CMS has released its proposed rule on Medicaid state-directed payments, significantly tightening limits on the financing practice. Although the initial limits are proposed to apply to care given at a hospital, nursing facility and/or academic medical center, as it was stipulated in the One Big Beautiful Bill Act (H.R.1), CMS’ goal is to extend these caps to all services and states by 2029. Highlights from the proposal include:

• Capping state-directed payments using Medicare rates (100% of rates in expansion states; 110% for non-expansion);
• Phasing-out of grandfathered exceptions, with a glide path to help existing arrangements meet the lower Medicare-based limits;
• Expanding transparency and oversight, including national standards for reporting and monitoring.

The Agency estimates the proposed rule could generate $775 billion in Medicaid savings over a ten-year period, but hospital groups worry it could create access-to-care disruptions. Comments are due to CMS by July 21, 2026.