CMS Issues Additional State Directed Payment Guidance

The Centers for Medicare & Medicaid Services (CMS) released a second dear colleague letter on the state directed payment (SDP) provisions in the Working Families Tax Cut legislation (WFTCL). The letter provides further guidance on the applicable rating period criteria for grandfathered SDPs.

The WFTCL reduces the total payment rate limit for SDPs for inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center. The limit becomes 100% of the Medicare rate in states that expanded Medicaid and 110% of the Medicare rate in nonexpansion states. The legislation also temporarily grandfathers certain SDP payment limits until the rating period beginning on or after Jan.1, 2028.

SDPs are eligible for grandfathering if:

• They have been approved by CMS by May 1, 2025, or the state submitted a completed preprint by July 4, 2025, and
• They have rating periods occurring 180 days before or 180 days after July 4, 2025

In this letter, CMS interprets this to mean 180 business days before or after July 4, 2025. In practice, SDPs that meet the preprint criteria are eligible for grandfathering if their rating periods include any days from:

• Oct. 11, 2024, through July 3, 2025, or
• July 7, 2025, through March 27, 2026.

Contact Director of Policy Robert Nelb, MPH, at [email protected] or 202.585.0127 with questions.