Health Headlines –February 9, 2026

President Trump Signs Appropriations Act with Medicare and Medicaid Extenders into Law

On February 3, 2026, President Trump signed H.R. 7148, the Consolidated Appropriations Act, 2026 (the “Bill”) into law. In addition to funding portions of the government through September 30, 2026, the Bill also includes several important provisions affecting the Medicare and Medicaid programs. In particular, the Bill delays the Medicaid DSH cuts that were slated to begin this year and also reduces the total amount of the payment cut. The Bill contains a new administrative mandate for off-campus hospital outpatient departments, and it also extends various Medicare programs, including the low-volume adjustment, Medicare-dependent hospitals, and telehealth flexibilities.

Below is a summary of the key Medicaid and Medicare provisions in the Bill:

• Medicaid DSH Allotment Reductions: The Bill reduces and delays the Medicaid DSH payment cuts mandated by the Affordable Care Act (ACA). The ACA cuts would have gradually reduced Medicaid DSH payments by $24 billion over the next two years. But the Bill reduced the total payment cut to $8 billion, and delayed implementation of the cut until federal fiscal year 2029.
• Off-Campus Hospital Outpatient Departments: The Bill requires hospitals to obtain and use a National Provider Identifier (NPI) and to provide an attestation for each of their off-campus outpatient departments. Hospitals must comply by January 1, 2028, to continue receiving payment for their campuses under the Outpatient Prospective Payment System. The Bill also requires HHS OIG to review and make recommendations concerning the agency’s process for reviewing attestations.
• Telehealth: The Bill extends, through December 31, 2027, the telehealth waivers that permit patients to receive services from home. The bill also directs HHS to implement new codes for telehealth claims furnished by physicians that have a payment arrangement with the telehealth virtual platform used to provide the services.
• Medicare Extenders: The Bill extends the Medicare low-volume hospital (LVH) adjustment and the Medicare-dependent Hospital (MDH) designation through December 31, 2026. Both the LVH adjustment and the MDH designation had expired September 30, 2025.
• Sequestration: The Bill provides that the Medicare sequestration will remain in effect at 2 percent until 2033.
• Clinical Lab Cuts: The Bill postpones the Protecting Access to Medicare Act (PAMA) of 2014 scheduled reduction in clinical lab reimbursement through 2026. The bill also shifted the PAMA data collection period from January 1-June 30 of 2019 to January 1-June 30 of 2025. The subsequent PAMA data reporting period is now May 1, 2026-July 31, 2026.
• Streamlined Enrollment for Out-of-State Providers: The Bill requires states to establish a streamlined process for allowing eligible out-of-state providers to enroll in Medicaid that will require providers to provide no more information than is otherwise needed to authorize payment, such as the provider’s name and NPI.
• Medicaid Eligibility for Relocated Military Personnel: The Bill requires states to regard active military members as residents of the states in which they are stationed for purposes of determining eligibility under the State Plan.
• Work Geographic Index Floor: The Work Geographic Index Floor is a statutory provision that sets a minimum value of 1.0 for the work component of the Medicare Physician Fee Schedule. The Bill extends the floor through December 31, 2026.
• Hospice Cap Adjustment: The Bill provides that the cap on hospice payments will continue to be adjusted by the hospice rate update factor through FY 2035.
• Directory of In-Network Providers: The Bill requires MA plans to publish directories of all in-network providers, including name, specialty, contact information, primary office, whether the provider is accepting new patients, accommodations for people with disabilities, and telehealth capabilities. This mandate takes effect in 2028.

A copy of the bill is available here.

Reporter, Alek Pivec, Washington, D.C., +1 202 626 2914, apivec@kslaw.com

CMS Publishes Rule Restricting Certain Provider and MCO Taxes

On January 29, 2026, CMS finalized a rule that prohibits states from imposing higher tax rates on Medicaid business than on non‑Medicaid business and that bars indirect designs that effectively target Medicaid utilization. CMS estimates that this rule will force seven states governments to restructure their taxes to bring them in compliance with the new requirements and will reduce federal Medicaid spending by roughly $78 billion over 10 years.

MCO and Provider Taxes as a Method for Financing Medicaid Programs

Medicaid is jointly financed; the federal government provides matching funds for state Medicaid expenditures only when the state supplies an allowable non-federal share (the “state share”) for each dollar claimed. The federal match generally ranges from 50% to 77% for traditional Medicaid services, depending on state per-capita income, with special match rates for some groups (for example, 90% for ACA expansion adults).

States can finance the non-federal share using general funds, permissible health care-related taxes (“provider taxes”), local funds, and intergovernmental transfers-within federal limits. Nearly all states use provider taxes; these must be broad-based, uniform, and not hold providers harmless unless a CMS waiver is granted based on “generally redistributive” tests.

