A coalition of 24 healthcare organizations has expressed concerns about value-based care provisions in the Medicaid state-directed payments (SDPs) rule in a July 21 letter to the Centers for Medicare & Medicaid Services (CMS). Several other associations have also spoken out about the proposed SDP rule.

On May 20, CMS published a Notice of Proposed Rulemaking (NPRM) to address the directives contained in the memorandum and section 71116. The NPRM proposes extending the payment rate limit to all SDPs and certain targeted fee-for-service (FFS) payments for alignment across delivery systems. CMS also proposed several additional SDP regulatory changes to ensure compliance with the new payment limit. 

The letter, signed by America’s Essential Hospitals, America’s Physician Groups, Primary Care Collaborative, and others, explains that the proposed rule’s overly prescriptive application of Medicare-based limits will impede state efforts to advance value-based payment models tailored to Medicaid beneficiaries’ unique needs. The organizations urge CMS to preserve state and managed care organization flexibility, align Medicare-based payment limits with the Medicaid fee-for-service process, and refrain from limiting services not required by statute.

“We urge CMS, within its authority, to rescind proposed policies that exceed what is required by P.L. 119-21 and lessen the financial impact of the reduction of SDP limits to Medicare levels,” The American Hospital Association (AHA) wrote in a letter addressed to Dr. Mehmet Oz, CMS administrator. “SDPs have been used to help bridge the gap between base payment rates and the cost of delivering care, which ultimately supports access and quality goals in Medicaid managed care. Put simply, hospitals cannot maintain or expand access or invest in quality improvements for patients if they are chronically operating at a loss. “

Leonardo Cuello, research professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families, wrote in a blog post that it’s not surprising that CMS issued new regulations. “[L]ast year’s budget reconciliation legislation, H.R. 1, mandates huge cuts to SDP payments—in the form of Medicare-based payment caps—that as drafted would be harmful to states, providers, and ultimately, people enrolled in Medicaid.”

“So why does the proposed SDP regulation do so much more harm than the actual legislation?” Cuello wrote. “The short answer is: it goes far beyond the requirements of the legislation and just adds all kinds of new restrictions on SDPs and other supplemental payments made to Medicaid healthcare providers.”

“Of the latest proposed rules to come from CMS — on state-directed payments (SDPs), work reporting requirements, and provider taxes — each has taken a much harsher pathway forward than originally laid out by Congress, rolling back access to Medicaid nationwide,” Families USA’s executive director Anthony Wright said in a statement. “The rules are complicated, but the impacts are clear: less money for care, higher administrative burden, and painful budgetary tradeoffs.”