CMS-2449-P recasts Medicaid State Directed Payments & FFS targeted practitioner supplements @ the Medicare benchmark, kills the ACR ceiling, bans uniform increases & projects $774.8B in 10yr savings
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Table of Contents
The setup, in plain English
How SDPs got to $144B before anyone noticed
What the proposed rule actually does
Grandfathering, the eligibility maze, and the ten percentage point glide path
The death of the uniform increase SDP
Grey area payments, third party fees, and the provider class problem
The FFS side at 447.381, which is almost the same rule with different plumbing
The dollar impact, plus the relative price assumptions that drive it
Who actually loses, because the gross numbers are not the net numbers
Open comment questions worth flagging
Rule: CMS-2449-P, scheduled for Federal Register publication 5/22/2026, 60 day comment period
Statutory basis: Section 71116 of the Working Families Tax Cut legislation (Pub. L. 119-21, enacted 7/4/2025), plus the 6/6/2025 Presidential Memorandum on waste, fraud, and abuse in Medicaid
Two regulatory pieces: managed care SDPs at 42 CFR 438.6, and a new FFS targeted practitioner payment limit at 42 CFR 447.381
Old SDP ceiling under the 2024 final rule: 100% of the Average Commercial Rate (ACR) for the four statutory services (inpatient hospital, outpatient hospital, nursing facility, qualified practitioner services at AMCs)
New ceiling under WFTC: 100% of total published Medicare for Expansion States, 110% Medicare for Non-Expansion States, 100% State plan rate when no Medicare equivalent exists
Applied per service or per discharge, not as an aggregate UPL
CMS goes further than the statute and extends the same Medicare-based limit to all SDPs in all states (including Territories) and all services, applicable with first rating period on or after 1/1/2029
Grandfathered SDPs: limited to completed preprints submitted before 7/4/2025 for rating periods within 180 business days of enactment; phase down at 10 percentage points of the grandfathered total dollar amount per year starting 1/1/2028
Uniform increase SDPs eliminated for new and renewal SDPs starting 1/1/2028, except inside the grandfathering window
Confirms grey area payments impermissible; bans SDP funds from being routed through provider associations or consultants
Parallel FFS rule: 100%/110% Medicare for targeted practitioner payments, applied at the provider-specific level, with exceptions for cost-reconciled payments and services without a Medicare equivalent; transition deadline 1/1/2029
Projected ten-year impact (medium scenario, 2026 to 2035): -$774.8B total computable, -$510.1B Federal, -$264.4B State, plus another -$2.44B from the FFS provisions
Low and high scenarios on the SDP piece run from -$408.4B to -$989.7B over the same window
Current SDP spending: $97.8B in FY 2024, projected to hit $295.9B by FY 2034 absent the rule
80.8% of SDPs above Medicare today are funded in whole or part by intergovernmental transfers (IGTs) or provider taxes
The setup, in plain English
For roughly a decade the SDP has been the dominant fiscal lever in Medicaid managed care. Two states submitted four SDP preprints in 2016, the year the framework was born. By 2024 that number was 41 states and 366 preprints. Cumulative submissions since inception now exceed 1,950. The 2024 final rule under the Biden administration tried to draw a line by codifying a ceiling at 100% of the ACR for four big service buckets, plus various transparency and quality-eval requirements. Roughly 18 months later, the line is being redrawn.
Two things changed. First, the Trump White House issued a presidential memo on 6/6/2025 titled Eliminating Waste, Fraud, and Abuse in Medicaid, which instructed HHS to ensure Medicaid payment rates do not exceed Medicare, to the extent permitted by law. Second, Congress wrote that instruction into statute. Section 71116 of the Working Families Tax Cut, signed 7/4/2025, directs CMS to revise 42 CFR 438.6(c)(2)(iii) to cap the total payment rate under SDPs for inpatient hospital, outpatient hospital, nursing facility, and qualified practitioner services at AMCs. The cap is 100% of the total published Medicare rate for Expansion States, 110% for Non-Expansion States, and the State plan rate when there is no Medicare comparator. Section 71116(b) carves out a grandfathering window with a phase down beginning with the first rating period on or after 1/1/2028.
CMS-2449-P is the implementing rule. It does the statutory minimum, then goes further by extending the same Medicare-based limit to all SDPs, all services, all states including the Territories, and to parallel FFS targeted practitioner payments under a brand new 42 CFR 447.381. The proposed effective date for the broader expansion is the first rating period on or after 1/1/2029, which roughly aligns the managed care timeline with the FFS transition deadline.
How SDPs got to $144B before anyone noticed
