CMS Proposes Rule Restricting State Directed Payments
On May 20, CMS released for public inspection a proposed rule implementing Section 71116 of H.R. 1, which requires CMS to limit the total payment rate for state directed payments (SDPs). The proposed rule places additional restrictions on states’ use of SDPs, both in lowering the overall payment limit and in limiting the types of arrangements states may include in their program design. The rule also places additional restrictions on targeted fee-for-service payments. The rule was officially published in the Federal Register on May 22, and CMS will accept public comments through July 21, 2026.
Sellers Dorsey summarized the proposed rule, with a full summary available here (CMS, May 20; Federal Register, May 20).
DHHS Announces New AI-Driven Audit Program for Grantees
The Department of Health and Human Services has announced the Audit Enforcement and Risk Oversight (AERO) initiative. AERO, through the Office of the Assistant Secretary for Financial Resources, aims to utilize analytical artificial intelligence tools to conduct audits across all 50 states and other federal grant recipients. AERO will review all audits that grantees have filed in the last five years. States, local governments, nonprofit organizations, and other grantees that receive $1M or more in federal funding must submit an audit to the federal government to ensure compliance with federal regulations and detail their financial operations.
With the AERO initiative, HHS hopes to eliminate or reduce audit noncompliance, unresolved audit findings, and delinquent submissions. HHS did not provide an estimate of potential cost savings, noting that the initiative is too new. In its press release, the department stated that any entity that is unwilling to address findings from AERO may face temporary payment withholds, suspension or termination of award, withholds of future federal funds, or other remedies permitted under the law (Healthcare Dive, May 22; HHS Press Office, May 21).
Hospital Association Calls for Implementation of Standardized Reporting for RHTP
On May 11, the Federation of American Hospitals (FAH) sent a letter to CMS Administrator Dr. Mehmet Oz, asking that the agency implement a set of standardized reporting definitions for the Rural Health Transformation Program (RHTP) to improve transparency and reduce administrative burdens for both the agency and states. In light of the administration’s stance on fraud, waste, and abuse (FWA) in federal programs, FAH also asks CMS to create a public-facing portal to allow the public sight into funding distribution, as well as facilitating learning relationships between peer states and their hospitals (Inside Health Policy, May 22).
CMS Announces Leadership Changes Amid AI Push
CMS announced leadership changes this week, with Rebekah Armstrong replacing Stephanie Carlton as chief of staff. Carlton will remain at CMS as a deputy administrator and will lead work focused on improving patient access to clinical artificial intelligence (AI) tools and modernizing Medicaid quality programs with more digital and outcomes-based measures. Armstrong previously served as deputy chief of staff for legislation and led CMS’ Office of Legislation. The leadership changes come as CMS continues promoting its goal of becoming an “AI-first” agency under its new five-year strategic framework. The transition also follows several high-profile leadership vacancies across HHS, including at FDA, CDC, and the surgeon general’s office (Inside Health Policy, May 23).
Ways & Means Committee Advances Medicare Oversight Bills
The House Ways & Means Committee advanced several Medicare-related bills last week aimed at strengthening oversight of hospice providers, home health agencies, and durable medical equipment suppliers amid ongoing concerns about fraud tied to home and community-based services (HCBS). Representative Beth Van Duyne’s (R-TX) Protecting Seniors and Stopping Fraudsters Act (H.R. 8883) would increase Medicare revalidations, require annual surveys for certain providers, and expand HHS authority to identify agencies considered at high risk for fraud. The legislation would also require annual reports to Congress on hospice and home health program integrity efforts. During debate, Representative Linda Sánchez (D-CA) unsuccessfully attempted to replace the measure with her Hospice Care, Accountability, Reform and Enforcement (CARE) Act of 2026, arguing it included stronger anti-fraud provisions.
The committee also approved the DME Scammer Prevention Act of 2026 (H.R. 8871), introduced by Representative Aaron Bean (R-FL), which would shorten the documentation submission window for certain durable medical equipment claims from one year to 90 days and require a future Government Accountability Office (GAO) review of Medicare fraud detection technology. Lawmakers additionally advanced Representative Carol Miller’s (R-WV) Improving Home Dialysis Act of 2026 (H.R. 8875), which would expand Medicare coverage for certain home dialysis support services beginning in 2028 (Inside Health Policy, May 21).
