The White House released a June 6 memorandum entitled Eliminating Waste, Fraud, and Abuse in Medicaid. The memo cites states’ use of provider taxes to finance the nonfederal share of Medicaid expenditures and to draw down federal Medicaid funds, stating that funds from these taxes are used to pay health care providers “almost three times the Medicare amount.” Additionally, the memo asserts that recent growth in Medicaid state directed payments (SDPs) threatens the financial stability of Medicaid and the federal treasury. To address this challenge, the memo directs the secretary of Health and Human Services to eliminate waste, fraud, and abuse in Medicaid, including by ensuring Medicaid payment rates are not higher than Medicare rates. This appears to be a reference to setting Medicare rates as the ceiling on Medicaid SDPs.
After the publication of the memorandum, the Centers for Medicare & Medicaid Services sent a proposed rule on Medicaid managed care SDPs to the Office of Management and Budget for regulatory review. In a final rule last year, the CMS had codified a policy to allow states to use the average commercial rate as the limit for SDPs for certain classes of providers [refer to Washington Highlights, April 26, 2024]. The House-passed reconciliation bill (One Big Beautiful Bill Act, H.R. 1, PDF) also included a provision that would cap new SDPs at 100% of Medicare rates in expansion states and 110% in non-expansion states [refer to Washington Highlights, May 23].