CMS Issues State Medicaid Director Letter on Section 1115 Budget Neutrality Changes

CMS issued a State Medicaid Director Letter previewing planned changes to Section 1115 Medicaid demonstration budget neutrality standards, which would significantly restrict states’ ability to generate required savings. This marks a fundamental shift in CMS’s budget neutrality methodology, reducing states’ flexibility to pursue 1115 demonstrations.

CMS said nearly one-third of federal Medicaid dollars flow through demonstration projects, and H.R. 1 requires the CMS Chief Actuary to certify that demonstrations are budget neutral. Beginning January 1, 2027, CMS will not approve new demonstrations, renewals, or amendments unless the Chief Actuary certifies that the proposal is not expected to increase federal spending compared to the state’s Medicaid program without the demonstration, using the updated budget neutrality methodology. States with demonstrations up for renewal in 2027 may need to take additional steps, and CMS said it will provide technical assistance as it moves toward future rulemaking. Sellers Dorsey summarized the State Medicaid Director Letter and its provisions, which can be found here (CMS, June 11).

CMS Finalizes Rule to Increase Oversight on Medicare Accrediting Organizations

On June 12, CMS finalized a final rule previously proposed by the Biden administration to increase accountability of nine accrediting organizations (AOs) that are approved to certify Medicare providers and supplies. The final rule, Strengthening Oversight of AO and Preventing AO Conflicts of Interest, will go into effect on June 16 and restricts fee-based consulting services and requires submission of public correction plans. The rule will align oversight of AOs with those state survey agencies (SAs) must abide by. AOs that accredit durable medical equipment suppliers, clinical laboratories, and noncertified suppliers will not be affected by the rule (CMS, June 12; Inside Health Policy, June 15).

Ob-Gyn Groups Raise Concerns Over CMS Medicaid Work Requirement Rule

On June 11, six ob-gyn organizations, including the American College of Obstetricians and Gynecologists, American Society for Reproductive Medicine, American Urogynecologic Society, Society for Maternal-Fetal Medicine, Society of Family Planning, and Society of Gynecologic Oncology, issued a joint statement opposing CMS’ June 3 interim final rule implementing H.R. 1 Medicaid work and community engagement requirements. The groups said the rule goes beyond legislative intent and would increase paperwork for patients and clinicians by limiting self-attestation, which is set to be eliminated in 2028.

They also raised concerns that CMS’ medical frailty definition does not clearly identify qualifying diagnoses and prevents states from adding categories, creating potential inconsistencies that could make it harder for patients with serious health conditions, including gynecologic and reproductive cancers, to maintain coverage and access care (Inside Health Policy, June 11).

States Revise Rural Health Funding Plans After CMS Feedback

States are revising plans for the five-year, $50B Rural Health Transformation Program after CMS rejected or pushed changes to some proposed uses of the funding. The program was created under the One Big Beautiful Bill Act as a rural health offset amid concerns about the law’s expected Medicaid reductions of more than $900B over 10 years. In Maine, state officials said CMS would not allow the state to use part of its $190M award to reimburse hospitals and clinics for treating certain low-income, uninsured patients, requiring the state to redirect funding toward provider transitions to alternative reimbursement models. Vermont, Colorado, and Wyoming also adjusted plans after CMS feedback, including Wyoming dropping a proposed perpetuity fund.  CMS can rescind existing funding or reduce future awards if states do not comply. States must submit progress reports by the end of August, commit first-year funding by October 30, and spend it by September 30, 2027, though rural health leaders warned the clawback threat could discourage some hospitals and clinics from applying for funding (KFF, June 16).

House Passes Several Bills Related to Fraud, Waste, and Abuse Prevention

On June 10, the House passed H.R. 8464, titled the Stopping Fraudulent Payments Act, with six Democrats joining their Republican colleagues in voting for the bill. The legislation aims to shift the government to a proactive approach towards fraudulent healthcare payments by requiring agencies to take corrective action before disbursing payments that may be at risk of fraud. If a similar risk of fraud is detected, the Treasury would also be required to return payments to an agency for corrective action. The Congressional Budget Office (CBO) estimates that H.R. 8464 will cost about $25M to implement, with an unknown amount of savings. A related bill also passed the House last week (H.R. 8312)  which would create a new Office of Inspector General for Fraud, Waste and Abuse and transfer funding and authority from the Pandemic Response Accountability Committee. The CBO did not offer a concrete estimate of savings but did state that H.R. 8312 would cost around $18M to implement. Two other bills related to fraud, waste, and abuse in government programs passed the House on suspension. The bills now move to the Senate (Inside Healthy Policy, June 10).

