CMS Releases Proposed Rule Limiting State Directed Payments

The Centers for Medicare and Medicaid Services (CMS) posted a proposed rule for public inspection on May 20, 2026, titled Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments (CMS-2449-P), which proposes to codify limitations on state directed payments (SDPs) enacted in section 71116 of HR 1.

If finalized as proposed, the rule would cap certain SDP provider payment rates for four services (inpatient hospital, outpatient hospital, nursing home, and qualified practitioner services at academic medical centers) at 100% of Medicare payment rates for expansion states and 110% of Medicare payment rates for non-expansion states (or 100% of the Medicaid state plan rate if a comparable Medicare rate is not available) and apply similar limits to certain targeted Medicaid fee-for-service payments. Applicable directed payments for which members may be affected include value-based payment incentives, such as shared savings models, pay for performance, and quality improvement programs, among others. CMS notes that the majority of funding spent through SDPs is disproportionately borne upon hospitals, though as a percentage of total SDP spending, nursing facility SDPs doubled from less than 4% to 8% from 2021 to 2024.

More information on SDPs is available from the Medicaid and Chip Payment Access Commission (MACPAC) here. The proposed rule is available here and posted for a 60-day comment period closing on July 21. LeadingAge will complete further analysis and prepare comments on the proposal.