CMS released updated guidance Feb. 2 on Medicaid state-directed payment caps, clarifying which programs qualify for temporary protection and signaling that additional service categories may face similar limits.
State-directed payments for inpatient and outpatient hospital services, nursing facilities, and qualified practitioners at academic medical centers have been capped at 100% of Medicare rates in expansion states and 110% in non-expansion states for rating periods beginning on or after July 4, 2025, under the One Big Beautiful Bill Act. Most existing programs qualify for a grandfathering period through January 1, 2028, followed by phased reductions.
The updated guidance clarifies how CMS will determine grandfathering eligibility. The agency now interprets the 180-day window around July 4, 2025, using business days rather than calendar days, a change that slightly expands the pool of programs that may qualify for protection. However, grandfathered payments are frozen at their approved amounts and cannot increase under any revision, amendment, or renewal.
CMS also said it is preparing a proposed rule and is “considering changes to the total payment rate limit for SDPs for other services beyond the four services mandated” by the statute.
State-directed payment spending exceeded $97.8 billion in federal fiscal year 2024 and was projected to reach $144.6 billion by FFY 2026, according to CMS. Hospital groups have warned that scaling back the payments could destabilize safety-net providers.
At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. Apply for complimentary registration now.