Basics

Provider taxes are health care-related fees, assessments, or other mandatory payments that U.S. states place on health care providers to help finance the state’s share of Medicaid expenditures. Nearly every state uses at least one provider tax to help finance Medicaid. Provider Taxes are defined in federal statute and regulations as taxes for which at least 85% of the tax burden falls on health care items, services, or entities that provide or pay for health care items or services, such as hospitals or managed care organizations. Provider taxes may be imposed as a percentage of provider revenues or using an alternative formula, such as a flat tax on facility beds or inpatient days. Generally, states use provider tax revenues to fund Medicaid, including Medicaid base rates and supplemental payments, and to finance eligibility expansions (i.e., Medicaid expansion).