CMS Issues Guidance Limiting State-Directed Payments in Medicaid

What's Happening?

The Centers for Medicare & Medicaid Services (CMS) has released new guidance aimed at reforming state-directed payments (SDPs) within Medicaid. This move is part of a broader effort to address fraud, waste, and abuse in healthcare spending. The guidance stipulates that SDPs for hospital care, skilled nursing, and services from qualified practitioners must be capped at 100% of Medicare rates in states that have expanded Medicaid, and 110% in non-expansion states. If Medicare rates are unavailable, payments will be based on state Medicaid rates. The CMS estimates that spending on SDPs will exceed $124.3 billion this year, highlighting their widespread use since only two states utilized them in 2016, compared to 39 states now. The guidance is set to take effect for rating periods after July 4, 2025, with certain payments eligible for grandfathering until January 1, 2028.

Why It's Important?

This guidance is significant as it seeks to curb excessive spending in Medicaid, a critical component of the U.S. healthcare system. By capping payments, CMS aims to ensure that Medicaid funds are used efficiently and sustainably, preserving the program for future generations. The reform is expected to impact hospitals and healthcare providers who rely on SDPs and provider taxes to offset Medicaid underpayments. The hospital industry has expressed concerns, arguing that these payments are essential for covering reimbursement shortfalls. The changes could lead to financial adjustments for states and healthcare providers, potentially affecting service delivery and access to care for Medicaid beneficiaries.

What's Next?

States will need to revise their SDPs to comply with the new guidance, and CMS will review payments to determine eligibility for grandfathering. The healthcare industry, particularly hospitals, may continue to lobby against these changes, emphasizing the need for adequate reimbursement to maintain service levels. The CMS will monitor the implementation of these guidelines and their impact on Medicaid spending and healthcare delivery. Stakeholders, including the Paragon Health Institute, will likely remain active in the policy conversation, advocating for further reforms to ensure Medicaid's sustainability.