CMS proposes changes to state-directed provider payment rates

WASHINGTON – The Centers for Medicare & Medicaid Services (CMS) has published a proposed rule that would cap state-directed provider payment rates at 100% of Medicare payment rates for expansion states and 110% of Medicare payment rates for non-expansion states (or 100% of the Medicaid state plan rate if a comparable Medicare rate is not available).

The rule would also:

• Apply similar limits to certain targeted Medicaid fee-for-service payments, and
• Establish consistent national standards to improve transparency and accountability.

“Medicaid was never meant to be a blank check – it was meant to be a lifeline – and lifelines only work when they're strong, reliable, and built to last,” said CMS Administrator Dr. Mehmet Oz. “Right now, misaligned payment incentives and opaque financing arrangements are driving up costs without delivering better care. This rule restores balance by aligning Medicaid payments with Medicare standards, strengthening accountability, and ensuring taxpayer dollars support patients, not payment schemes. When we hold the line on spending and put patients first, we protect Medicaid for the people who depend on it today and for generations to come.”

If finalized, the “Medicaid Managed Care State Directed Payments (SDP) and Medicaid Fee-For-Service (FFS) Targeted Practitioner Payments Proposed Rule” would generate an estimated $775 billion in total sayings over 10 years, including $510 billion in federal savings.

Here’s how CMS describes SDPs

With the rule, CMS is targeting SDPs, an arrangement where the state directs health plans on how to pay provider reimbursement rather than allowing the plan to negotiate provider payment, the agency says.

“States have often used these arrangements to increase provider payments toward a limited set of providers, typically those capable of providing the non-federal share through provider taxes and intergovernmental transfers,” it says. “Provider taxes are fees charged to entities such as hospitals based on health care services, and an intergovernmental transfer is when a local government entity (like a public hospital) transfers funds to the state to be used as the non-federal share, both of which are used as the state’s portion of Medicaid payments made back to those same providers. Essentially, shifting money from federal coffers to state coffers. By combining these financing tools with excessive payments, states can shift the state’s share of Medicaid financing to federal taxpayers by drawing more federal dollars without equivalent state fund spending; as a result, the federal government’s effective match rate has shifted far higher than specified in federal law.”

• To view a fact sheet, visit: https://www.cms.gov/newsroom/fact-sheets/medicaid-managed-care-state-directed-payments-medicaid-fee-service-targeted-medicaid-practitioner.