Key Regulations by CMS on Medicaid Following OBBBA
The Centers for Medicare & Medicaid Services (CMS) is gearing up to implement key regulations related to Medicaid, as prompted by the One Big Beautiful Bill Act (OBBBA). By June 1, 2026, an interim final rule concerning Medicaid work requirements is expected, along with new regulations on Medicaid provider taxes and program integrity. Recently, CMS introduced a proposed rule targeting Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments to align with specific OBBBA provisions.
State Directed Payments Redefined
State Directed Payments (SDPs) provide states with the ability to direct managed care organizations regarding specific provider payment rates or methods, such as setting fee schedules or mandating value-based payment arrangements. Historically, states have wielded significant discretion over SDPs. However, the 2024 Medicaid managed care rule under the Biden administration imposed a limitation based on average commercial rates for services. The OBBBA has recalibrated this to a Medicare-based cap: 100% of the Medicare rate in Medicaid expansion states and 110% in non-expansion states, allowing a gradual phase-down for certain existing SDPs starting January 1, 2028.
The proposed rule seeks to enshrine the statutory requirements of OBBBA alongside additional policies. This includes applying Medicare-based payment limits to other SDP arrangements, echoing a memorandum from President Trump in June 2025 that directed CMS to align Medicaid payment rates closely with Medicare. For Medicaid-expanding states post-July 4, 2025, a 100% Medicare rate cap applies from their first rating period post-expansion. Conversely, states retracting expansion face a 110% cap.
New Compliance and Reporting Obligations
This proposed regulation introduces new reporting obligations to ensure compliance using actual paid claims data rather than aggregate SDP expenditure levels. Additionally, it proposes restrictions on enhanced Medicaid payments unless a uniform payment methodology is applied across providers of the same service, preventing cost-shifting and ensuring fiscal responsibility. Non-compliant states would be required to submit amendments by 2029 to adhere to new limits.
CMS aims to prohibit complex uniform increase SDPs unless exempted, effective January 1, 2028. Concerns about states using provider taxes and intergovernmental transfers to support these payments have led CMS to propose maintaining uniform increase SDPs only until the corresponding payment limit is achieved.
Furthermore, CMS suggests modifications to SDPs requiring fee schedules within Medicare-based limits, effective January 1, 2028, without requiring prior approval. This includes minimum and maximum fee schedules provided managed care plans can manage risks and meet contract goals effectively.
Finally, CMS is seeking feedback on potentially defining "provider class" to avoid overly narrow classifications that might align the state's Medicaid share source with provider definitions. Stakeholders have until July 21, 2026, to submit comments, offering ample time to assess the implications for states, providers, and patients.