红领巾瓜报

There is no shortage of news, federal activity, and operational urgency concerning fraud, waste, and abuse (FWA) in healthcare. Across Medicare, Medicaid, the Affordable Care Act Marketplaces, and other federally funded health programs, the executive branch is advancing a more aggressive program integrity agenda. The US Department of Health and Human Services (HHS), including the Centers for Medicare & Medicaid Services (CMS) and HHS Office of Inspector General, as well as the US Department of Justice, are placing greater emphasis on payment accuracy, provider and vendor oversight, data-driven detection, and defensible compliance processes. 

As scrutiny intensifies, organizations across the healthcare ecosystem are challenged to move beyond traditional audit and recovery activities toward a more proactive, enterprise-wide approach to managing risk and preventing FWA. Although these trends affect all healthcare stakeholders, the implications for Medicaid are particularly significant given the program鈥檚 scale, complexity, and reliance on partnerships among state agencies, managed care organizations, providers, and technology vendors. 

To better understand how organizations should respond, Jennifer Colamonico connected with Clint Eisenhower, Regional Director at 红领巾瓜报 (红领巾瓜报), and Jennifer Bridgeforth, Associate Principal at 红领巾瓜报. The discussion below incorporates insights from 红领巾瓜报 colleagues Christine Rein, Amber Swartzell, and Elizabeth Linville, who joined 红领巾瓜报鈥檚 August 12, 2026, webinar on how new program integrity expectations are affecting Medicaid payment, operations, and compliance strategies.

Jennifer Colamonico: We hear a lot lately about heightened scrutiny and program integrity. What鈥檚 fundamentally different about this moment from what Medicaid leaders and their organizations have experienced in the past?

Clint Eisenhower: The biggest shift is that program integrity can no longer be viewed as a narrow compliance function. What we are seeing now is a move toward enterprise accountability鈥攁nd we are really at the outset of this journey. Program integrity touches finance, operations, eligibility, screening, compliance, provider oversight, analytics, clinical teams, procurement, technology, and leadership decision-making. A provider issue can become a payment issue. A data gap can become an audit issue. A documentation weakness can become a compliance issue. The organizations that are best positioned are the ones that understand how those functions connect and can demonstrate that they are managing risk in a coordinated, evidence-based way. 

From a leadership standpoint, leaders of Medicaid organizations can鈥檛 simply ask whether they have a program integrity function. We know鈥攁nd federal and state regulators know鈥攖hat most organizations do. Instead, leaders need to ask whether that function is designed to withstand increasing scrutiny while it also helps the organization manage risk, support stronger operational performance, and continue to serve Medicaid beneficiaries effectively. 

Q: Many organizations are trying to figure out whether this is just another enforcement cycle or something more significant. How are you advising clients to think about the current level of federal scrutiny? 

Eisenhower: Every organization should be asking where its greatest vulnerabilities are鈥攚hether its controls, oversight processes, policies or operational capabilities may not be sufficient to address them. From there, leaders can prioritize what should be addressed now and what can be phased in. 

We鈥檝e worked with agencies and organizations first on the objective assessment of their risk and moved to translate the findings into operational change, which may include developing roadmaps, updated workflows, and& stronger policies, among other actions.

Q: There鈥檚 a lot of discussion about moving beyond the traditional pay-and-chase model, but what does a program integrity-first approach look like in practice? 

Jennifer Bridgeforth:红领巾瓜报 is working with many state leaders and healthcare organizations that are navigating significant changes across Medicaid financing, eligibility and enrollment systems, and program administration. At the same time, new federal policy and budget constraints are prompting many states to rethink how services are delivered, managed, and financed. Whether a state is redesigning benefits, implementing new eligibility processes, restructuring payment approaches, or pursuing broader delivery system reforms, program integrity considerations need to be embedded into those decisions from day one. 

That includes documentation requirements, monitoring protocols, data validation, and accountability structures built into the program design. 

It also means aligning oversight efforts with emerging federal and state priorities. We are seeing increased attention on areas such as nonemergency medical transportation, applied behavior analysis, personal care services, durable medical equipment, and behavioral health services, as well as techniques such as evaluation and management coding, and identifying high-volume billing patterns. Medicaid leaders need to design programs and workflows that identify risks earlier, support appropriate access to care, and create feedback loops that strengthen operations over time, reducing reliance on a traditional pay-and-chase approach. 

