A proposed rule by the Centers for Medicare and Medicaid Services (CMS) will be “mostly harmless” for SNFs, according to a payment expert, but still amounts to what the agency is calling “a sweeping crackdown on state Medicaid payment practices that have driven payment rates well above Medicare levels, leading to excessive federal costs.”

The “Medicaid Managed Care State Directed Payments (SDP) and Medicaid Fee-for-Service (FFS) Targeted Practitioner Payments Proposed Rule” would set clear caps and better align Medicaid payments with Medicare standards, the agency said.

“If finalized, the proposed rule would generate an estimated $775 billion in total savings over 10 years, including $510 billion in federal savings. Our goal: to refocus Medicaid dollars on individuals and families instead of inefficient payment schemes,” CMS said.

An SDP is an arrangement in which the state directs the health plan on how to pay provider reimbursement rather than allowing the plan to negotiate provider payment.

CMS said states have often used these arrangements to increase provider payments toward a limited set of providers, typically those capable of providing the non-federal share through provider taxes and intergovernmental transfers.

“Provider taxes are fees charged to entities such as hospitals based on healthcare services, and an intergovernmental transfer [IGT] is when a local government entity [like a public hospital] transfers funds to the state to be used as the non-federal share, both of which are used as the state’s portion of Medicaid payments made back to those same providers,” the agency said.

What’s it Mean to SNFs?

Jay Gormley, chief investment officer and COO, Advisory, Zimmet Healthcare Services Group, said the proposal is a follow up to President Trump’s One Big Beautiful Bill Act (OBBBA), and does not appear to “materially hurt or limit the major IGT/UPL [Upper Payment Limits] systems currently in place for SNFs.”

Texas, Indiana, and Utah (and any other state with a UPL/IGT program of any size) appear to be largely fine, Gormley said. “And, in my view, should not need to make major structural changes to comply with the OBBBA/Working Families Tax Cut Act provisions.”

Obviously, he said, the proposal is just that right now, and there is always the possibility for changes before finalization.

“That said, I just do not think: a) it is the legislative intent of either the OBBBA or this rulemaking to dismantle existing SNF supplemental payment structures that are already tied closely to Medicare-equivalent reimbursement levels; or b) there is all that much room for CMS to materially tighten these systems further given that Medicare is already effectively the sector’s best payer benchmark and many of these programs are already structured around Medicare gaps or Medicare-relative payment methodologies.”

More From CMS

CMS said it is acting at a time when the use of SDPs has rapidly expanded, from 2 states in 2016 to 41 states today, and accounts for more than a quarter of all Medicaid managed care spending in Fiscal Year (FY) 2025.

“Unchecked, annual SDP spending is projected to nearly triple from $107 billion in FY 2024 to $296 billion by FY 2034. The use of provider taxes as a financing mechanism has similarly increased over time, with 49 states and the District of Columbia currently imposing at least one provider tax, up from 35 states in 2004,” CMS said.

The proposed rule would:

• Cap SDP provider payment rates at 100 percent of Medicare payment rates for expansion states and 110 percent of Medicare payment rates for non-expansion states (or 100 percent of the Medicaid state plan rate if a comparable Medicare rate is not available).

• Apply similar limits to certain targeted Medicaid FFS payments, and

• Establish consistent national standards to improve transparency and accountability.

CMS is seeking public comment on the proposed rule, including feedback on implementation. To view the proposed rule, visit: https://link.edgepilot.com/x/oWATSf8RiLX8sg_8DOoJpjE?u=http://www.federalregister.gov/public-inspection/

To view the fact sheet, visit: https://link.edgepilot.com/x/CCQ2mqP3Uw1P6URj0eODT50?u=https://www.cms.gov/newsroom/fact-sheets/medicaid-managed-care-state-directed-payments-medicaid-fee-service-targeted-medicaid-practitioner

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.