In California, private ambulances that transport Medi-Cal patients receive just $339 for each emergency trip. In contrast, public ambulances providing the same service to similar patients collect $1,168, which is over three times the amount private ones get. There’s a proposal floating around to raise public reimbursement to $1,597, which means some vehicle owners could receive nearly five times the payment for the identical journey.
This situation isn’t by chance. It stems from a funding approach that has developed within Medicaid over decades, and the Centers for Medicare and Medicaid Services (CMS) is now stepping in to tackle the discrepancy.
On May 20, 2026, CMS proposed new regulations that cover state-directed payments and other related payment structures. The primary aim? To promote accountability and ensure that Medicaid payments genuinely reflect the cost of healthcare delivery, not just the funding mechanisms in place.
The scope of CMS’s initiative is considerable. Back in 2016, only two states utilized state-directed payments, but by 2026, it’s expected that 41 states will be on board. These payments are projected to constitute over a quarter of Medicaid managed care expenditures in the fiscal year 2025, and CMS anticipates total savings of about $775 billion over the next decade, which includes $510 billion in federal savings.
The ambulance funding example illustrates how this system plays out in real life.
Up until 2023, California’s Medi-Cal reimbursement rates were uniform for both public and private healthcare providers. That changed when the state rolled out the Public Provider Ground Emergency Medical Transportation Intergovernmental Transfer Program, allowing public providers to send funds to the state, which then pulls in federal matching dollars and pays significantly higher rates to those providers. Private providers, however, were left out entirely, leading to public payments that tripled almost overnight.
Such funding arrangements need CMS approval. If the agency believes Medicaid payments should align more closely with healthcare costs, that principle ought to extend not just to existing deals but also to fresh proposals that seek federal backing.
Granting more approvals for such arrangements might lead to creating a bigger problem than solving one.
Supporters of these funding approaches should take note. Public ambulance systems often find themselves in high-cost, low-profit scenarios. Overall, Medicaid’s basic reimbursement rates are notoriously low, as noted by the American Hospital Association regarding the proposed rules.
From this perspective, the extra payments aren’t benefits, but rather subsidies necessary for maintaining emergency transport access for Medicaid patients in areas that can’t afford it otherwise.
Critics, however, view the scenario differently. The issue isn’t so much about supporting public providers as it is about ensuring all providers receive fair treatment. Many worry that Medicaid payment protocols have become so convoluted that taxpayers might not truly understand what they are financing. The same ambulance ride could yield a payment that differs nearly fivefold, all based on who owns the service.
This is precisely the issue CMS intends to address. The proposed rules would put state-mandated payment caps on Medicare rates — 100% in states that have expanded Medicaid and 110% in non-expansion states. Certain categories of supplemental agreements would gradually be phased out by 2029, with a 10% reduction in grandfather agreements each year starting January 1, 2028.
This seems like a reasonable compromise for states and providers that have structured their finances around these payments. Yet, CMS has made it clear that it will not endorse any new payment structures that further dissociate payments from actual service costs.
The primary objective of Medicaid is to finance health care for low-income individuals. When the same ambulance ride can lead to wildly differing reimbursements based on ownership type and funding approach, it’s a valid concern to ask whether the program is paying for patient care or simply the financial system that governs these transactions.
CMS is currently pushing for answers to that critical question with its proposed rules. The deadline for responses has already passed.
