Last week, the Centers for Medicare & Medicaid Services (CMS) issued new guidance with some new detail about how it will implement provisions in H.R. 1 — the budget reconciliation law also known as the One Big Beautiful Bill Act — that restrict states’ use of provider taxes to finance their share of Medicaid costs. The new guidance includes changes to provider taxes.

The guidance includes clarifications on the agency intends to implement HR1’s restrictions on new and increased provider, also known as “health care-related,” taxes.  As a reminder, the legislation prohibits increases to pre-existing health care-related taxes as well as the imposition of new health care-related taxes after it was signed into law on July 4, 2025. In effect, states are limited to provider taxes that are equal to or less than the percent of net patient revenue for taxes that were enacted and imposed as of the date that HR1 was signed into law. Additionally, beginning in Federal Fiscal Year 2028 (which starts on October 1, 2027), there will be a gradual phase-down of the amount that Medicaid expansion states may collect via provider taxes from the current maximum limit of 6% to 3.5% over a five-year period.

The overall summary of the provider tax guidance stipulates that CMS defines “enacted” as whether the authority to tax was provided by the relevant authorizing entity/entities by July 4, 2025, and “imposed” refers to whether the tax was actually implemented as of July 4, 2025. As a result, CMS clarifies that proposals that were pending on July 4 or submitted after that date will not be allowed. CMS will calculate the state-specific allowable tax thresholds based on the most recent approval for the tax, and for which the state is actively collecting revenue.