Q: One challenge we hear about frequently is how to strengthen oversight without creating barriers to care. How can organizations strike that balance, particularly in areas like behavioral health and applied behavior analysis (ABA), where access is already strained?听

Bridgeforth: That balance is critical. Many of the areas under scrutiny are also in which there is tremendous demand and, in some markets, a shortage of providers. ABA and behavioral health are good examples. The answer cannot be to discourage appropriate access. Instead, organizations need stronger documentation, clearer policies, better training, and a shared understanding of what compliant billing and service delivery look like. 

Provider education is one of the most important tools. When providers are asked to document more or differently, it can feel like administrative burden. Education has to explain not only what the requirements are, but why they matter. 

Eisenhower: Health plans and providers have a strategic opportunity here. States still need partners to help achieve access goals and improve outcomes. Plans, providers, and vendors that can demonstrate strong program integrity policies and effective oversight can position themselves as trusted partners. They help states pursue access and quality goals with greater confidence that those initiatives will not create unnecessary compliance exposure. 

Q: Organizations are investing heavily in analytics and AI capabilities. Where do you see the greatest opportunity for these tools to strengthen program integrity efforts? 

Bridgeforth: Advanced analytics and AI are becoming increasingly important for detection and prevention. Real-time monitoring, claims pattern analysis, and predictive tools can help organizations identify risk earlier and take action before issues become larger findings or recoveries. But technology is valuable only if the organization has the governance, workflows, documentation, and case management processes to act on the data that the tools identify. 

Cross-program compliance is also important. Many organizations operate across Medicaid, Medicare, Marketplace, commercial, and other public programs. When program integrity is approached at the enterprise level, improvements in one area can strengthen compliance across multiple product lines or programs. 

Q: You鈥檝e worked with states and healthcare organizations at very different stages of maturity. What are some of the most common gaps or challenges you鈥檙e helping clients address today? 

Bridgeforth:We鈥檝e worked with organizations atvery different stages of maturity.For example, we supported an organizational assessment and gap analysis that helped a client identify major opportunities across its program integrity function. The team developed a roadmap organized across seven FWA pillars, identified 52 enhancement opportunities, translated those into 184 key actions, and developed 116 success measures so leadership could monitor progress over time. 

红领巾瓜报 and HealthTech Solutions, an 红领巾瓜报 Company, also supported a statewide implementation that included electronic visit verification improvements, prepayment analytics, post-payment analytics, and modernization of claims review processes. The effort the state move from manual, reactive processes toward a more proactive model, with insights from post-payment analytics informing prepayment edits that could be updated in weeks rather than months. 

Q: If you鈥檙e a Medicaid leader looking ahead to the next 12 to 24 months, what should be at the top of your program integrity agenda? 

Eisenhower: Many of the steps that reduce program integrity risk are the same steps that help organizations perform better: stronger governance, better data, clearer accountability, more consistent workflows, improved provider relationships, and effective monitoring. The upside is not only avoiding findings or reducing audit exposure. It is also ensuring Medicaid dollars are directed to the right beneficiaries, the right services, the right providers, and the right outcomes. 

How 红领巾瓜报 Can Help 

红领巾瓜报 helps states, health plans, providers, and healthcare organizations assess program integrity risk, strengthen governance and compliance infrastructure, design and implement payment integrity strategies, support provider education, modernize analytics and monitoring, and translate findings into measurable operational improvements. 红领巾瓜报 can meet organizations where they are, whether they need a targeted assessment, a phased roadmap, implementation support, data analytics support, or enterprise-wide program integrity transformation. 

For more information, go to: /services/our-medicaid-consultants-help-you-develop-innovative-strategies/. 

New guidance outlines how CMS intends to implement Chief Actuary certification and a fundamentally different approach to budget neutrality beginning January 1, 2027.

[红领巾瓜报鈥檚 analysis on this and related Medicaid changes is ongoing; this blog reflects an initial understanding of the 6/11 SMDL; additional analysis is forthcoming.]

On June 11, 2026, the Centers for Medicare & Medicaid Services (CMS) released State Medicaid Director Letter (SMDL) #26-003, which provides long-anticipated guidance on how the agency intends to implement new statutory budget neutrality requirements for Medicaid section 1115 demonstrations beginning January 1, 2027.

The SMDL provides guidance on CMS’s implementation of provisions enacted in Public Law 119-21 (the One Big Beautiful Bill Act, or OBBBA), which CMS now refers to as the Working Families Tax Cut (WFTC) Act. The law requires the CMS Chief Actuary to certify that Medicaid section 1115 demonstrations will not increase federal Medicaid expenditures before CMS may approve new demonstrations, amendments, or renewals.

