The Great Provider Tax Squeeze: What the November CMS Guidance Means for Health Tech Investors

DISCLAIMER: The thoughts and analysis contained in this essay are entirely my own and do not reflect the views, positions, or opinions of my employer, Datavant, or any affiliated entities.

Abstract

On November 14, 2025, CMS released guidance on two critical provisions from the Working Families Tax Cuts Legislation (WFTCL) that fundamentally reshape Medicaid provider tax policy. This essay examines:

- The mechanics of the new indirect hold harmless thresholds under Section 71115, which effectively freeze most state provider taxes at July 4, 2025 levels

- The closure of the “statistical loophole” under Section 71117 that allowed states to shift Medicaid costs disproportionately to federal taxpayers

- Specific implications for managed care organizations, hospitals, nursing facilities, and other provider classes

- Second-order effects on Medicaid managed care rates, provider payment models, and state budget dynamics

- Investment opportunities and risks across digital health verticals including care delivery platforms, revenue cycle management, and healthcare infrastructure

TABLE OF CONTENTS

Background on Provider Taxes and the Hold Harmless Problem

Section 71115: Freezing the Game Board

Section 71117: Closing the MCO Tax Loophole

The Transition Timeline and State Response Dynamics

What This Means for Health Tech Investors

Opportunities in the Wreckage

Conclusion

When most health tech investors think about Medicaid policy changes, they typically focus on eligibility expansions, benefit modifications, or new alternative payment models. Provider taxes occupy this weird corner of healthcare finance that most people outside state budget offices and CMS actuaries never think about, which is exactly why the November fourteenth CMS guidance on the Working Families Tax Cuts Legislation deserves way more attention than it’s getting. This isn’t some arcane technical adjustment that only matters to state Medicaid directors. This is a fundamental restructuring of how roughly thirty to forty billion dollars annually flows through the Medicaid financing system, and it’s going to create both massive headwinds and surprising tailwinds for different categories of health tech companies over the next three to five years.