White House Releases Presidential Memo on Medicaid State Directed Payments

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Amid the ongoing congressional action related to Medicaid reform, late on Friday, June 6, the White House a presidential memorandum directed to the HHS Secretary and CMS Administrator titled, “Eliminating Waste, Fraud, and Abuse in Medicaid.” The memo directs the Secretary to “take appropriate action to eliminate waste, fraud, and abuse in Medicaid, including by ensuring Medicaid payments rates are not higher than Medicare, to the extent permitted by applicable law.” The memorandum specifically identifies Medicaid state directed payments (SDPs)—a type of Medicaid payment that under current rules can exceed Medicare rates—as a focus of the Administration.  On June 9, CMS submitted a notice of proposed rulemaking related to Medicaid state directed payments (SDPs) to the Office of Management and Budget (OMB), which is typically the final step before a proposed rule is published. The practical implications of the memorandum and the pending proposed rule will depend on the reconciliation bill under consideration in Congress.

Under current federal rules, states are permitted to direct Medicaid managed care plans on what amounts to pay providers, so long as they meet federal parameters and, in most cases, receive written approval from CMS. Currently, rules allow these SDPs to be up to the average commercial rate, which is typically much higher than Medicare rates.

The House-passed H.R. 1 would introduce new limits on SDPs. The proposed legislation would “grandfather” in SDPs that pay more than Medicare rates as long as they are submitted to CMS for approval before the date of enactment, but would not allow grandfathered SDPs to increase in subsequent years (even for inflation). In addition, the proposed legislation caps all new SDPs at 100 percent of Medicare for expansion states, and 110 percent of Medicare for non-expansion states. If the SDP provisions in H.R. 1 are enacted, the presidential memorandum would have little practical impact. Federal law would set the parameters for SDPs, and states with “grandfathered” SDPs above Medicare rates would be permitted to keep them. However, if the enacted reconciliation bill does not address SDPs, the memorandum and pending proposed rule suggest that the Administration is prepared to impose stricter limits on SDPs through administrative action than those proposed in H.R. 1.

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