A new KFF analysis finds that 40 states and DC receive $93 billion annually in federal Medicaid spending through state directed payments (SDPs), with 84% going to hospitals. Key facts: (1) California leads at $10.6 billion, followed by Texas, North Carolina, and Illinois.
(2) Most SDP spending is tied to commercial rates, now being capped at Medicare levels. (3) The 2025 reconciliation law and proposed CMS rule could cut federal spending by $510 billion from 2026 to 2035.
(4) Financially vulnerable safety-net hospitals face heightened risk of closure or service reductions. The new limits leave states with few options to offset the cuts, potentially increasing uncompensated care and reducing access for Medicaid enrollees.