If you work in healthcare long enough, especially in home health, hospice, therapy, or other outpatient settings, you quickly realize that many of the rules shaping your day-to-day operations trace back to a single agency: the Centers for Medicare & Medicaid Services, also commonly known as CMS.
Not only does CMS administer benefits, but it also sets the financial and regulatory framework that determines how care is delivered, how it’s reimbursed, and how providers are evaluated. Whether you’re managing claims, preparing cost reports, navigating audits, or planning for growth, understanding CMS can be a help when you run a healthcare organization. And as we often tell our clients at Walters, clarity around CMS rules tends to reduce surprises later, both financially and operationally.
What CMS Does and Why It Matters
As background, CMS is a federal agency within the United States Department of Health and Human Services (HHS) and is responsible for administering Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Together, these programs provide health coverage to tens of millions of Americans, including older adults, individuals with disabilities, low-income families, and children.
Beyond coverage, CMS oversees health insurance portability standards and is responsible for overseeing the administration of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). CMS enforces administrative simplification standards to streamline health information exchange and claims processing, improving efficiency and reducing administrative burdens for providers and insurers. HIPAA administrative simplification rules and quality standards apply across a wide range of care settings. Long-term care facilities, for example, are subject to CMS survey requirements and enforcement actions.
CMS also issues notices to inform stakeholders about policy changes, regulatory updates, or actions that impact healthcare providers and beneficiaries. For healthcare operators, CMS’ decisions influence cash flow timing, staffing models, technology investments, and even how services are structured. That’s why many organizations benefit from stepping back periodically and looking at CMS not just as a distant government agency, but as a system shaping the financial environment they operate in.
A Brief History of CMS
CMS wasn’t always known by its current name. The agency was established in 1977 as the Health Care Financing Administration (HCFA) and was renamed CMS in 2001. While the name changed, the mission expanded significantly over time, especially with the administration of the Medicare program, the federal initiative that provides healthcare coverage for seniors and disabled individuals. A key milestone in the legislative history of Medicare occurred when the White House Conference on Aging in 1961 set the stage for future policy changes and the eventual creation of Medicare and Medicaid.
Today, CMS is headquartered in Woodlawn, Maryland, and operates through 10 regional offices nationwide. It is led by an administrator appointed by the President and confirmed by the Senate. With more than 6,000 employees and a budget exceeding $1 trillion, CMS is one of the largest federal agencies in the United States.
That scale matters. CMS administers the Medicare program and works with state governments to administer Medicaid and CHIP. When CMS adjusts payment methodologies, reporting requirements, or compliance standards, the ripple effects are felt quickly across the healthcare industry.
CMS and the Role of Health and Human Services
As part of HHS, CMS functions within a broader federal strategy focused on protecting public health and improving access to care. HHS provides policy oversight, while CMS translates those policies into operational programs that affect providers and patients alike.
HHS also plays a central role during public health emergencies, working closely with CMS to expand coverage options, adjust reimbursement rules, and introduce temporary flexibilities. The rapid expansion of telehealth during recent emergencies is a good example of how CMS and HHS can work together to reshape care delivery in response to changing conditions.
For healthcare organizations, this relationship means that CMS rules are often part of a larger policy direction. Understanding that context can help leadership teams anticipate change rather than simply react to it.
Medicaid Services and State Partnerships
Medicaid deserves special attention because of its complexity. CMS works closely with state governments to administer Medicaid programs, providing funding, technical guidance, and regulatory oversight. Covered services typically include physician visits, hospital care, prescription drugs, and a wide range of long-term and community-based services.
Because Medicaid is jointly administered, providers must navigate both federal CMS requirements and state-specific rules. This can affect everything from reimbursement timing to allowable costs and reporting formats. For organizations operating in Medicaid-heavy environments, strong internal controls and accurate cost allocation become especially important.
Human Services, Support, and Care Coordination
CMS’s role extends beyond insurance coverage. The agency supports human services initiatives aimed at improving care coordination, case management, and access to community-based resources. These efforts are particularly relevant for individuals with disabilities and those requiring long-term support services.
CMS promotes independence and community integration, encouraging models of care that move beyond institutional settings when appropriate. For providers, this emphasis often translates into new program models, evolving quality measures, and additional reporting requirements tied to outcomes rather than volume alone.
