion states.—The revisions described in subsection (a) shall provide that, with respect to a State that begins providing the coverage described in paragraph (1) of such subsection on or after the date of the enactment of this Act, the limitation described in such paragraph shall apply to such State with respect to a payment described in section 438.6(c)(2)(iii) of title 42, Code of Federal Regulations (or a successor regulation) for a service furnished during a rating period beginning on or after the date of enactment of this Act.
(d) Definitions.—In this section:
(1) RATING PERIOD.—The term “rating period” has the meaning given such term in section 438.2 of title 42, Code of Federal Regulations (or a successor regulation).
(2) RURAL HOSPITAL.—The term “rural hospital” means the following:
(A) A subsection (d) hospital (as defined in paragraph (1)(B) of section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d))) that—
(i) is located in a rural area (as defined in paragraph (2)(D) of such section);
(ii) is treated as being located in a rural area pursuant to paragraph (8)(E) of such section; or
(iii) is located in a rural census tract of a metropolitan statistical area (as determined under the most recent modification of the Goldsmith Modification, originally published in the Federal Register on February 27, 1992 (57 Fed. Reg. 6725)).
(B) A critical access hospital (as defined in section 1861(mm)(1) of such Act (42 U.S.C. 1395x(mm)(1))).
(C) A sole community hospital (as defined in section 1886(d)(5)(D)(iii) of such Act (42 U.S.C. 1395ww(d)(5)(D)(iii))).
(D) A Medicare-dependent, small rural hospital (as defined in section 1886(d)(5)(G)(iv) of such Act (42 U.S.C. 1395ww(d)(5)(G)(iv))).
(E) A low-volume hospital (as defined in section 1886(d)(12)(C) of such Act (42 U.S.C. 1395ww(d)(12)(C))).
(F) A rural emergency hospital (as defined in section 1861(kkk)(2) of such Act (42 U.S.C. 1395x(kkk)(2))).
(3) STATE.—The term “State” means 1 of the 50 States or the District of Columbia.
(4) TOTAL PUBLISHED MEDICARE PAYMENT RATE.—The term “total published Medicare payment rate” has the meaning given to such term in section 438.6(a) of title 42, Code of Federal Regulations (or a successor regulation).
(5) WRITTEN PRIOR APPROVAL.—The term “written prior approval” has the meaning given to such term in section 438.6(c)(2)(i) of title 42, Code of Federal Regulations (or a successor regulation).
(e) Funding.—There are appropriated out of any monies in the Treasury not otherwise appropriated $7,000,000 for each of fiscal years 2026 through 2033 for purposes of carrying out this section, to remain available until expended.
SEC. 71117. Requirements regarding waiver of uniform tax requirement for Medicaid provider tax.
(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.
SEC. 71118. Requiring budget neutrality for Medicaid demonstration projects under section 1115.
(a) In general.—Section 1115 of the Social Security Act (42 U.S.C. 1315) is amended by adding at the end the following new subsection:
“(g) Requirement of budget neutrality for Medicaid demonstration projects.—
“(1) IN GENERAL.—Beginning January 1 2027, the Secretary may not approve an application for (or renewal or amendment of) an experimental, pilot, or demonstration project undertaken under subsection (a) to promote the objectives of title XIX in a State (in this subsection referred to as a ‘Medicaid demonstration project’) unless the Chief Actuary for the Centers for Medicare & Medicaid Services certifies that such project, or, in the case of a renewal, the duration of the preceding waiver, is not expected to result in an increase in the amount of Federal expenditures compared to the amount that such expenditures would otherwise be in the absence of such project. For purposes of this subsection, expenditures for the coverage of populations and services that the State could have otherwise provided through its Medicaid State plan or other authority under title XIX, including expenditures that could be made under such authority but for the provision of such services at a different site of service than authorized under such State plan or other authority, shall be considered expenditures in the absence of such a project.
“(2) TREATMENT OF SAVINGS.—In the event that expenditures with respect to a State under a Medicaid demonstration project are, during an approval period for such project, less than the amount of such expenditures that would have otherwise been made in the absence of such project, the Secretary shall specify the methodology to be used with respect to the subsequent approval period for such project for purposes of taking the difference between such expenditures into account.”.
(b) Implementation funding.—For the purposes of carrying out the provisions of, and the amendments made by, this section, there are appropriated, out of any monies in the Treasury not otherwise appropriated, to the Administrator of the Centers for Medicare & Medicaid Services, $5,000,000 for each of fiscal years 2026 and 2027, to remain available until expended.