Spending on Medicaid State Directed Payments Before New Limits Take Effect Authors: Alice Burns, Scott Hulver, Jessica Mathers, Robin Rudowitz, and Patrick Drake Published: Jun 15, 2026

https://www.kff.org/medicaid/spending-on-medicaid-state-directed-payments-before-new-limits-take-effect/?utm_campaign=KFF-This-Week&utm_medium=email&_hsenc=p2ANqtz--boR1YxpkBZsLbYg1eDg51qLLzTVSDvk-KMI5dAZmlIozmjqL0spx6TiejTt6jwsB4aOEtEZHSLKBFMYzQKeHvxQAsNg&_hsmi=424552646&utm_content=424552646&utm_source=hs_email The 2025 reconciliation law reduced federal Medicaid spending by an estimated $911 billion from 2025 through 2034, some of which stems from new restrictions on Medicaid state directed payments (SDPs) for hospital and other health care services. While states are generally prohibited from directing how managed care organizations (MCOs) pay for care, states can implement SDPs that require MCOs to increase rates or set minimum rates for specified Medicaid services. In authorizing SDPs, the Centers for Medicare and Medicaid Services (CMS) aimed to help states improve access to care and provider participation. Many states that contract with MCOs use SDPs to make uniform rate increases that function like supplemental payments in fee-for-service (FFS) Medicaid. This issue brief analyzes Medicaid spending by state on SDPs that require prior CMS approval to better understand the use of SDPs before new limits in the reconciliation law take effect. A companion issue brief provides more details about the forthcoming changes.