To: Robert F. Kennedy, Jr., Secretary, Department of Health and Human Services; Dr. Mehmet Oz, Administrator, Centers for Medicare & Medicaid Services (CMS)
Re: Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments (CMS-2449-P)
Dear Secretary Kennedy and Administrator Oz,
My name is Madelaine Matej MacQueen, and I am the Budget Researcher at Policy Matters Ohio. Thank you for the opportunity to comment on the Centers for Medicare & Medicaid Services proposed rule on “Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments” (CMS-2449-P), referred to throughout this comment as the “proposed rule.”
Policy Matters Ohio is a nonprofit research institute with the mission of creating a more vibrant, equitable, inclusive and sustainable Ohio. One of my areas of expertise is Medicaid financing. I am familiar with the changes H.R. 1 made to provider taxes and state-directed payments (SDPs), and the ways in which those changes are affecting, and will continue to affect, Ohio.
Currently, the proposed rule reaches well beyond the SDP limits set by H.R. 1 as enacted. This will take additional money away from states and limit state flexibility, which will exacerbate harm to healthcare providers and enrollees, while reducing access to care. Overall, to limit these damages, I advocate for the final rule to reverse the proposed rule’s overreach and hew to the provisions Congress passed through H.R. 1. The following is a list of provisions in the proposed rule that go beyond the scope of H.R. 1 as enacted. I recommend that CMS remove all of these provisions:
- Expanding SDP caps introduced by H.R. 1 to all service types, not just the “four services” (inpatient hospital services, outpatient hospital services, nursing facility services, or qualified practitioner services at an academic medical center) included in H.R. 1 as enacted.
- Expanding SDP caps to all types of SDPs, not just those based on fee schedules, value-based purchasing concepts, uniform dollar increases, etc.
- Expanding the definition of “states” to include U.S. territories.
- Eliminating the “uniform dollar or percentage” option, which accounts for more than two-thirds of all SDP spending and generated over $80 billion nationally in 2024. This provision has no basis in H.R. 1 and would force impacted states to either attempt to restructure existing SDPs into allowable forms or to discontinue impacted SDPs and lose even more federal funding.
- Effectively eliminating SDPs for all services for which a Medicare rate is not currently available, by requiring that when no Medicare payment rate is available to serve as the payment limit benchmark, states must use Medicaid state plan base rates as the payment limit.
- Immediately reducing or eliminating some SDPs, by removing one of the three criteria for an SDP to be grandfathered in, and by requiring that SDPs meet both of the remaining criteria, not just one.
- Requiring that each state reduce its aggregate (grandfathered) SDP payments by 10 percentage points a year, instead of reducing each (grandfathered) SDP by 10 percentage points a year. As a result, some SDPs may be reduced to Medicare-based levels in just a few years, instead of ten, causing additional financial loss to states and providers.
- Redefining the “Total Payment Rate” from looking at the aggregate payment to looking at the service-level payment, such that some SDPs currently meeting an aggregate test would fail a service-by-service requirement. This would leave states will have a massive administrative burden to implement service-level caps.
- Setting equivalent caps on certain fee-for-service supplemental payments that have nothing to do with managed care or SDPs.[1]
By eliminating these provisions and limiting the final rule to the scope of SDP limits set out in H.R. 1, CMS can avoid complexities of calculating payment limits outside of Medicare fee schedules. Paring back to the scope of H.R. 1 can also prevent catastrophic financial losses to states, while preserving the pool of participating providers and ensuring continued provider access for Medicaid enrollees.
In the proposed rule, CMS requests public comment on several specific provisions, mostly relating to payment limits outside of the published Medicare fee schedules, methodologies for calculating limits, requirements for oversight and monitoring of the payment limits, and other financial data collection.
The majority of the topics on which CMS seeks input could be avoided entirely if CMS scales back the final rule to align with H.R. 1. Confining the payment limit to H.R. 1’s specified “four services” and to the types of SDPs laid out in H.R. 1 would allow CMS to specify acceptable payment limits for the handful of services excluded from Medicare payment rates without extensive average commercial rate (ACR) reporting requirements.[2] I recommend scaling back the rule to match H.R. 1 as enacted.