CMS Issues RFI on Essential Health Benefits under the ACA

CMS released a request for information (RFI) on Friday, June 12, seeking public comment to support the agency’s comprehensive review of the Essential Health Benefits (EHB) framework under the Affordable Care Act, with consideration that the scope of EHB be equal to that under a typical employer plan. CMS is seeking comments on the current interpretations of EHB, state approaches to selecting and updating EHB-benchmark plans, and methodologies used to determine the scope of benefits included as EHB and how they relate to access and market stability. The agency first announced that it intended to review the EHB framework in February through the draft 2027 exchange rule. CMS also announced that it will be pausing review of any state applications to update their EHB benchmarks, impacting at least three states, according to spokespersons from the National Association of Insurance Commissioners. Comments on the RFI are due by July 15, 2026 (Inside Health Policy, June 15).

MACPAC Releases June Report to Congress

On June 15, MACPAC released its June 2026 Report to Congress on Medicaid and CHIP, outlining its recommendations across seven chapters. The report focuses on strengthening oversight and accountability within Medicaid programs and managed care plans, as well as expanding access and protecting coverage of vulnerable populations. The recommendations range from action items for Congress, HHS, CMS, and state agencies, including:

• Chapter 1 | Implementing Community Engagements (CE) Requirements in Medicaid: Commissioners recommend that Congress direct CMS to develop a transparent plan for monitoring and evaluating CE requirements.
• Chapter 2 | Automation in Medicaid Prior Authorization: Recommends that HHS direct CMS to (1) issue guidance on determinations of medical necessity to Medicaid agencies and managed care plans, (2) amend regulations that denials be made by individuals with expertise, (3) issue guidance on how to leverage existing regulatory processes and mandated plan reporting standards to improve automation in prior authorization for managed care plans.
• Chapter 3 | State and Federal Tools for Ensuring Accountability of Medicaid Managed Care Plans: Recommends that the HHS direct CMS to (1) provide guidance on how to effectively report on accountability actions and (2) develop a publicly available database on managed care plan performance with other federally mandated data.
• Chapter 4 | Addressing Appropriate Access to Residential Behavioral Health Treatment for Children in Medicaid: Recommends that (1) Congress require HHS to develop and maintain publicly available registry of youth residential treatment facilities, (2) HHS direct CMS to regularly report on services provided by psychiatric residential treatment facilities (PRTF), non-PRTFs, and out-of-state residential treatment providers, and (3) HHS directs CMS to establish minimum requirements for discharge processes to include key stakeholders, including providers, plans, families and caretakers.
• Chapter 5 | Children and Youth with Special Health Care Needs (CYSHCN) Transitions to Adult Coverage: Recommends that (1) the HHS directs CMS to require states to send a 60-day notice to CYSHCN that their renewal process has begun, (2) require state Medicaid agencies to give individuals 30 days to respond to requests, (3) coordinate a joint update by the HHS and CMS of notice language, (4) ask that state agencies implement optional eligibility for individuals who are not eligible for and enrolled under the state plan, (5) Congress amend to the SSA to require states to provide CYSHCN populations with a 12-month continuous eligibility period, and (6) HHS direct CMS to issue guidance on redeterminations and transitions.
• Chapter 6 | Exploring the Role of the State Medicaid Agency in the Program of All-Inclusive Care for the Elderly (PACE): Recommends that HHS direct CMS to (1) update audit protocols and three-way program agreements for joint agency audits with PACE organizations, (2) develop a standardized national quality measure set, and (3) release aggregated PACE performance data publicly on the agency’s site.
• Chapter 7 | Provider Enrollment and Credentialing in Medicaid: Informs Congress on barriers to provider enrollment and related effects on provider participation, program integrity, and the administrative burden on states.