CMS Publishes Rules That Will Reduce Medicaid Payments

Last summer, Congressional Republicans rallied to pass the One Big Beautiful Bill Act (OBBBA), which funded the Trump administration’s agenda largely through cuts and alterations to the Medicaid program. Now, the administration is crafting rules to follow through on the directives in the bill, and is met with protest from provider groups and industry stakeholders.

Last week, the Centers for Medicare and Medicaid Services (CMS) proposed a rule that would place restrictions on state directed payments, a program that states use to increase reimbursements to providers from Medicaid managed care organizations to incentivize participation. Modern Healthcare explains that CMS Administrator Dr. Mehmet Oz described the proposed rule as a means of reducing spending and potential mismanagement of taxpayer dollars:

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 Medicaid standards, strengthening accountability, and ensuring taxpayer dollars support patients, not payment schemes.

Right-wing healthcare thinktank Paragon Health Institute goes even further, referring to provider taxes as “money laundering,” but acknowledges that the funding allows states to increase reimbursement with providers to levels similar to rates offered by commercial insurance. Paragon notes that the commercial rates for hospital services are 2.5 times higher than Medicare rates on average, and funding boosters like provider taxes enable states to bring Medicaid reimbursement that much higher to expand the scope of provider participation.

The new CMS rules are designed to bring provider reimbursement back down by extending limits on payment rates and tying them to Medicare rates, leaving providers and nursing homes preparing for the financial shock. The OBBBA lowers state directed payments to specific medical services but also limits the discretion that states have for their payment systems. STAT reports that behavioral health, home- and community-based primary care and specialty physician services are left vulnerable, but the OBBBA specifically targets inpatient and outpatient hospital services, nursing facility services and qualified practitioner services at academic medical centers.

Additionally, CMS intends to phase out categories of state-directed payments, including those that offer uniform increases and proposes measures to strengthen oversight of reimbursement. In a statement, Ashley Thompson, American Hospital Association senior vice president for public policy raised concerns that the rules would destabilize the Medicaid program.

Projected reductions in funding for essential health care services will not only limit access to care for Medicaid patients. When hospitals and providers are forced to reduce services — or even close entirely — everyone in a community is impacted.

The rule’s fact sheet can be reviewed in full at the CMS Newsroom.