Proposed Rule on Medicaid Managed Care State Directed Payments

The Centers for Medicare and Medicaid Services (CMS) recently issued a proposed rule aimed at implementing Section 71116, focusing on Medicaid Managed Care State Directed Payments (SDPs) and targeted practitioner payments under Medicaid Fee-For-Service. This initiative imposes limits on reimbursements states can offer providers for specific healthcare services, including those at hospitals, skilled nursing facilities, and academic medical centers.

States are required to submit comments on this proposal by July 21, 2026. If approved by CMS, states can require Medicaid managed care organizations to allocate SDPs to improve care quality, enhance access, or support value-based payment models. Traditionally, these SDPs allowed providers reimbursements at commercial rates, surpassing Medicare or Medicaid rates. Under the new legislation, caps are set at 100% of Medicare rates for expansion states and 110% for non-expansion states. When no Medicare rate is available, a Medicaid-approved rate applies. New agreements must comply immediately, while grandfathered agreements will adjust from January 1, 2028.

The proposed rule outlines details for establishing Medicare payment benchmarks, ensuring regulatory compliance for existing agreements, and prohibiting uniform payment hikes. It clarifies unacceptable practices and stipulates further application of these payment limits to all service reimbursements by January 1, 2029. The National Academy for State Health Policy (NASHP) plans to assist states in interpreting these guidelines, offering additional resources once the rule is finalized.