While the SMDL includes discussion of CMS’s preference that states rely on Medicaid state plan and other Title XIX authorities when available, the guidance primarily focuses on implementing the new budget neutrality requirements under section 1115(g).

The result is a proposed framework that could fundamentally change how states design, finance, evaluate, and renew section 1115 demonstrations.

Key Takeaway #1: Budget Neutrality framework is changing to become more accurate, detailed, and subject to enhanced review.

For decades, Medicaid Demonstrations under Section 1115 required budget neutrality calculations that relied on comparisons of projected with and without waiver expenditure. Retrospective assessments against established 鈥渨ithout waiver鈥� budget neutrality limits then occurred.

CMS now proposes a different model that includes enhancements to how the budget neutrality calculations are developed and reviewed. This will include an actuarial certification requirement that shows how the budget neutrality meets actuarially sound principles.

Beginning with applications, renewals, or amendments submitted after January 1, 2027, the following must occur:

• CMS鈥� Chief Actuary must certify that there will be no increase in federal expenditures compared to the expenditures projected in the absence of the Demonstration.
• A rigorous actuarial analysis of the projected financial impacts of individual demonstration activities must be performed. The budget neutrality analysis is certified by CMS鈥� Chief Actuary prior to Demonstration approval. This is a change from the historical 鈥渨ithout waiver鈥� expenditure cap calculation.
• With the review above, there is now no expenditure limit or budget neutrality cap. Instead, the budget neutrality is not approved if there is a projected increase in Federal Medicaid expenditures. (Note, approval of historical Demonstration applications and budget neutrality required a projection of reduced overall expenditures.)
• Monitoring budget neutrality in the Demonstration time period will utilize new special terms and conditions (STCs). There will be corrective actions implemented if expenditure substantially deviates from the State projections. Historically, quarterly and annual reporting was required, and States were subject to return to CMS any excess federal funds. The new guidance appears similar in that ongoing monitor will occur and action will be needed to the extent expenditures are not at or below projections.

For states to be compliant with this guidance, detailed actuarial analyses, methodology, assumptions, data, and documentation demonstrating the federal fiscal impact of each demonstration component will be necessary. States must provide sufficient information for CMS鈥檚 Chief Actuary to evaluate and certify budget neutrality, including the populations affected, covered services, payment methodologies, payment rates, administrative costs, and estimated federal expenditures associated with demonstration authorities.

Key Takeaway #2: Beginning January 1, 2027, certain benefits and services may be treated differently under Medicaid section 1115 demonstrations.

A central feature of the new framework is CMS’s proposed classification of demonstration activities into two categories.

The first category is Medicaid Authorizable Populations and Services (MAPS). These are populations and services that could otherwise be covered through the Medicaid state plan or another Title XIX authority. For budget neutrality purposes, CMS proposes treating MAPS expenditures as having a zero net financial impact because they represent expenditures that could have occurred absent the demonstration. This is similar to how current hypothetical expenditures are treated.

The second category consists of section 1115-only activities; that is, activities that could not otherwise be authorized through existing Medicaid authorities. These activities would become the primary focus of budget neutrality review.

States would be required to identify, measure, and document both the costs and savings associated with each section 1115-only activity, including administrative costs. CMS would then evaluate the aggregate financial impact of those activities when determining whether a demonstration qualifies for certification.

Key Takeaway #3: Medicaid 1115 demonstration savings will become more difficult to accumulate and carry forward.

CMS also proposes significant changes to the treatment of demonstration savings.

Historically, states have been able to accumulate budget neutrality savings and, under certain circumstances, carry those savings into future renewal periods. Many demonstrations have relied on these accumulated savings to support cost-not-otherwise-matchable expenditures and other demonstration initiatives.

Under the new approach, savings generally would be limited to those generated during the current demonstration period and could only be applied to the next immediate renewal period. CMS also proposes limiting rollover calculations to the most recent five years of demonstration experience and eliminating the longstanding ability to carry forward legacy savings across multiple renewal cycles.

CMS would provide a transition period for the first renewal after January 1, 2027, allowing states to use savings calculated under the current methodology. Over time, however, the proposed framework is expected to reduce the amount of demonstration savings available to states.

For states that have historically relied on demonstration savings as a key financing mechanism, these changes could require significant strategic and financial planning.

Key Takeaway #4: States and Medicaid-focused organizations should begin to identify alternative approaches, authorities, and partnerships to continue to advance the goals of certain 1115 demonstration initiatives.

