What are state directed payments. Uh, are they reimbursed, uh, on top of the, the Medicare rates that the government give. Uh, do they also apply for Medicaid, uh, patients. And how does it work like

State-directed payments (SDPs) are exactly what they sound like: a mechanism where a state government directs a private Medicaid health plan on how much to pay a provider, rather than letting the plan negotiate rates on its own -1-3-4.

Think of it as the state setting a mandatory "floor" or specific payment amount for certain services.

Here is the breakdown of how they work and how they relate to Medicare rates.

💰 How SDPs Work (The "On Top Of" Question)

You asked if these are reimbursed on top of Medicare rates. The answer is nuanced:

• They are a Supplement, not a Replacement: SDPs are extra payments made in addition to the standard, underlying Medicaid fee-for-service rate -2. They function like a guaranteed "tip" or bonus on top of the base payment.
• The Current Benchmark: Currently, many states are allowed to set these combined payments (base + SDP) as high as Average Commercial Rates (what private insurers pay), which are often double or triple what Medicare pays -5-8.
• The 2028 Change: Starting in 2028, this is changing. The law will cap the total payment (base + SDP) at 100% of Medicare rates for most states (or 110% for the 10 states that did not expand Medicaid) -1-3-4.

So, to be precise: Today, SDPs are paid on top of Medicaid rates to reach commercial levels. Starting in 2028, the total allowed amount will be capped at Medicare levels.

🏥 Who They Apply To (Medicaid Patients)

Yes, these payments apply specifically to Medicaid patients-7-10.

Here is the "why" behind them:

• The Problem: Standard Medicaid base rates are often very low—sometimes below the actual cost of providing care. Hospitals lose money on every Medicaid visit -10.
• The Solution: SDPs are the tool states use to close that gap. By using SDPs, states raise the payment for Medicaid services up to a level that keeps hospitals financially stable enough to actually treat Medicaid patients -10.

⚙️ How the Financing Works (The "Money Laundering" Critique)

This is the controversial part. States often fund their share of these payments using specific financial tools, which critics call a "money laundering apparatus" -8. Here is the typical cycle:

1. Tax/Transfer: The state imposes a tax on hospitals (called a "provider tax") or takes money from public hospitals (called an "Intergovernmental Transfer" or IGT) -4-7.
2. Federal Match: The state takes that money and sends it to the federal government, claiming it as the "state share." The federal government then matches it with federal Medicaid dollars (usually at a rate of over 60%) -4.
3. The Payout: The state takes the combined funds (state tax money + huge federal match) and pays it back to the hospitals as "State Directed Payments" -1-8.

The Result: Hospitals get paid much higher rates, but critics argue the state is simply recycling local money to draw down excessive federal funds without actually spending much new state budget money -8.

📊 Summary Table: The Change Coming in 2028

Are you looking for the specific impact this 2028 change might have on hospitals in a particular state?