On Tuesday, September 9, the Centers for Medicare & Medicaid Services (CMS) announced that it is issuing preliminary guidance for states regarding the implementation of new federal payment limits for State Directed Payments (SDPs) in Medicaid managed care. According to the news release, providing this guidance now, while CMS works to issue a final rule, gives states more time to plan their efforts to meet the requirements set out in the One Big Beautiful Bill Act. 

“Under Medicaid managed care, states can direct how managed care plans pay providers through SDPs,” the press brief explained.

“Medicaid is a federal and state partnership and for years states have skirted their responsibilities to draw down more federal funds while contributing less state dollars. President Trump’s One Big Beautiful Bill Act will hold states accountable and make sure the federal government isn’t left to pick up the tab,” Health and Human Services (HHS) Secretary Robert F. Kennedy, Jr. said in a statement.

CMS provided a guidance letter with information on the reduced payment, details on eligibility for a temporary grandfather period, and additional next steps. 

Key elements of the guidance were outlined as follows:

• Starting with rating periods on or after July 4, 2025, SDPs for inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center must not exceed 100 percent of Medicare rates in Medicaid expansion states or 110 percent of Medicare rates in non-expansion states.
• Certain eligible SDPs submitted or approved before July 4, 2025, may qualify for temporary grandfathering until rating periods beginning January 1, 2028, followed by a phased reduction until they meet the new payment limits.
• States must revise any pending or future SDP preprints that do not qualify for grandfathering to comply with Section 71116 before CMS continues its review.