States that use managed care directed payments to pay some providers close to commercial rates may have to take about $51.8 billion a year out of Medicaid once new federal limits take hold. That is the estimate in a study by health policy researcher Debra Lipson in the September 2026 issue of Health Affairs, which Fierce Healthcare reported when it was published Sept. 9. Stateline covered it Sept. 24.
What the study found
The 2025 budget law, H.R. 1, limits directed payments for four types of services (inpatient hospital, outpatient hospital, nursing facility, and certain practitioner services at academic medical centers) to Medicare-level rates. Lipson used the directed payment arrangements CMS approved for 2024 and 2025.
| Measure | Estimate |
|---|---|
| States paying above Medicare through these arrangements | 39 |
| Their average yearly spending on them, 2024–25 | $106.3 billion (12.5% of FY2024 Medicaid spending) |
| States with the highest-paying arrangements (at or near commercial rates) | 36 |
| Possible yearly cut in those states | about $51.8 billion |
| States where the cut could equal 10% to 25% of Medicaid spending | 17 |
| States above a quarter of Medicaid spending | Nebraska, Louisiana, South Carolina |
Directed payment spending ranged from under 1% of state Medicaid spending in Maryland to 31% in Tennessee. The estimate leaves out the law's separate limits on provider taxes and a pending CMS proposal to widen the cap, both of which would add to the cuts, according to Fierce Healthcare.
How the limits work
The law caps these payments at 100% of Medicare rates in states that expanded Medicaid and 110% in states that did not. Payments above the cap step down 10 percentage points a year starting in 2028 until they reach it, Stateline reported.
Why this matters for providers and DSPs
The law's cap does not reach home and community-based services, and the study does not estimate effects on disability services. But states that lose billions in hospital and nursing home payments will face budget pressure that can reach other parts of Medicaid, including Medicaid waiver rates.
A second risk is the CMS proposal. In May, CMS proposed extending the limit to all directed payments, including HCBS, starting in 2029 (our coverage). Some states use directed payments to raise managed care rates for HCBS and DSP wages. Provider agencies serving people with I/DD in managed care states should ask their Medicaid agency whether any of their rates rely on directed payments. For how federal and state money flows into these services, see our FMAP explainer.