One of the more closely watched aspects of the guidance involves CMS’s discussion of the relationship between section 1115 authority and other Medicaid authorities.

The final guidance stops short of directing states to systematically move authorities out of section 1115 demonstrations. Instead, CMS encourages states to reduce reliance on section 1115 authority when alternative Medicaid authorities are available, noting that doing so would strengthen oversight while reserving section 1115 authority for innovation and demonstration purposes. The agency specifically references Medicaid state plan authorities and other Title XIX authorities as potential alternatives where appropriate.

At the same time, CMS recognizes that, in certain circumstances, states may require concurrent section 1115 authority layered over other Medicaid authorities to achieve program goals and has indicated that it will provide technical assistance in those situations.

The interaction between this policy and the new MAPS framework may be particularly important. CMS provides examples showing that many authorities currently treated as hypothetical expenditures鈥攊ncluding certain home- and community-based services (HCBS), managed care-related authorities, and other services that could be authorized elsewhere under Medicaid鈥攚ould now be treated as MAPS activities for budget neutrality purposes.

For states, the immediate significance may be less about whether authorities remain within a section 1115 demonstration and more about how those authorities are treated under the new budget neutrality framework. As states assess the implications of the guidance, they may want to consider how various authorities are structured across section 1115 demonstrations, state plan authorities, and other Title XIX pathways. CMS’s discussion suggests that these decisions may increasingly be informed by both programmatic objectives and budget neutrality considerations.

Key Takeaway #5: States and Medicaid organizations can begin scenario planning and assessments now and monitor additional guidance and clarifications critical to operational issues.

Although CMS provides substantial detail regarding its intended direction, several important implementation questions remain unanswered. Among the issues states are likely to focus on over the coming months:

• How will CMS apply the new requirements to renewals that are already under review鈥攐r that are submitted before January 1, 2027鈥攂ut remain pending after that date?
• How long will CMS鈥檚 Chief Actuary review take, and how should states adjust renewal and amendment timelines to account for the new certification process?
• How aggressively will CMS apply its stated preference for using state plan and other Title XIX authorities when alternative pathways exist?
• What level of documentation, modeling, and actuarial support will CMS ultimately require to support certification?
• How will CMS define acceptable methodologies and assumptions in the forthcoming rulemaking process?

CMS repeatedly notes that additional technical guidance, technical assistance, and formal rulemaking are forthcoming, suggesting that many operational details remain under development.

Key Takeaway #6: States should build additional time into future section 1115 renewal and amendment planning

Although significant details remain unresolved, the overall direction of federal policy is becoming clearer.

States with upcoming section 1115 renewals, amendments, or major demonstration redesign efforts should begin assessing which components of their demonstrations are likely to be classified as MAPS activities versus section 1115-only activities. They should also evaluate the extent to which future financing strategies depend on rollover savings or other elements of the current framework that may no longer be available after January 1, 2027.

In addition, states may want to assess whether certain demonstration authorities could be more appropriately administered through state plan, managed care, HCBS, or other Medicaid authorities, particularly given CMS’s stated preference for relying on alternative Title XIX pathways when available.

Most importantly, states should prepare for a future in which section 1115 approval decisions are increasingly driven by prospective actuarial analyses of the financial impact of individual demonstration activities that include detailed supporting documentation for CMS鈥檚 Chief Actuary to utilize for approval.

The forthcoming proposed rule will provide critical details; however, this guidance makes clear that CMS intends to reshape how section 1115 demonstrations are financed, evaluated, and renewed in the years ahead.

How 红领巾瓜报 Can Help

红领巾瓜报 is actively helping states, health plans, providers, and other stakeholders assess the implications of CMS’s proposed budget neutrality framework and prepare for upcoming section 1115 renewals and amendments, as well as other changes due to recent guidance on community engagement requirements, state directed payments, and program integrity. Our experts bring deep experience in section 1115 demonstrations, Medicaid financing, budget neutrality modeling, actuarial analysis, managed care authorities, HCBS programs, waiver strategy, and federal negotiations.

As states evaluate the operational, financial, and policy implications of the new requirements, 红领巾瓜报 can support strategic assessments, renewal planning, demonstration redesign, financial modeling, actuarial coordination, federal negotiations, and implementation planning. We are also tracking forthcoming rulemaking and additional CMS guidance that will further shape how section 1115(g) is implemented.

Be sure to register for our upcoming webinar, Understanding Work and Community Engagement Requirements and New Section 1115 Guidance, on July 15.