Medicaid Policy · Proposed Rule · CMS-2449-P

The answer first: CMS has proposed tying every Medicaid state directed payment to Medicare rates. Published in the Federal Register on May 22, 2026 as CMS-2449-P (document 2026-10292), the proposed rule implements Section 71116 of OBBBA. New state directed payments would be capped at 110 percent of Medicare in non-expansion states and 100 percent of Medicare in expansion states. Grandfathered payments would ramp down 10 percent per year starting in 2028. And CMS goes further than the statute requires, proposing Medicare-based limits on all SDPs by 2029. CMS projects Medicaid spending $18.2 billion lower in 2026 and $122.1 billion lower by 2035. Comments were due July 21, 2026, so the next milestone is a final rule.

$18.2BProjected Medicaid spending reduction, 2026

$122.1BProjected reduction by 2035

110% / 100%Medicare cap: non-expansion / expansion states

-10%/yrGrandfathered SDP ramp-down, starting 2028

One rule, two caps: the SDP exposure map

Which ceiling applies to a new state directed payment depends entirely on the state's Medicaid expansion status. The ten states that have not adopted Medicaid expansion get the 110 percent of Medicare ceiling. The expansion states and DC get 100 percent. Either way, the era of new SDPs benchmarked toward commercial rates ends if the rule finalizes as proposed, and hospitals and nursing facilities need to know which column their states sit in.

Non-expansion: new SDPs capped at 110% of Medicare Expansion (incl. DC): new SDPs capped at 100% of Medicare

Tile cartogram, not to geographic scale. Expansion status shown as of August 2026; confirm your state's status before modeling.

The compliance clock

May 22, 2026Rule published

CMS-2449-P appears in the Federal Register as document 2026-10292, implementing OBBBA Section 71116.

Jul 21, 2026Comments closed

The comment window ended. A final rule is the next federal action.

2028Ramp-down begins

Grandfathered SDPs start stepping down 10 percent per year.

2029All SDPs proposed capped

CMS proposes Medicare-based limits on all state directed payments, going beyond the statute.

2035$122.1B lower

CMS projects Medicaid spending $122.1 billion lower by 2035.

The grandfather glide path

Existing SDPs do not disappear on day one, they erode on a schedule. Starting in 2028, grandfathered payments ramp down 10 percent per year. The bars below illustrate that glide path for a payment holding steady before the ramp begins.

100%

Pre-2028

-10%

2028

-20%

2029

-30%

2030

-40%

2031

Cap

Medicare limit

Illustrative glide path only. Each grandfathered payment steps down 10 percent per year from 2028; where a specific payment lands each year depends on its starting level relative to its state's Medicare-based cap.

What CMS-2449-P actually proposes

New payments

Medicare becomes the ceiling

New state directed payments are capped at 110 percent of Medicare in non-expansion states and 100 percent of Medicare in expansion states, implementing OBBBA Section 71116. The full rule title also covers Medicaid fee-for-service targeted Medicaid practitioner payments.

Existing payments

Grandfathering with a fuse

Payments that predate the caps are not frozen in place. They ramp down 10 percent per year starting in 2028, which turns every SDP-dependent Medicaid margin into a declining asset with a known schedule.

Beyond the statute

All SDPs capped by 2029

CMS proposes Medicare-based limits on all state directed payments by 2029, going further than OBBBA requires. That is the provision most likely to draw comment-driven changes, and the one worth watching hardest in the final rule.

Who absorbs the $122.1 billion

State directed payments have become the mechanism by which many states lift managed care payment toward, and in some programs above, commercial benchmarks for hospitals and nursing facilities. Facilities whose Medicaid margins depend on SDP add-ons are the ones exposed here. The exposure is not uniform: it varies by state cap tier, by how far current SDP-supported rates sit above the applicable Medicare benchmark, and by how much of a facility's payer mix is Medicaid managed care. That is why the practical response is a state-by-state, facility-by-facility exposure model, built now, before the final rule fixes the numbers. A hospital in a gold state on the map above has a 110 percent ceiling to model; the same hospital chain's facility across the border in an expansion state models against 100 percent, with the same 2028 ramp-down clock running on any grandfathered payment in either state.

The operator to-do list

Inventory every SDP you touch. List each state directed payment supporting your facilities, its program, its current benchmark, and whether it would be grandfathered.
Tag each state by cap tier. Map every facility to the 110 percent or 100 percent of Medicare ceiling based on expansion status.
Quantify the Medicare gap. For each SDP-supported rate, measure the distance to the applicable Medicare-based limit; that gap is your revenue at risk.
Model the 2028 ramp. Build the 10 percent per year step-down into your 2028 and later Medicaid revenue forecasts for grandfathered payments.
Run the 2029 scenario. Stress-test the CMS proposal to apply Medicare-based limits to all SDPs by 2029, not just new ones.
Watch the final rule. Comments closed July 21, 2026. Track which provisions survive, especially the beyond-statute 2029 all-SDP cap.
Reprice the downstream. Feed the exposure model into managed care contract strategy, service-line planning, and any transaction diligence involving Medicaid-heavy facilities.

Sources

Every figure and date on this page comes from these primary sources:

Proposed rule, Medicaid Managed Care State Directed Payments and Medicaid Fee-for-Service Targeted Medicaid Practitioner Payments (CMS-2449-P), Federal Register, May 22, 2026 (2026-10292)
CMS fact sheet on CMS-2449-P; comments were due July 21, 2026
OBBBA Section 71116, the statutory basis the rule implements

Model your SDP exposure before the final rule fixes the math

ASP-RCM Solutions builds state-by-state SDP exposure models for hospitals and nursing facilities: payment inventories mapped to the 110 and 100 percent Medicare caps, grandfathered ramp-down forecasts from 2028, and 2029 all-SDP stress scenarios wired into your Medicaid managed care revenue picture. If your Medicaid margin depends on directed payments, the time to quantify the cliff is while the rule is still proposed, not after it is final.

Request an SDP exposure model