National Council: CMS Releases Proposed Rule for State Directed Payments

Message from the National Council for Mental Wellbeing:

Yesterday, the Centers for Medicare and Medicaid Services (CMS) released its proposed rule, Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments, implementing provisions of H.R.1 to establish new limits on certain Medicaid managed care State directed payments (SDP). Additional information on the proposal can be found in the press release and fact sheet.

In alignment with H.R.1, total SDP rates are capped at 100% of Medicare in expansion states and 110% in non-expansion states for inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center.

Where a Medicare benchmark is unavailable, the payment limit would be 100% of the state-plan-approved rate.

However, most significantly, the proposed rule would extend the SDP limits beyond the four original services under H.R.1 (listed above) to all SDPs, regardless of service type, in all states, Washington, D.C., and all territories beginning Jan. 1, 2029. The proposed rule would also apply similar limits to certain targeted Medicaid fee-for-service payments.

This would include behavioral health SDPs and could lead to significant disruption in 2029.

Additional provisions in the proposed rule include proposals to:

Eliminate uniform increase SDPs as a permissible type of SDP for rating periods beginning on or after January 1, 2028, with a limited exception for grandfathered SDPs.
Permit states to adopt minimum or maximum fee schedules that are no greater than the applicable payment rate limit without CMS prior approval for rating periods beginning on or after January 1, 2028.
Establish new claims-level compliance and reporting requirements, including submission of provider-specific (NPI-level) data, identification of applicable benchmark rates, and documentation of controls to ensure that each individual service payment does not exceed the cap.
Introduce new reconciliation requirements for value-based payment SDPs, requiring states to demonstrate post-period compliance with the cap at the service level.
The rule specifies that payments exceeding the cap constitute Medicaid overpayments subject to recovery and reporting requirements, explicitly linking SDP limits to existing overpayment regulations.
The rule is set to be formally published in the Federal Register on May 22, with a 60-day comment period following its publication.

The National Council will continue to further review this proposal, provide you with timely updates, and will plan to submit comments on this rule. We are here to support you every step of the way through these changes. For additional information on H.R.1, please visit the National Council’s H.R.1 Hub. If you have any questions, please reach out via email.

< Previous Post

Next Post >

ODP Updates the MAAC on Paid Relative Caregiving & Travel Limitations

By Tim Sohosky • May 29, 2026

On Thursday, May 28, the Office of Developmental Programs (ODP) provided an update to the Medical Assistance Advisory Committee (MAAC) regarding current policies and upcoming regulatory changes following a recent Commonwealth Court decision. On February 17, 2026, the PA Commonwealth Court issued a decision in Dunkelberger v. Department of Human Services that determined that ODP’s limitations on provider model services (specifically the 40/60-hour caps and 90-day travel maximums) were null and void. The decision was based on process rather than policy validity; the Court found that these limitations were not properly promulgated as regulations in accordance with the Commonwealth Documents Law and Regulatory Review Act. To maintain a balanced approach between flexibility and oversight, ODP is moving forward with the following actions: Regulatory Amendments: ODP will amend regulations to establish formal authority for setting service delivery limits that support individual welfare and program integrity. Self-Directed Model Agreements: ODP has already modified agreements for self-directed models to clarify limits on overtime, combined relative service provision, and travel restrictions. Travel Restrictions: Due to the inability to monitor services effectively over long distances, service provision will now be limited to Pennsylvania and contiguous states. Waiver Changes: ODP will seek modifications through the amendment process to the Consolidated, P/FDS, Community Living, and Adult Autism Waivers to include: New requirements for agencies providing IHCS and Companion services to disclose a DSP's relationship to participants; and Strengthened programmatic oversight and integrity measures. Life Sharing Alternative: For participants requiring more than 60 hours of paid care from a relative, the Life Sharing (24/7) service model remains the recommended alternative. ODP anticipates a public comment period for these proposed waiver changes beginning in January 2027.

Two men with intellectual disabilities working happily on a tablet.

Shapiro Administration's Strategic Investments in ID/A Community Lead to Highest Number of Pennsylvanians Ever Served in HCBS

By Tim Sohosky • May 28, 2026

Press Release from DHS : Published May 27, 2026

ODP Provides Updates to PBC 2026/27 Residential Pay-for-Performance

By Cathy Barrick • May 28, 2026

The Office of Developmental Programs (ODP) has shared ODPANN 26-039 . The purpose of this communication is to provide updated details about the Residential Performance-Based Contracting (PBC) Pay-for-Performance (P4P) initiatives for Fiscal Year 2026/27. Updates are provided in red . Please review the announcement for more details. Visit here to access the Pay for Performance (P4P): Residential Rural Capacity Expansion Plan template .