09/02/2026
California has more Medicaid hospital funding exposed to the new federal payment limits than any other state.
A KFF analysis published in August puts the figure at $7.4 billion a year in federal spending on state directed payments that sits above the new caps. State directed payments are how a state requires its Medi-Cal managed care plans to pay providers at set rates, and California has used them heavily to lift hospital reimbursement above the base Medi-Cal rate.
The 2025 reconciliation law replaced the old commercial rate benchmark. Medicaid expansion states like California are capped at 100 percent of Medicare, and existing payments step down 10 percentage points a year starting in January 2028. At least 37 states have hospital payments above the new limits.
Rural hospitals draw a larger share of revenue from Medi-Cal than urban systems do, so the same percentage cut lands on a thinner base. CMS has not finalized the rule, which makes this the window to model the 2028 step-down against your own payer mix.
Read the full analysis: bit.ly/4c8OVI2
