My Comment on the CMS Proposed Rule on State-Directed Payments

The Centers for Medicare and Medicaid Services proposed on May 20 an awful rule implementing the not-so-beautiful bill’s cuts to Medicaid state-directed-payments (SDPs). I analyzed the implications of this proposed rule for MS NOW, highlighting how the rule goes above and beyond the already draconian policy laid out by Congress. I just submitted the following comment on the rule, and you can do the same through July 21 here.

I am writing to express my strongest opposition to CMS’s proposed rule CMS-2449-P, “Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments.” The cuts enacted through HR1 were dangerous enough, in addition to directly penalizing Medicaid expansion states by imposing more stringent constraints on them, but this proposed rule goes even farther than the widespread and dangerous cuts, tripling the pain that will be felt by America’s most vulnerable.

I am an Assistant Professor of Health Policy and Management at the University of Pittsburgh, where I hold secondary appointments in political science and public affairs, and where I conduct research on health insurance and the politics of health reform. I have a doctorate degree in political science from Columbia University and did postdoctoral training in health services research at the University of California, Los Angeles. I am the author of Coverage Denied: How Health Insurers Drive Inequality in the United States and publications appearing in such outlets as Health Affairs Scholar; Journal of Health Politics, Policy, and Law; JAMA Pediatrics; World Medical & Health Policy; and Lancet Regional Health-Americas.

H.R. 1, the so-called “One Big Beautiful Bill Act” imposed draconian cuts to Medicaid, with nearly a trillion dollar cut to Medicaid funding and an expected 10 million people losing coverage as a result of the reforms put forward. Though the cuts are directed at Medicaid, the effects will be felt far more broadly as hospitals face increased strain, potentially leading to closures that necessitate 30-mile farther driving distances for hospital care, likely resulting in worse outcomes for the publicly and privately insured alike.

Among the cuts to Medicaid, Congress sought to make a dramatic reduction to state-directed payments (SDPs), which work to address Medicaid payments paling in comparison to those of commercial insurance, bridging at least some of the gap between the cost of delivering care to low-income patients and the reimbursement for those services rendered. While 90% of physicians currently accept new privately insured patients, just 70-75% of physicians accept Medicaid patients. This greater scarcity can mean that Medicaid patients have to go farther distances or wait for longer durations for medical appointments, despite this population already facing systemic disadvantages. SDPs have been essential to making it financially feasible for providers and hospitals to offer comprehensive coverage to Medicaid enrollees, and it can tie higher reimbursements to states’ measures toward value-based care, which is seen by both political parties as a key way to contain America’s high health care spending and improve the return on investment. By making it more tenable to accept Medicaid enrollees, Medicaid patients have a better chance at meaningful access to care, in the absence of which there will be worse outcomes and greater reliance on emergency departments, fueling overcrowding and uncompensated care.

HR1’s attacks on SDPs made specific reference to limiting SDPs in managed Medicaid in the states and the District of Columbia, and applied caps on certain types of SDPs across four specific areas of health care: inpatient hospital services, outpatient hospital services, nursing facility services, qualified practitioner services at academic medical centers. The Congressional Budget Office estimated that these changes would equate to $149.4 billion in Medicaid cuts, or around 16% of the total Medicaid cuts under HR1.

The Centers for Medicare and Medicaid Services (CMS) is tasked with implementing the Act. But rather than implementing Congress’s wishes, the proposed rule – without rhyme or reason – goes above and beyond the dire cuts that Congress enacted.

1. The rule senselessly extends the constraints on SDPs to territories as well. This is deeply damaging to regions whose Medicaid programs are already under immense strain due to poor economic conditions combined with lower FMAPs. For example, nearly half of Puerto Ricans are on Medicaid and roughly half of Puerto Rico hospitals are at risk of closure. Puerto Rico relies heavily on SDPs to boost the severely underfunded hospital and physician reimbursement rates, which form an unusually high share of their patient caseload. Constraining SDPs may be the final nail in the coffin, exacerbating Puerto Rico’s already poor health care conditions.

2. The rule needlessly extends the constraints on SDPs to all SDPs in all categories of health care. This will make it more difficult for hospitals and providers to provide comprehensive health care in areas of health care delivery beyond the four areas that Congress spelled out. So, for, example, maternal health and behavioral health care become in the crosshairs under the CMS proposed rule, despite Medicaid covering 41% of births in a country that has on average poor maternal health outcomes (thus making even more necessary that patients have access to care). What’s more, nearly 40% of the nonelderly adult Medicaid population has a mental health or substance use disorder condition, yet CMS’s unnecessary and misguided decision to take aim at SDPs in these categories of care (and others) will make it even less likely that these individuals can access needed care, which is saying something given that only 40% of psychiatrists accept Medicaid currently. Not only will providers feel even more strain than Congress intended, but this strain may be felt especially acutely by rural hospitals, hundreds of which are already at risk of closure before most of HR1 goes into effect. When a rural hospital closes, the driving time to the next hospital increases by 20-40 miles depending on the type of health care one requires, with the result of worse outcomes (ironically, for disproportionately Republican voters).

3. Despite SDPs applying to managed Medicaid plans, the CMS rule senselessly takes aim at fee-for-service Medicaid as well, diverging not only from Congress’s intentions with HR1, but from how SDPs have historically been applied. This is not about ensuring program integrity. This is about penalizing people who are poor. And making it harder for this population to access needed health care is only more likely to keep them trapped in a cycle of poverty, unable to enjoy upward economic mobility or to exercise the “personal responsibility” about which this administration pontificates.

4. Despite HR1 not addressing the “uniform dollar or percentage” option, CMS whipped out of thin air a decision to eliminate this option that accounts for two thirds of SDP spending. The result would be a requirement that states further reconfigure their financing arrangements at a time when they are already scrambling to assume the administrative burden of compulsory work requirements for the expansion population, 92% of which is working or exempt but which in this administration’s eyes just doesn’t experience enough administrative burden.

This is not the entirety of the morally bankrupt deviations from Congress’s almost as morally bankrupt intentions. But the fact that it more than triple the drastic SDP cut – from $149.4 billion to $515 billion – speaks volumes. While the pain will be felt far and wide across the Medicaid population, providers, and hospitals, particularly vulnerable groups – namely, children and pregnant people, who are disproportionately reliant on Medicaid, will feel the pinch especially. And nothing screams “supporting family values” quite like taking senseless policy steps to further erode the health care access of children and pregnant people (at a time of already reduced access to reproductive health care).

Of course, administrative agencies have some degree of bureaucratic discretion when carrying laws into effect, hence the myriad political science and legal analyses of “may” versus “shall” and the breadth of congressional delegation and the specificity therein. But this proposed rule not only goes well beyond the scope of Congress’s aims in HR1, especially given that Congress actually enumerated specific areas of care where the restrictions were meant to apply, but the rule also concocts new cuts out of thin air that are as senseless as they are cruel, and which will harm patient outcomes and hospitals’ financial security.

I have reviled the Loper Bright line in which Chief Justice Roberts wrongly asserts that agencies have no special competence in statutory interpretation. Unfortunately, this rule lends credence to that claim, showing a blatant disregard for SDPs’ historic role in Medicaid delivery alongside departures from congressional directives. This rule should be rescinded and confined to the particular domains of health care that Congress took the time to spell out.