CMS Issues Updated Guidance on Medicaid Managed Care Payments for Emergency Services to Noncitizens

On September 30, 2025, the Centers for Medicare & Medicaid Services (CMS) released State Medicaid Director Letter (SMD) #25-003, revising how section 1903(v) of the Social Security Act applies to Medicaid managed care payments for noncitizens ineligible for full Medicaid benefits. The updated interpretation limits federal financial participation (FFP) to payments for actual care and services rendered for emergency medical conditions, marking a significant shift in program integrity oversight.

According to the letter, CMS “believes it is reasonable and prudent to interpret the emergency Medicaid provision under section 1903(v) of the Act to apply only to specific payments made for care and services necessary for the treatment of an emergency medical condition actually furnished…to aliens ineligible for full Medicaid benefits.” This means capitation and risk-based payments—commonly used in managed care—are no longer eligible for FFP for this population.

Section 1903(v) allows Medicaid reimbursement for emergency medical treatment provided to individuals who do not meet immigration criteria for full Medicaid eligibility. CMS cited findings by the Department of Health and Human Services Office of Inspector General (HHS-OIG) revealing that some states claimed federal funds for costs beyond those associated with emergency care. For instance, California was found to have improperly claimed $52.7 million in FFP between 2018 and 2019, according to CMS.

CMS’s revised stance is intended to address such program and fiscal integrity concerns by restricting allowable claims strictly to verifiable emergency medical services.

Under the new interpretation, risk-based capitation payments made to managed care organizations (MCOs), prepaid inpatient health plans (PIHPs), and prepaid ambulatory health plans (PAHPs) will no longer qualify for federal matching funds when made on behalf of noncitizens ineligible for full Medicaid benefits. These payments include administrative costs, reserves, and operational expenses that “cannot be characterized as payments for care and services necessary to treat an emergency medical condition,” the letter states.

CMS clarified that states may not include this population in capitation rate development, state-directed payments, or “in lieu of services and settings” arrangements. Additionally, primary care case management (PCCM) and PCCM entity contracts also fall outside allowable FFP since their administrative fees do not directly relate to the provision of emergency treatment.

States must now use either a fee-for-service (FFS) delivery system or non-risk contracts with PIHPs or PAHPs to provide emergency coverage for this group. CMS “strongly recommends” the FFS model, calling it the simplest option to implement and the one that provides “the clearest documentation of verifiable data.”

States opting for non-risk contracts must maintain distinct agreements for this population, ensuring no overlap with Medicaid or state-funded programs. CMS emphasized that any expenditures must be reported under the “Emergency Services for Undocumented Aliens” line on the CMS-64 form to ensure transparent FFP claims.

To accommodate operational changes, CMS will allow a transition period before enforcing compliance. States must align their managed care contracts, rate certifications, and payment methodologies no later than the start of the first rating period beginning on or after 1 year from publication—January 1, 2027, for states operating on a calendar-year cycle.

CMS concluded by reaffirming its intent to collaborate with states to uphold fiscal responsibility, ensure accurate federal claiming, and safeguard the integrity of Medicaid funds.

Reference

Medicaid Managed Care Payments and Emergency Medical Condition Coverage for Aliens Ineligible for Full Medicaid Benefits. Centers for Medicare & Medicaid Services. September 30, 2025. Accessed October 16, 2025. https://www.medicaid.gov/medicaid/managed-care/guidance/additional-guidance