Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments Proposed Rule (CMS-2449-P)
The Centers for Medicare & Medicaid Services (CMS) believes that Medicaid recipients in both managed care and fee-for-service (FFS) delivery systems deserve access to quality care in a system free from fraud, waste, and abuse. On June 6, 2025, President Trump signed a Presidential Memorandum titled “Eliminating Waste, Fraud, and Abuse in Medicaid.” This memorandum directed the Secretary of Health and Human Services to eliminate fraud, waste, and abuse in Medicaid, including by ensuring Medicaid payment rates are not higher than Medicare, to the extent permitted by applicable law. The memorandum noted the Administration’s concerns that state directed payment (SDPs) have grown substantially in recent years, and that this trajectory threatens the federal Treasury and Medicaid’s long-term stability.
On July 4, 2025, the Working Families Tax Cut (WFTC) legislation (Public Law 119-21) was enacted (). Section 71116(a) of the WFTC legislation directed the Secretary to revise 42 CFR 438.6(c)(2)(iii) to limit the total payment rate for certain SDPs. Section 71116 also included a provision temporarily grandfathering eligible SDPs.
On May 20, 2026, CMS published a Notice of Proposed Rulemaking (NPRM) to address the directives contained in the memorandum and section 71116. The NPRM proposes extending the payment rate limit to all SDPs and certain targeted FFS payments for alignment across delivery systems. CMS is also proposing several additional SDP regulatory changes to ensure compliance with the new payment limit.
The proposed rule supports the Administration’s priorities to promote financial integrity and operational efficiency in the Medicaid program by being efficient stewards of taxpayer funds and ensuring that there is transparency with respect to how taxpayer dollars are being used.
The proposed rule includes proposed regulatory revisions in the following high-level areas:
| Topic: | Proposal in the Proposed Rule: |
|---|---|
| State Directed Payments | In alignment with section 71116 of the WFTC legislation, for rating periods beginning on or after July 4, 2025, this rule proposes to reduce the payment rate limit for certain SDPs with inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center to 100% of the total published Medicare payment rate for an expansion state, or 110% of the total published Medicare payment rate for a non-expansion state for all states and the District of Columbia. In the absence of a total published Medicare payment rate for the Medicaid covered service, the payment limit would be 100% of the state plan approved rate. The payment rate limit would be assessed at the individual claim or service level. The total published Medicare payment rate and state plan approved rate are tied to a Federal standard. The law does not permit any exceptions to the payment limit unless the SDP qualifies for the temporary grandfathering period. |
| Proposes to extend the payment rate limit under the law to all SDPs for all services in all states, the District of Columbia, and territories for rating periods beginning on or after January 1, 2029. | |
| In alignment with section 71116 of WFTC legislation, this rule proposes that SDPs meeting certain criteria would be eligible for a temporary grandfathering period. | |
| In alignment with section 71116 of WFTC legislation, this rule proposes that the total dollar amount of a grandfathered SDP must be phased down by 10 percentage points annually beginning with the first rating period on or after January 1, 2028, until the payment rate limit is reached. | |
| Proposes to eliminate uniform increase SDPs as a permissible type of SDP for rating periods beginning on or after January 1, 2028, with a limited exception for grandfathered SDPs. | |
| Proposes to permit states to adopt minimum or maximum fee schedules that are no greater than the applicable payment rate limit without CMS prior approval for rating periods beginning on or after January 1, 2028. | |
| Clarifies payment arrangements that are considered impermissible practices or grey area payments. | |
| Requests comment and additional information to inform future rulemaking efforts on SDP provider class definitions. | |
| Targeted Medicaid Practitioner Payments in FFS | Proposes to establish a limit for targeted Medicaid payments equal to 100% of the total published Medicare payment rate for an expansion state, or 110% of the total published Medicare payment rate for a non-expansion state. This limit would apply for all payments for services not subject to an existing limit (for example, an inpatient hospital services upper payment limit). |
| Proposes that states with approved state plan payments that exceed the proposed limits would be required to submit a state plan amendment to remove these payments or update them to comply no later than the first State fiscal year that begins on or after January 1, 2029. The new limit would otherwise apply to new payment proposals after the effective date of a final rule. |
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