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Lawmakers hear unanimous alarm: HR 1 will sharply constrain provider taxes and directed payments, threatening hospitals and county safety nets
Summary
LAO and DHCS told the committee that HR 1’s new federal rules on proportionality, provider tax revenue limits and directed‑payment caps will reduce future MCO tax and hospital fee revenue streams; hospital groups and counties urged state bridge funding (examples: $500M for public hospitals, $1.9B initial county package) to avert closures and service cuts.
The Subcommittee spent a large portion of the hearing on how HR 1 will reshape Medi‑Cal financing mechanisms that many hospitals and counties rely on.
LAO summarized three federal changes under HR 1 that will reduce state flexibility: tighter proportionality rules (states must generally charge the same on Medicaid and non‑Medicaid services), a lowered cap on revenue from provider taxes, and a reduced cap on directed payments (moving the ceiling toward Medicare rates). "The changes are somewhat complex, but in effect they limit the state's ability to get waivers from proportionality," LAO told the…
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