In response to a law passed by Congress in 2025, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule that would establish a new Medicare payment limit for all Medicaid state-directed payments (SDPs) and certain targeted fee-for-service (FFS) practitioner payments, replacing the legacy limit of average commercial rates for certain payments. The rule would require states to calculate the new Medicare payment limit on a per-service basis, using Medicare published rates, rather than aggregated data sources.
Developing a detailed Medicare limit calculation is a substantial technical undertaking, in part due to the intricacies of Medicare pricing rules, and provider mappings and adjustments. The calculation also involves cross-walking Medicaid services and payment arrangements to the appropriate Medicare code or fee schedule. States that begin this work now will be best positioned for three key deadlines on Jan. 1 in 2027, 2028, and 2029.
This white paper focuses on selected provisions of the proposed rule that may be particularly relevant to states evaluating existing or future Medicaid payment arrangements. In particular, it summarizes key changes to SDP and targeted FFS payment limits and outlines considerations for developing Medicare limit calculations.
Key discussion points:
- Introduction and background: CMS’s proposed rule that would substantially restructure the regulatory framework governing two categories of Medicaid payments.
- Selected proposed rule changes: How SDP and FFS payment limits would be affected.
- Determining the Medicare limit: Three tiers for identifying payment rate comparators.