The Centers for Medicare and Medicaid Services (CMS) recently published a proposed rule, “Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments”, that could significantly reshape how states finance Medicaid payments to nursing facilities and other long term and post-acute care (LTPAC) providers. What This Rule Does and Where It Comes From
Section 71116 of “The One Big Beautiful Bill Act” (OBBBA) directs HHS to cap Medicaid managed care state-directed payments (SDPs) for certain services, including nursing facility services, at 100% of the published Medicare payment rate in Medicaid expansion states and 110% in non-expansion states. This standard replaces the Average Commercial Rate benchmark established in 2024, which often permitted higher reimbursement across various Medicaid provider classes.
Additionally, CMS is proposing the following:
- Extend these payment limits to all SDPs, not just those that require written prior CMS approval under the statute;
- Apply the new limits to prepaid inpatient and ambulatory health plans , in addition to MCOs;
- Expand SDP payment limits to the U.S. territories; and
- Establish a parallel payment ceiling for targeted Medicaid practitioner and provider payments in fee-for-service (FFS)
Together, CMS projects these changes would generate up to $775 billion in total savings over ten years.
All SDPs and covered FFS targeted payments must comply with the new limits beginning January 1, 2029. Existing qualifying SDPs may be temporarily grandfathered, but eligibility criteria are narrow. Grandfathered SDPs face a 10-percentage point annual phase-down beginning January 1, 2028, and states must begin submitting annual documentation establishing a compliance baseline beginning January 1, 2027.
Why This Matters
SDPs have been a vital mechanism for states to deliver Medicaid payments that more accurately reflect the cost of caring for residents. The combination of a lower payment benchmark, a narrowing of grandfathering protections, and the expansion of restrictions beyond OBBBA’s original scope could impact adequate staffing, access, and quality of care, as well as the ability to sustain the specialized services and skilled workforce that high-acuity Medicaid residents require.
Next Steps
The degree to which individual states and their provider communities are affected by these changes will depend on the structure and scope of existing SDP arrangements. We continue to analyze the impact this will have on providers and the delivery of long term and post-acute care. Please contact AHCA/NCAL Director of Medicaid Policy Grant Beebe with questions.