For the first time, the federal government has told states that Medicaid demonstration projects must remain budget neutral, reflecting an ongoing push by the Centers for Medicare & Medicaid Services to drive down the program’s spending.

Such demonstrations allow states to design innovative ways to serve the nation’s 65 million recipients of Medicaid, which is the largest source of payment for nursing homes.  The Wednesday letter to state Medicaid directors from Timothy Hill, the acting director of the Center for Medicaid and CHIP Services, followed the Government Accountability Office report on misuse of Medicaid dollars. CMS Administrator Seema Verma also testified before the Senate Homeland Security and Government Accountability Committee this week on improper Medicaid payments.

Federal spending has increased on the program by more than $100 billion between 2013 and 2016, Verma noted.

“CMS welcomes smart new approaches to coverage and delivering care through Medicaid demonstration projects, but we won’t approve them without a careful analysis of their impact on taxpayers,” Verma said. “Today’s guidance is a comprehensive explanation of how CMS and our state partners can ensure that new demonstration projects can simultaneously promote Medicaid’s objectives and keep federal spending under control.”

While seeking to cut back on spending, the letter also followed CMS announcing new measures last week to rein in regulatory burdens and give more power to states under the Medicaid program.