Medicaid Supplemental Payment and Directed Payment Programs

Texas Medicaid is a joint federal and state health insurance program for low-income families, older adults, and persons with disabilities. The federal government matches each state’s Medicaid spending at a predetermined rate that varies by state. Health care providers (e.g. hospitals, doctors, nursing facilities, etc.) receive payments for the services they provide to persons with Medicaid.

The federal government allows each state to develop its own method to reimburse hospitals for the health care they provide to persons with Medicaid. Generally, states’ Medicaid payments to hospitals fall into three broad categories: base payments, supplemental payments and directed payments.

Base Payments

Base Payments are for specific services (e.g. surgery, x-rays, diagnostic tests) hospitals provide to persons with Medicaid. These payments can be made through a fee-for-service (FFS) method or through a managed care organization (MCO).   

  1. A FFS method means each service is paid for separately. FFS is paid directly to the provider of service for each claim submitted for payment. For example, Sara visits a hospital because she broke her arm. The hospital would be paid for the use of their facility for Sara’s treatment; having an x-ray for her arm, supplies used during treatment, nursing services, etc. The physician would be paid separately from the hospital for treating Sara.
  2.  Medicaid capitated payments are paid by the state to Medicaid managed care organizations (MCO) based on negotiated amounts between the MCO and the state as payment for health care services for persons with Medicaid. Capitated payments are paid monthly to the MCO and are based on the number of individuals enrolled in a health plan with the MCO. The MCO contracts with health care providers and makes payment to them based on their agreements.
    • Medicaid capitated payments are paid to managed care organizations that contract with the state to provide health care services for persons with Medicaid. The amount of the payments is based on negotiated amounts and paid monthly for the number of persons with Medicaid enrolled in a health plan with the MCO.

Supplemental Payments

Supplemental Payments are Medicaid payments to health care providers that are separate from and in addition to base payments. Supplemental payments give additional funding to certain health care providers, like hospitals. The payments may be made in a lump sum. However, some supplemental payments may be linked to the achieving certain goals or to support health care providers that see significant numbers of uninsured or persons without much money. For example, states may provide supplemental payments to providers to support quality initiatives, residency training for doctors, and certain types of facilities (e.g., rural or safety net providers).

Directed Managed Care Payments

Directed Managed Care Payments are authorized under 42 CFR 438.6(c)(1)(i) through (iii). It specifies ways states may set parameters for Medicaid managed care spending so that it help states to achieve their overall goal of delivery system and payment reform, as well as improved performance.  Specifically, it allows Medicaid MCOs to make payments to healthcare providers at the specific direction of the Medicaid agency when the payments support overall Medicaid program goals and objectives.