Mid-Atlantic Health Law TOPICS

The One Big Beautiful Bill Act (OBBBA) became law on July 4, 2025. This article addresses key provisions of OBBBA that: limit how states fund their share of Medicaid; limit how states may pay Medicaid providers; and limit the activities of Medicaid providers.

This third article addresses key provisions of OBBBA that: limit how states fund their share of Medicaid; limit how states may pay Medicaid providers; and limit the activities of Medicaid providers.

Health Care Provider Taxes

The federal government pays a percentage of each state’s overall Medicaid expenditure of between 50-80%. Many states levy specific taxes on health care providers to pay for the balance.

Prior to OBBBA, there was a safe harbor that allowed states to tax up to 6% of a health care provider’s revenue. Any new health care provider taxes are now prohibited by OBBBA, and OBBBA phases out the safe harbor, by reducing it by 0.5% each year, beginning in 2028, until the safe harbor is reduced to 3.5% in 2032.

Currently, Maryland collects a “quality” assessment against nursing homes on a not-to-exceed 6% basis annually, and requires the Health Services Cost Revenue Commission to add less than 2% to all hospital bills which is funneled to Maryland’s Medicaid Program. Arguably, neither is a prohibited “tax”, but perhaps the cap on the nursing homes may have to be reduced, beginning in 2028, if nursing homes are not exempted from the OBBBA phase-out, which some commentators expect.

CMS also issued a final rule, effective April 3, 2026, that prohibits states from levying a higher tax on Medicaid managed care organizations versus non-Medicaid managed care organizations. While Maryland does tax Medicaid MCOs to help fund Maryland’s Medicaid Program, that rate is not different than the rate Maryland charges other managed care organizations, and, therefore the final rule should not affect Maryland’s managed care organization tax.

Capping Medicaid Payments to Providers

Many health care providers decline to participate in Medicaid because the rates paid by Medicaid are less than the rates paid by Medicare. Accordingly, many states incentivize health care providers to provide care to Medicaid beneficiaries by increasing the compensation paid for Medicaid claims to be equal to or greater than the applicable Medicare payment rates.

OBBBA will soon limit the amounts that can be paid for Medicaid services to 100% of the applicable Medicare fee schedule for states, such as Maryland, that have expanded Medicaid under the Affordable Care Act. For the remaining states that have not expanded their Medicaid programs, their limit is 110% of the Medicare Fee Schedule.

In 2025, Maryland happened to reimburse Medicaid evaluation and management claims at 100.5% of the Medicare Physician Fee Schedule only because the Medicare Fee Schedule was reduced that year. Therefore, Maryland might have to reduce some Medicaid payment percentages by January 1, 2028, depending on subsequent events.

Ban on Payments That Indirectly Fund Abortions

While there is a general prohibition on the use of federal funds to pay directly for abortions, OBBBA also prohibits Medicaid funding for other services if the recipient is a “prohibited entity.”

A prohibited entity is any § 501(c)(3) tax-exempt entity that meets the definition of an “essential community provider” under the Affordable Care Act and also satisfies each of the following criteria: (a) is primarily engaged in providing family planning and reproductive health services, (b) provides abortions (except in cases of rape, incest, or maternal health), and (c) received over $800,000 from Title XIX of the Social Security Act (Medicaid) in 2023.

An ”essential community provider” under the Affordable Care Act broadly includes many providers serving medically underserved areas. However, OBBBA’s ban on federal payments is limited only to those entities primarily engaged in family planning and reproductive health services, which should allow essential care providers, such as an acute care hospital, whose primary purpose is something other than family planning or reproductive health, to continue to provide abortions and receive federal Medicaid funding.

The ban, however, would require large family planning providers that satisfy the definition of a prohibited entity, such as Planned Parenthood, to find funding sources other than Medicaid. Accordingly, attorney generals of 23 states, including Maryland, and the Planned Parenthood Federation of America have filed lawsuits seeking to halt the ban, although many of those lawsuits have been dismissed in 2026.

Christopher P. Dean
410-576-4249 • cdean@gfrlaw.com