Funding impacts
The Congressional Budget Office (CBO) estimated that H.R. 1’s SDP provisions would result in a $149 billion dollar cut in federal Medicaid spending nationally over 10 years (2025-2034).[3] CMS estimates that the combined provisions in the proposed rule on SDPs would result in a $510.1 billion dollar cut in federal Medicaid spending over ten years (2026-2035), and a $774.8 billion reduction in combined federal and non-federal Medicaid spending.[4] The proposed rule’s estimated cut in federal spending is more than three times the cut expected from the law as enacted. Decreased Medicaid funding necessitates cuts to the Medicaid program—either disenrollment of Medicaid recipients or a paring down of covered services, neither of which is positive for the health of Ohioans.
While Ohio-specific cost estimates for the proposed rule on SDPs do not yet exist, the Ohio Department of Medicaid estimates that H.R. 1’s SDP provisions (as enacted) would cause an annual loss to providers of $200 million a year “until Medicare equivalent is reached in mid 2030s.”[5] If CMS’s rule more than triples SDP-related losses to Ohio providers, as CMS estimates the rule will do nationwide, Ohio providers will face financial difficulties. Many may drop out of the Medicaid program, hospitals may close, or the state could incur significant costs trying to make up for the lost payments.[6] Ultimately, these losses to providers will harm people across our state who depend on the program for their healthcare.
Impacts on provider access
In Ohio, as in other states, SDPs are a mechanism through which states can increase Medicaid payment rates to participating providers. Medicaid rates are significantly lower than Medicare rates or average commercial rates, which can create financial strain for providers who serve high volumes of Medicaid patients.[7] According to MACPAC, physicians are less likely to serve patients covered by Medicaid than those with Medicare or private insurance, and a small number of providers serve a large share of Medicaid patients.[8]
When providers decline to see Medicaid-enrolled patients, or decline to enroll in Medicaid at all, Medicaid patients experience barriers to accessing timely care.[9] These provider shortages particularly affect certain populations.[10] Ohio’s 10 counties with the worst per capita availability of providers as of 2024 were rural or partially rural counties.[11] Importantly, Rural Health Transformation Funds awarded through H.R. 1 come nowhere near to replacing the anticipated losses to Ohio’s Medicaid program through the budget as enacted, and stricter subsequent rules would only worsen losses. Rural communities in Ohio are expected to lose $5.62 billion in Medicaid funding over ten years from H.R. 1. If the amount Ohio was awarded in year one ($202 million) of Rural Health Transformation remains constant over the program’s five years, this funding would amount to just 18% of rural Ohio’s anticipated losses.[12]
Increasing (or at least maintaining) the number of providers participating in Medicaid is crucial for giving Medicaid-enrolled individuals and families adequate access to providers in their geographic area.[13] SDPs provide one mechanism to incentivize provider participation in Medicaid, by boosting the rates paid to providers for Medicaid services.[14] In fact, CMS started approving SDPs that linked payments to commercial rates in 2018 because the higher rates were seen as helpful to attracting a broader provider network and ensuring robust access to care.[15]
Participation incentives such as SDPs are particularly important in healthcare deserts, including Health Provider Shortage Areas (HPSAs) and Medically Underserved Areas (MUAs), of which there are hundreds in Ohio.[16] Limiting SDPs to 100% or 110% of Medicare rates[17] is likely to de-incentivize providers from participating in Medicaid, and to reduce access to care.[18]
SDPs play an important role in increasing not only the availability of providers but also the quality of care. Ohio uses its SDPs to incentivize high-quality care, through programs including Hospital Additional Payments (HAP) and Care Innovation and Community Improvement Program (CICIP). Under CICIP, for instance, certain providers receive a uniform rate increase, part of which is paid out only if they achieve specific quality measures. This payment rewards providers for achieving quality outcomes across critical areas of care, among them substance use disorder, mental health and perinatal care and appropriate utilization of emergency departments.[19]
Conclusion
CMS should place fewer restrictions on SDPs, to preserve the pool of Medicaid-enrolled providers and value-based incentives for Ohio and other states. We ask again that CMS keep to the provisions as set by H.R. 1 and reverse course on the proposed rule’s added restrictions. Thank you again for the opportunity to comment on proposed rule CMS-2449-P. If any additional information is needed, please be in contact.
