CMS recently proposed a rule that would place caps on certain state Medicaid payments in an effort to align them more closely with Medicare rates.
Here are nine things ASC leaders need to know about the proposal:
1. The proposed rule would create new limits for Medicaid state-directed payments and certain fee-for-service payments to reduce Medicaid spending by more than $775 billion over 10 years, including $510 billion in federal savings, according to the agency. In a May 20 news release, CMS Administrator Mehmet Oz, MD, said that “Medicaid was never meant to be a blank check — it was meant to be a lifeline — and lifelines only work when they’re strong, reliable and built to last.”
“Misaligned payment incentives and opaque financing arrangements are driving up costs without delivering better care,” he added. “This rule restores balance by aligning Medicaid payments with Medicare standards, strengthening accountability and ensuring taxpayer dollars support patients, not payment schemes. “
2. The rule specifically targets state-directed payments, which are arrangements in which a state tells a managed care plan how to pay providers, rather than allowing the plan to negotiate rates on its own. CMS said states have used these arrangements to boost payments to a specific set of providers, typically those that can supply the non-federal share of Medicaid funding through provider taxes and intergovernmental transfers. The practice has allowed states to draw more federal dollars without equivalent state spending, according to the agency.
3. CMS proposed capping certain state-directed payments for hospital, nursing facility and qualified practitioner services at academic medical centers at 100% of Medicare rates in expansion states and 110% of Medicare rates in nonexpansion states on or after July 4. If no comparable Medicare rate exists, payments would be capped at 100% of the Medicaid state plan-approved rate.
4. CMS proposed extending the payment rate limit to all state-directed payments for all services in all states, the District of Columbia and territories for rating periods beginning on or after Jan. 1, 2029.
5. Some existing payments could be temporarily godfathered if they meet specific criteria. CMS also proposed that the total dollar amount of a grandfathered payment arrangement be phased down by 10 percentage points each year, starting with the first rating period on or after Jan. 1, 2028, until the payment limit is reached.
6. The agency said the use of state-directed payments has grown from two states in 2016 to 41 in 2025. This accounts for more than a fourth of all Medicaid managed care spending in fiscal 2025. The agency projects that annual spending on payments will grow from $107 billion in fiscal 2024 to $296 billion by fiscal 2034 if left unchecked.
7. The agency plans to cap certain targeted Medicaid practitioner payments in fee-for-service programs at 100% of Medicare rates in expansion states and 110% in nonexpansion states. States with approved payments above the proposed limits would need to submit a state plan amendment to remove or update them no later than the first state fiscal year beginning on or after Jan. 1, 2029.
8. The proposal comes after CMS issued a final rule April 2 that ended states’ ability to use certain provider taxes to generate additional federal Medicaid matching funds, a financing mechanism the agency characterized as a Medicaid funding “loophole.” The rule bans states from imposing higher tax rates on Medicaid business than on non-Medicaid business and blocks indirect tax structures designed to bypass those limits. CMS said provider taxes generate more than $24 billion annually for state budgets, with one state bringing in more than $13 billion.
9. While ASCs are often less reliant on Medicaid dollars than inpatient care sites, the proposal has some leaders concerned about impacts on patient care.
“Proposed Medicaid cuts and efforts to cap reimbursement closer to Medicare rates would likely put additional financial pressure on spine practices, particularly for complex surgical care,” Kasra Ahmadinia, MD, a spine surgeon at Advanced Orthopedics of Oklahoma in Tulsa told Becker’s. “While Oklahoma’s baseline Medicaid rates are already near Medicare in some cases, much of the real support comes from supplemental and directed payments, and those are the areas most at risk. For spine surgeons, where procedures carry higher costs and patients often have greater medical complexity, even small reimbursement reductions can quickly make cases financially unsustainable. As a result, we may see reduced access to elective spine care for Medicaid patients, longer wait times, and increasing pressure to shift appropriate cases to outpatient or ASC settings.”
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.