Federal Policy
37 States Face Cuts to Hospital State Directed Payments Under 2025 Reconciliation Law
At least 37 states operate Medicaid state directed payment (SDP) arrangements for hospital services that exceed new federal limits established by the 2025 reconciliation law. These limits, when fully implemented, will require states to reduce federal spending on hospital SDPs that currently surpass statutory caps. The analysis estimates the scope of current federal spending that will be affected as states come into compliance with the new restrictions. Hospital SDPs, which allow states to direct managed care plans to make supplemental payments to hospitals, have grown significantly in recent years and represent a major revenue source for safety-net hospitals.
Why it mattersStates and MCOs must prepare to restructure or reduce hospital supplemental payment arrangements that currently exceed federal limits, affecting hospital finances and potentially requiring contract amendments and capitation rate adjustments.