Oversight of Long-Term Care Facilities
CMS plays a central role in regulating long-term care facilities, including nursing homes, certain assisted living settings, and hospitals. The agency establishes quality and safety standards, conducts surveys, and enforces compliance through penalties or corrective action plans when necessary.
In addition to regulation, CMS provides funding and technical assistance to states to support long-term care operations. CMS also pays bonuses to high-performing care facilities to incentivize proper care procedures. Preventing abuse and neglect, improving infection control, and enhancing resident outcomes are ongoing priorities.
For operators, CMS oversight in this area underscores the importance of documentation, staff training, and financial transparency. Cost reporting accuracy, in particular, can influence how facilities are viewed during regulatory reviews.
Prescription Drug Coverage and Medicare Part D
Prescription drug access is another major CMS responsibility. Through Medicare Part D and related programs, CMS works with insurers, pharmaceutical companies, and providers to ensure beneficiaries can access necessary medications. There are a variety of drug plans available under Medicare Part D, making it important for beneficiaries to carefully compare options and choose the right plan for their medication needs. Additionally, Medicare Part C (Medicare Advantage) offers all-in-one plans that may include coverage for dental, vision, and hearing, providing broader health benefits beyond standard drug coverage.
CMS also offers education and support for individuals managing chronic conditions, helping them understand coverage options and medication costs. In 2025, out-of-pocket costs for prescription drugs under Medicare were capped at $2,000 annually, and from a provider standpoint, drug coverage rules can affect treatment planning, patient adherence, and administrative workload.
Staying current with CMS drug plan policies can reduce claim denials and improve patient satisfaction.
Rural Health and Expanding Access to Care
Access challenges in rural areas remain a focus for CMS. The agency supports rural health initiatives through targeted funding, technical assistance, and expanded use of telehealth services.
By promoting telehealth and alternative care models, CMS aims to reduce geographic barriers and improve outcomes in underserved communities. For providers serving rural populations, these initiatives can open new service opportunities while introducing additional compliance considerations.
Understanding which flexibilities are permanent versus temporary is especially important as telehealth policies continue to evolve.
Payment and Reimbursement Systems
CMS is at the heart of the nation’s healthcare payment and reimbursement systems, administering how Medicare and Medicaid services are billed and paid. The agency establishes clinical laboratory quality standards and oversees the entire billing and claims process for providers participating in these programs.
In addition to claims processing, CMS develops and maintains Medicare fee schedules, which assign billing codes and reimbursement rates for a wide range of medical services. These schedules are essential for providers to accurately bill for services and receive timely payments. And through ongoing initiatives, CMS continually refines its payment and reimbursement systems to improve accuracy, reduce administrative burden, and support high-quality care.
Healthcare Technology and Innovation
CMS is dedicated to advancing healthcare technology and fostering innovation to enhance the quality and efficiency of care. The agency has launched initiatives like the Health Technology Ecosystem, which encourages the adoption and integration of cutting-edge health technologies across care settings.
To address the rising cost of prescription drugs, CMS has implemented the Medicare Prescription Drug Affordability initiative, making essential medications more accessible for beneficiaries. The Rural Health Transformation Program is another example of CMS’s commitment to innovation, empowering states to strengthen healthcare infrastructure and services in rural communities.
Education and training are also priorities for CMS. The Medicare Learning Network (MLN) offers a wealth of resources, including webinars, toolkits, and compliance guides, to help providers stay informed about regulatory changes and best practices.
Fraud Prevention, Detection, and Enforcement
A final area worth underscoring is CMS’s ongoing focus on fraud prevention, detection, and enforcement across both Medicare and Medicaid. While this work often happens behind the scenes, it shapes many of the reporting, documentation, and oversight requirements providers deal with every day. CMS relies heavily on data analysis and interagency coordination to identify irregular activity, which means even well-intentioned organizations benefit from keeping their financial and operational house in order.
From a provider’s perspective, strong internal controls, consistent reporting practices, and a culture of transparency tend to reduce stress when audits or reviews arise. In our experience at Walters, organizations that invest in clear, well-structured financial systems are far better positioned to respond to CMS questions confidently and efficiently, rather than scrambling to reconstruct information after the fact.
As regular readers of our blog know, much of our work involves helping healthcare providers interpret CMS requirements in practical, real-world terms. When compliance, reimbursement, and financial strategy are aligned, leadership teams can spend less time worrying about uncertainty and more time focusing on patient care.
