Medicaid Supplemental Payment & 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. Healthcare 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 providers for the health care they provide to persons with Medicaid. Generally, states’ Medicaid payments fall into three broad categories: base payments, supplemental payments and directed payments.

Base Payments

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

  • Under the FFS method, each service is paid for separately. An FFS payment is made directly to the provider of service for each claim submitted for reimbursement. 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.
  • Under managed care, Medicaid capitated payments are paid to managed care organizations (MCO) that contract with the state to provide healthcare 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 healthcare providers and makes payments to them for services based on the negotiated rates under their contract with the provider.

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 Payments

Directed Payments are authorized under 42 CFR 438.6(c) and allow states to set parameters for Medicaid managed care spending to assist states in achieving their overall goal of delivery system and payment reform, as well as improved performance. Specifically, a state is permitted to direct Medicaid MCOs to make certain payments to healthcare providers, either through an adjustment to the monthly base capitation rates or through a separate payment term.