In California, a private ambulance transporting a Medi-Cal patient receives $339 per emergency transport. A public ambulance making the same trip, serving the same patient, received $1,168 in 2024 — more than triple the private rate. California has a pending proposal to push that figure to $1,597, which would mean nearly five times the reimbursement for the same ride, depending on who owns the vehicle.
That disparity is not an accident. It is the product of a financing structure that has grown quietly for decades inside Medicaid — and that the Centers for Medicare & Medicaid Services (CMS) is now moving to address.
CMS published a proposed rule on May 20, 2026 targeting state-directed payments and related supplemental payment arrangements. The agency’s goal is straightforward: restore accountability and ensure Medicaid payments reflect the actual cost of delivering care rather than the way financing is structured.
The scale of what CMS is taking on is significant. State-directed payments grew from two states using them in 2016 to 41 by 2026, and the agency now estimates they account for more than a quarter of Medicaid managed care spending in fiscal year 2025. CMS estimates the proposed rule would generate $775 billion in total savings over ten years, including $510 billion in federal savings.
The ambulance example shows how the system works in practice.
California’s base Medi-Cal reimbursement applied equally to public and private providers until 2023, when the state established the Public Provider Ground Emergency Medical Transport Intergovernmental Transfer program. Through that program, public providers send funds to the state, which uses them to draw down federal matching dollars and pay the provider a substantially higher rate.
Private providers were excluded entirely. The result: public provider payments more than tripled overnight.
Arrangements like this require approval by the Centers for Medicare & Medicaid Services through State Plan Amendments (SPA). If CMS believes Medicaid payments should more closely reflect the cost of care rather than financing structures, that principle should apply not only to existing arrangements but also to new proposals seeking federal approval.
Approving more SPAs that create these arrangements would mean digging a deeper hole while simultaneously proposing rules to climb out of it.
Supporters of these arrangements have a point worth acknowledging. Public ambulance systems often operate in high-cost, low-margin environments. Base Medicaid reimbursement rates are chronically low across the board — a point the American Hospital Association made in its response to the proposed rule.
The supplemental payments, in this view, are not a windfall but a subsidy meant to preserve emergency transport access for Medicaid patients in places that could not otherwise afford to maintain it.
Critics see the mechanism differently. The concern is not whether public providers deserve support — many do. The concern is whether Medicaid’s payment rules have become so layered with financing structures that it is no longer possible to tell what taxpayers are actually buying. When the same ambulance ride generates nearly five times the reimbursement depending on ownership structure, the payment system is no longer primarily about the cost of the ride.
That is precisely the problem CMS is trying to solve. The proposed rule would cap state-directed payments at Medicare rates — 100% in Medicaid expansion states, 110% in non-expansion states — and phase out certain categories of supplemental arrangements, with compliance deadlines running through 2029. Grandfathered arrangements would be phased down by 10 percentage points annually beginning January 1, 2028.
That is a reasonable accommodation for states and providers that have structured their finances around these payments for years. But CMS is also signaling it will not keep approving new structures that further decouple payment from underlying service costs.
Medicaid is supposed to do one thing: finance healthcare for low-income Americans. When the same ambulance ride generates nearly five times the reimbursement based on ownership structure and financing pathways, it is fair to ask whether the program is paying for care delivered to patients or for the architecture built to move money.
CMS is now asking that question with the force of a proposed rule. It is overdue.
James Carter is a Principal with Navigators Global. Previously, he served as Deputy Assistant Secretary of the Treasury and Deputy Undersecretary of Labor in the George W. Bush administration.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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