CMS Changing the Tests to Determine Permissibility of Provider Taxes

The final rule adds “additional requirements to demonstrate a tax is generally redistributive,” prohibiting higher rates based on Medicaid-taxable units or on groupings defined by higher Medicaid utilization, and adopts an anti-circumvention provision that blocks materially equivalent designs that omit explicit Medicaid labels. CMS highlights examples, such as MCO taxes, that charge dramatically higher per-member rates on Medicaid enrollment than on commercial enrollment.

CMS argues that these taxes exploited a “statistical loophole,” but nonetheless approved them under the laws that were in-effect prior to the One Big Beautiful Bill Act. Now, CMS posits that Section 71117 of the One Big Beautiful Bill Act effectively codified the regulation that CMS is implementing as 42 C.F.R. § 433.68(e)(3), titled “Additional Requirements to Demonstrate a Tax is Generally Redistributive[.]” This regulation would place two new restrictions on provider taxes:

1. Prohibiting “States from imposing a higher tax rate on any taxpayer or tax rate group based on a provider’s Medicaid taxable units than the tax rate imposed on any taxpayer or tax rate group based on a provider’s non-Medicaid taxable units[.]”
2. Prohibiting “States from taxing any taxpayer or tax rate group defined by its relatively higher level of Medicaid utilization compared to any other taxpayer or tax rate group defined by its relatively lower level of Medicaid utilization.”

Additionally, CMS added a third provision that “is essentially the same as the first two, just without explicitly naming Medicaid[,]” which CMS believes “is crucial to stop efforts to circumvent the first two provisions by not explicitly stating the term ‘Medicaid[.]’”

Impact of the New Regulation

Though many state Medicaid programs will not require any changes under this new regulation, CMS estimates that “this final rule may require seven States to submit a total of eight new waiver proposals (within 2 years of the effective date of this final rule)[.]” CMS did not specifically name the affected states, but on November 18, 2025 researchers at Georgetown University’s McCourt School of Public Policy identified the states as “California, Illinois, Massachusetts, Michigan, New York, Ohio, and West Virginia.” Affected states will need to redesign non-compliant taxes or unwind them within the transition periods, which would result in lost state share financing and in turn, Medicaid payments.

CMS emphasizes that the rule does not eliminate states’ general authority to use broad-based, uniform provider taxes to finance the non-federal share; CMS’ rule targets designs that differentially burden Medicaid business.

The final rule can be found here.

Reporter Gregory Fantin, Washington DC, +1 202-626-9271, GFantin@kslaw.com

CMS Releases Updated Guidance on State Directed Payment Programs Affected by Section 71116 of the Working Families Tax Cuts Legislation

On February 2, 2026, CMS issued updated guidance on Medicaid state directed payment (“SDPs”) governed by Section 71116 of the “Working Families Tax Cuts Legislation” enacted in the One Big Beautiful Bill Act (“OBBBA”). The update replaces September 2025 guidance and reaffirms that SDPs may not exceed 100 to 110% of the published Medicare total payment rates, unless temporarily grandfathered. CMS also clarifies its approach to SDP grandfathering eligibility by redefining the 180‑day rating period window around July 4, 2025 (the date of the OBBBA enactment), to be calculated using business days rather than calendar days, effectively expanding the actual days included in rating periods that could qualify for grandfathering. The guidance also adds an explicit anti-circumvention provision to limit attempts to circumvent the grandfathering criteria. CMS states that it will issue a notice of proposed rulemaking to revise the Medicaid managed rule to codify CMS’ final policies on grandfathering.

SDPs allow states to implement contractual Medicaid managed care arrangements that generally direct Medicaid managed care plans on how much to pay eligible providers for specific services. From 2016 through the enactment of the OBBBA, CMS commonly approved SDPs that enabled Medicaid managed payments up to average commercial rates.

Congress reset SDP payment limits with Section 71116 of the Working Families Tax Cuts legislation, enacted in the OBBBA on July 4, 2025. For rating periods that begin on or after that date, SDPs must observe published Medicare rate-based caps, unless the program qualifies for a temporary grandfathering period. In expansion states, the cap equals 100% of the specified total published Medicare payment rate (or, if Medicare does not publish a total payment rate for the service, the Medicaid state plan rate or waiver rate). In nonexpansion states, the cap equals 110% of the specified total published Medicare payment rate (or, if no Medicare total rate exists, the Medicaid state plan rate or waiver rate). These caps replace the prior flexibility that allowed payments up to average commercial rate in many approved programs

CMS released initial guidance on September 9, 2025, to explain how Section 71116 applies to existing and new SDPs, including criteria for temporary grandfathering. On February 2, 2026, CMS issued updated guidance that largely tracks the September policy but makes two notable changes.

