Overview
On May 20, 2026, CMS published a proposed rule that would impose significant restrictions to Medicaid state directed payments (SDPs), one of the most significant Medicaid financing tools available to states. SDPs allow states to direct managed care plans to make additional payments to providers to support access to care and promote the financial stability of the Medicaid delivery system.
The proposed rule, summarized here, not only implements Section 71116 of the Working Families Tax Cut legislation (HR1) but also includes several provisions that extend beyond Congressional intent. HR1 established Medicare-based payment limits for four specified service categories: inpatient hospital, outpatient hospital, nursing facility, and physician services furnished at academic medical centers. Beyond these statutory requirements, CMS also proposes extending Medicare-based payment limits to all non-grandfathered SDPs, including services not expressly identified in HR1.
Stakeholders have raised concerns that the proposed rule extends beyond the statutory text and could have significant implications for Medicaid financing, provider reimbursement, and access to care across states. Further, this rule has a compounding effect alongside other simultaneous CMS regulations and guidance, including the interim final rule on community engagement requirements and the provider tax/indirect hold harmless rule expected by early July.
Snapshot of Respondents
As of June 26, 2026, CMS has received 81 public comments, of which 74 have been posted and serve as the basis for this analysis. By comparison, recent CMS rulemakings and requests for information have generated substantially greater engagement. The February 2026 Request for Information (RFI) Related to Comprehensive Regulations To Uncover Suspicious Healthcare (CRUSH) received 578 comment submissions (559 posted), while the Medicaid Provider Taxes & Generally Redistributive Requirements proposed rule (CMS-2448-P) received 1,265 comment submissions (257 posted).
Among respondents, ground emergency medical transportation (GEMT), ambulance, and fire-based EMS organizations have submitted the most comments. Participation from hospitals, health systems, behavioral health providers, physician organizations, states, and other stakeholders has been comparatively modest despite the rule’s potentially far-reaching implications. Given the anticipated impact of the SDP proposed rule on Medicaid financing and provider reimbursement across virtually every state, the current volume of public comments appears disproportionately low, underscoring the opportunity for additional stakeholders to engage before the July 21, 2026, comment deadline.
Who Responded
Where Are They From
Stakeholder Perspectives & Early Insights
The following section summarizes the principal themes emerging from public comments submitted to date and highlights the early policy, operational, and financial implications of the proposed restrictions identified by stakeholders across the Medicaid landscape. While the public comment period remains open and additional comments are expected before the July 21 deadline, these submissions provide an initial view into the issues generating the greatest concern and the considerations likely to shape the final rulemaking process. Sellers Dorsey will conduct a final analysis following the close of the public comment period to incorporate the full range of stakeholder feedback and assess its implications for final rule.
What Are Stakeholders Saying
Across current submissions, stakeholders consistently argue that the proposed rule would reduce state payment flexibility and threaten provider sustainability, access to care, and healthcare capacity. There is broad agreement that SDPs are essential to supporting Medicaid reimbursement and maintaining essential healthcare services particularly for service areas not included in statutory restrictions from HR1. Fire-based EMS and ambulance providers focus on the gap between Medicare payment rates and the cost of emergency response infrastructure. Hospitals, behavioral health providers, clinicians and disability advocates emphasize risks to workforce stability, safety-net providers and overall access for vulnerable populations.
By contrast, relatively few comments address the broader policy and operational changes proposed. Few commenters address the operational implications of applying Medicare-equivalent payment limits at the individual service level rather than applying aggregate upper payment limits, a standard practice under Medicare and FFS today. Comments have been less focused on the detrimental impact and administrative burden of the provisions related to prohibiting uniform rate increase methodology, or the program redesign needed to support the implementation of data-heavy grandfathering and phase down requirements.
Responses also generally evaluate the proposed rule in isolation, with relatively little discussion of how these changes could interact with other anticipated CMS rulemaking, including proposed limits on provider taxes and administratively burdensome community engagement requirements. They need to be seen in their totality and assessed against the compounded impact of financing, administrative and implementation challenges on Medicaid beneficiaries, providers, state agencies, and plans.
With limited time remaining to submit comments, Sellers Dorsey can help support your advocacy strategies, including preparing comments and supporting your engagement with associations and public officials. Our team of experts will continue monitoring stakeholder feedback, CMS activity, and other developments throughout the comment period to help clients and stakeholders understand the evolving landscape and prepare for potential policy changes. Contact us to learn more.
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