Federal officials want to cap state directed payments in Medicaid managed care, and the limit would reach home and community-based services starting in 2029. The Centers for Medicare & Medicaid Services released the proposed rule, CMS-2449-P, with a fact sheet on May 20, 2026. It was published in the Federal Register on May 22, and comments closed July 21, 2026.
State directed payments let states require the rates that Medicaid managed care plans pay providers. CMS said they have grown substantially and threaten Medicaid's long-term stability.
How the cap would work
Carrying out section 71116 of the 2025 federal budget law, the rule would cap directed payments for inpatient and outpatient hospital, nursing facility and certain academic medical center practitioner services at 100% of Medicare rates in expansion states and 110% elsewhere, for rating periods starting on or after July 4, 2025. The limit is assessed claim by claim.
CMS then proposes extending the limit to all directed payments for all services, starting with rating periods on or after Jan. 1, 2029. When Medicare has no published rate for a service, as with most home and community-based services, the limit would be 100% of the state plan approved rate.
Phase-downs and other changes
Grandfathered payments would phase down by 10 percentage points a year starting in 2028 until they reach the limit. The rule would also end uniform increase directed payments, a common way to add across-the-board amounts to managed care rates, from 2028, except for grandfathered ones. States could adopt minimum or maximum fee schedules up to the limit without CMS prior approval.
A parallel limit would apply to targeted fee-for-service practitioner payments.
Why this matters for providers and DSPs
Some states use directed payments to raise managed care rates for HCBS and DSP wages. If finalized, the cap and the end of uniform increases could limit those add-ons, so providers in managed care states should ask their Medicaid agencies how they would be affected.