Proposed State Directed Payment Cuts Exceed Congressional Intent

In July 2025, when Congress passed the Working Families Tax Cut legislation (WFTCL), referred to also as the One Big Beautiful Bill Act or H.R. 1, the Congressional Budget Office (CBO) estimated that the law would reduce federal spending on Medicaid state directed payments (SDPs) by $149 billion over 10 years.

In May 2026, when the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule implementing these provisions, it estimated the rule would reduce federal health funding by $510 billion over 10 years, which is 3.4 times more than what Congress intended.

CMS' proposed rule goes beyond the statute in three main ways:

1. Inappropriate Service Code-Specific Limits
2. Accelerated Phase-Down
3. Unnecessary Cuts to Additional Services

These changes will disproportionately harm essential hospitals that serve complex patients and have more financial challenges than other hospitals. A better approach that is more consistent with the statute would be for CMS to align the process for calculating new Medicare-based payment limits with the simpler process that long has been used in Medicaid fee-for-service and that has historically been used to monitor SDPs.