Washington, D.C. – The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would significantly reduce state flexibility to pay health care providers that serve Medicaid beneficiaries. States have long used supplemental payments in Fee-For-Service (FFS) Medicaid and state-directed payments (SDPs) in Medicaid managed care to increase provider rates. This helps ensure that Medicaid beneficiaries have sufficient access to covered benefits. CMS’ proposal goes far beyond statutory requirements in the so-called One Big Beautiful Bill Act (OBBBA) and creates a direct threat to Medicaid access and health care infrastructure, particularly in low-income and rural communities.
“State-directed payments and Fee-For-Service payments are longstanding legal payment mechanisms that are already subject to significant federal scrutiny,” said Geraldine Doetzer, Senior Attorney at the National Health Law Program. “If finalized as proposed, these new rules represent a dramatic clampdown on how states can fund their own Medicaid programs, and will place millions of Medicaid beneficiaries at risk of losing access to vital services.”
Under OBBBA (also known as H.R. 1), states that have expanded Medicaid are required to cap SDPs for four specific provider types so that they cannot pay more than 100% of the Medicare rate (110% in non-expansion states). The proposed rule, however, moves well beyond what is required by the law, extending these payment limits to all services under SDPs in all states and U.S. territories.
Additionally, the rule proposes new limits on certain fee-for-service (FFS) Medicaid payments, which were not included in OBBBA at all. Lowering provider payments will reduce access to services in settings ranging from hospitals and nursing facilities to primary care offices and other community-based providers.
The agency claims the current proposal will result in over $500 billion in federal Medicaid cuts in the next ten years, over three times what Congress estimated for OBBA’s SDP cuts, illustrating the significant expansion of this proposal.
