CMS is proposing to prohibit states from adopting new or increased “pass-through” payments to hospitals, nursing facilities, and physicians under their Medicaid managed care contracts beyond those in place when the pass-through payment transition periods were established in a May 6, 2016 final Medicaid managed care rule. CMS considers pass-through payments to be amounts that states require to be added to the contracted payment rates between managed care organization and hospitals, physicians, or nursing facilities that are not for a specific service provided to a specific enrollee under the contract (and subject to certain other specifications). According to CMS, a number of states integrated some form of pass-through payments as they moved their Medicaid programs from fee-for-service to managed care – notwithstanding a prohibition on states directing managed care plans’ expenditures for provider payments. CMS attributes such state requirements to an interest in (1) ensuring a consistent payment stream for certain critical safety-net hospitals and providers, and (2) avoiding disruption of existing intergovernmental transfers, certified public expenditures, or provider tax mechanisms. In the May final rule, CMS required states to discontinue such arrangements, but provided a 10-year transition period for payments to hospitals and a 5-year transition period for payments to physicians and nursing facilities. Since publication of the May 6 rule, CMS has received inquiries about states’ ability to integrate new or increased pass-through payments into Medicaid managed care prior to implementation of the final rule. In a November 22, 2016 proposed rule, CMS is clarifying that no pass-through payments may be established beyond those in place when the pass-through payment transition periods were established in May 6 final rule. CMS also is proposing other modifications, including establishing new maximum permitted pass-through payments for each year of the transition period. CMS will accept comments on the proposed rule until December 22, 2016.