The Centers for Medicare & Medicaid Services (CMS) on Sept. 9 issued guidance implementing Section 71116 (PDF) of the One Big Beautiful Bill Act (OBBBA, P.L. 119-21, PDF) related to Medicaid state directed payments (SDPs). Section 71116 reduces the total payment rate for non-grandfathered SDPs to 100% of the Medicare rate for SDPs in expansion states and 110% in non-expansion states for rating periods beginning on or after the July 4 date of enactment of the OBBBA. Grandfathered SDPs can continue to be paid at their current rate, but states must begin to reduce the payment rate for grandfathered SDPs by 10 percentage points each year beginning in 2028.
Under 71116, SDPs can be grandfathered if they were approved before May 1 for non-rural hospital SDPs or July 4 for rural hospital SDPs, if a good faith effort to receive approval from the CMS was made before those dates, or if a completed preprint was submitted to the CMS prior to July 4. The guidance describes the CMS’ initial interpretation of the grandfathering provision of Section 71116, defining terms such as applicable rating period and “completed preprint.” The agency’s interpretation of “completed preprint” is one that is “completed in full, and all information must be provided only in the fillable sections of the preprint and the addendum tables.” While grandfathered SDPs can continue to be paid at the total payment rate that was approved in the preprint, the CMS emphasizes that states cannot increase the total dollar amount of a grandfathered SDP but are free to decrease the amount at any time before Jan. 1, 2028.
CMS states that SDPs with an application approved before the Sept. 9 date of the letter will be preliminarily grandfathered. The agency says that for other preprints under review, it will include preliminary feedback in its adjudication letters on whether that preprint is likely eligible for the grandfathering period.
The guidance indicates that the CMS is exploring other limits to SDPs beyond those enacted by the OBBBA. For example, the agency is considering limiting SDPs for other services beyond the four categories affected by Section 71116, which are inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center. The CMS noted that the agency plans to issue a proposed rule to further address the topic of SDPs.