Change to Interpretation of “Within 180 Days” of July 4, 2025

First, CMS clarified how to measure the “within 180 days” window tied to the July 4, 2025 enactment date for purposes of grandfathering. CMS will now count business days rather than calendar days. This shift expands the range of rating periods that can qualify for the temporary grandfathering allowance, which can matter for programs with rating periods that straddle the enactment date.

Addition of Explicit Anti-Circumvention Instruction

The other significant update to the SDP guidance is the addition of an explicit “anti-circumvention” instruction, which the September 2025 guidance lacked. The new guidance provides that states cannot revise SDP preprints in an effort to circumvent the grandfathering criteria to gain grandfathered status. One example of such circumventing the guidance cites is revising a rating period originally stated in a pending or approved preprint.

The anti-circumvention instruction does not automatically mean that, with regard to an SDP for which a pending preprint was submitted to CMS prior to July 4, 2025, CMS is taking the position that any change made to the pending preprint would automatically prevent the preprint earlier, CMS specifies that, for grandfathering purposes, “completed preprint” means a “preprint completed in full” with “all information provided only in the fillable sections of the preprint and the addendum tables.”

Reporter Robert Stenzel, Washington DC, +1 202-626-2643, RStenzel@kslaw.com

Also In the News:

2026 Consolidated Appropriations Act Reinstates Medicare Telehealth and Acute Hospital Care at Home Program

On February 3, 2026, President Trump signed H.R. 7148, the Consolidated Appropriations Act, 2026, which included funding for the Department of Health and Human Services. The bill reinstated certain Medicare provisions that had expired on January 31, 2026 when the government partially shut down. The bill included provisions related to healthcare “extenders,” which had lapsed. Among those provisions reinstated were an extension of Medicare’s telehealth flexibilities through December 31, 2027, an extension of in-home cardiopulmonary rehabilitation flexibilities through January 1, 2028, and an extension of the Acute Hospital Care at Home Program through September 30, 2030. The telehealth provisions in the bill remove Medicare’s geographic requirements for telehealth services, expand the types of practitioners eligible to furnish telehealth services as part of the program, and allow federally qualified health centers and rural health clinics to serve as distant site providers of telehealth services, among others. The full text of the bill can be found here.

Upcoming Events

Is the NSA IDR Process Dead?

• February 18, 2026, Noon – 1:00 P.M. ET
• Virtual

Congress passed the No Surprises Act (NSA) effective January 1, 2022, establishing an Independent Dispute Resolution (IDR) process that allows noncontracted healthcare providers to challenge payments made by health plans. While many providers have successfully used the IDR process to obtain favorable rulings, ongoing litigation and recent court decisions have created uncertainty about its future and its effectiveness. 

This program will provide an update on the latest legal developments surrounding the IDR process, including: 

• The enforceability of IDR rulings in light of the Supreme Court’s recent refusal to review a Fifth Circuit decision that found that providers could not enforce IDR rulings in court;
• Whether the IDR process is mandatory, and if so whether it is constitutional;
• If there are specific state laws that allow providers to recover reasonable amounts for out-of-network services; and
• Alternative avenues for noncontracted providers to dispute underpayments. 

You do not have to be a client to attend, and there is no charge. For questions, contact Sydney Forte.

35th Annual King & Spalding Health Law & Policy Forum

• Thursday, March 12, 2026, 8:00 A.M. ET
• Atlanta, GA

Join us for our annual forum focusing on the foremost legal and political developments impacting the healthcare industry. This full-day program will feature thought-provoking sessions and a keynote address from award-winning legal affairs correspondent Nina Totenberg, whose deep knowledge of the inner workings of the Supreme Court will provide attendees with rare insights into today’s judicial headlines.

Highlights include:

• Leading practitioners providing policy and regulatory enforcement updates and other industry developments, including insights from in-house counsel on their priorities for the coming year 
• What’s next in strategic priorities for nonprofit health systems
• Perspectives from a former U.S. attorney on key issues facing the healthcare industry
• Regulatory and legislative impacts of the current administration on the healthcare industry 

Attendees will also enjoy multiple networking opportunities, including a reception following the sessions.

The registration fee for the full program is $95. For questions, or for information about registering, contact the K&S Events Team.

King & Spalding Reception at the AHLA Institute on Medicare and Medicaid Payment Issues

• Thursday, March 19, 6:00 – 8:00 P.M. ET
• Baltimore Marriott Waterfront
  700 Aliceanna Street
  Baltimore
  Laurel Room, 4th Floor

Join us for cocktails and conversation at AHLA’s Institute on Medicare and Medicaid Payment Issues.

For questions, contact Monique Wharton.

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Will Mavity and Kasey Ashford