[1] For all of the above bullet points, please see these three sources:
Press release: “Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments Proposed Rule (CMS-2449-P),” CMS Newsroom, May 20, 2026.
Proposed rule: “Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments / A Proposed Rule by the Centers for Medicare & Medicaid Services,” Federal Register, May 22, 2026.
Leonardo Cuello, “CMS Triples Harmful Impact of HR 1 Medicaid Provider Cuts in State Directed Payment Proposed Rule,” Georgetown University McCourt School of Public Policy, Center for Families and Children, May 28, 2026.
“Issue Brief: Directed Payments in Medicaid Managed Care,” MACPAC, October 2024, page 4.
[2] “Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments / A Proposed Rule by the Centers for Medicare & Medicaid Services,” Federal Register, May 22, 2026.
[3] Cyrus Ekland et. al., “Medicaid State-Directed Payments: An Update on CBO’s Modeling,” Congressional Budget Office, September 12, 2025, page 8.
[4] Robert F. Kennedy, Jr., “Medicaid Program; Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments / A Proposed Rule by the Centers for Medicare & Medicaid Services,” Federal Register, May 22, 2026.
[5] Scott Partika, “H.R. 1 (OBBBA) Updates / Joint Meeting of the House & Senate Medicaid Committees,” February 19, 2026, slide 18.
[6] Steve Scherin, “AAP leaders: Proposed Medicaid rule changes could have ‘devastating’ impact,” American Academy of Pediatrics, May 22, 2026.
Eileen O’Grady, “The Big Ugly Threat to Safety Net Hospitals,” Public Citizen, March 31, 2026.
[7] Changes to Medicaid financing in Ohio,” Health Policy Institute of Ohio, March 2026, pages 8.
[8] “Evaluating the Effects of Medicaid Payment Changes on Access to Physician Services,” MACPAC, January 2025.
[9] Tiffany N. Ford and Jamila Michener, “Medicaid Reimbursement Rates Are a Racial Justice Issue,” The Commonwealth Fund, June 16, 2022.
[10] Samantha Hendrickson, “There are no doctors here: Rural Ohioans face deadly shortage of health care options,” The Columbus Dispatch, February 9, 2025.
[11] “Data Snapshot TM Health in rural and Appalachian Ohio,” Health Policy Institute of Ohio, August 2024.
[12] Heather Saunders, et. al. “How Might Federal Medicaid Cuts in the Enacted Reconciliation Package Affect Rural Areas?” KFF. July 24, 2025.
“CMS Announces $50 Billion in Awards to Strengthen Rural Health in All 50 States.” CMS Newsroom. December 29, 2025.
[13] “Changes to Medicaid financing in Ohio,” Health Policy Institute of Ohio, March 2026, pages 8-9.
[14] Alice Burns, et. al., “Forthcoming Policy Changes to Medicaid State Directed Payments,” KFF, June 15, 2026.
[15] “News Release: Federal Medicaid Spending Through State Directed Payments Nears $100 Billion Annually Across 41 States, With New Limits Set to Reduce Funding to States,” KFF, June 15, 2026.
[16] “Health Workforce Shortage Areas,” Health Resources and Services Administration (HRSA), accessed July 9, 2026.
“Find MUA/P,” Health Resources and Services Administration (HRSA), accessed July 9, 2026.
[17] “H.R.1 – An act to provide for reconciliation pursuant to title II of H. Con. Res. 14,” Congress, July 4, 2025.
[18] Edwin Park, “New CMS Guidance on H.R. 1’s Restrictions of State Directed Payments,” Georgetown University McCourt School of Public Policy, Center for Families and Children, February 4, 2026.
[19] “Changes to Medicaid financing in Ohio,” Health Policy Institute of Ohio, March 2026, pages 8-9.