New Medicaid State-Directed Payment Limits Are Likely To Decrease Medicaid Spending By 10-25 Percent In 17 States

The 2025 budget reconciliation bill, H.R. 1, limits Medicaid state-directed payment (SDP) reimbursement for four provider types to Medicare-equivalent rates. This study assessed the provision's potential fiscal impact on states based on recent Medicaid spending on SDPs subject to the payment limits. Total Medicaid spending on these payments in thirty-nine states that paid providers at rates higher than Medicare rates averaged $106.3 billion annually during the 2024-25 rating periods, which is 12.5 percent of total fiscal year 2024 Medicaid spending in these states. Spending on SDPs ranged from less than 1 percent of total state Medicaid spending in Maryland to 31 percent in Tennessee. When the analysis was limited to subset of the highest-paying SDP arrangements in thirty-six states, which paid providers at or near the average commercial rate, a reduction of approximately $51.8 billion in annual Medicaid spending across these states might be required, including more than a quarter of total state Medicaid spending in Nebraska, Louisiana, and South Carolina. By reducing Medicaid reimbursement, the new SDP limits-compounded by limits on provider taxes-are likely to create financial strain for providers and threaten Medicaid beneficiaries' access to care.