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Medicaid - Payment for Services

Medicaid operates as a vendor payment program. States may pay providers directly, or States may pay for Medicaid services through various prepayment arrangements, such as health maintenance organizations (HMOs). Within Federally-imposed upper limits and specific restrictions, each State generally has broad discretion in determining the payment methodology and payment rate for services. Generally, payment rates must be sufficient to enlist enough providers so that covered services are available at least to the extent that comparable care and services are available to the general population within that geographic area.

Providers participating in Medicaid must accept Medicaid payment rates as payment in full. States must make additional payments to qualified hospitals that provide inpatient services to a disproportionate number of Medicaid recipients and/or to other low-income or uninsured persons under what is known as the "disproportionate share hospital" (DSH) adjustment. During 1988-1991, excessive and inappropriate use of the DSH adjustment resulted in rapidly increasing Federal expenditures for Medicaid. Under legislation passed in 1991, 1993, and again within the BBA of 1997, the Federal share of payments to DSH hospitals was somewhat limited. However, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Public Law 106-554) increased DSH allotments for 2001 and 2002 and made other changes to DSH provisions that resulted in increased costs to the Medicaid program.

States may impose nominal deductibles, coinsurance or co-payments on some Medicaid recipients for certain services. Certain Medicaid recipients, however, must be excluded from cost sharing: pregnant women, children under age 18, hospital or nursing home patients who are expected to contribute most of their income to the cost of institutional care. In addition, all Medicaid recipients must be exempt from co-payments for emergency services and family planning services.

The Federal government pays a share of the medical assistance expenditures under each State's Medicaid program. That share, known as the Federal Medical Assistance Percentage (FMAP), is determined annually by a formula that compares the State's average per capita income level with the national income average. States with a higher per capita income level are reimbursed a smaller share of their costs. By law, the FMAP cannot be lower than 50 percent or higher than 83 percent. In fiscal year (FY) 2004, the FMAPs varied from 50 percent in 12 States to 77.08 percent in Mississippi, with the average Federal share among all States being 60.2 percent. However, the BBA permanently raised the FMAP for D.C. from 50% to 70%, and raised the FMAP for Alaska from 50% to 59.8% through 2000. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Public Law 106-554) further adjusted Alaska's FMAP to a higher level for 2001-2005. For the children added to Medicaid through the SCHIP program, the FMAP average is higher -- about 70%, compared to the Medicaid average of 60.2%.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law 108-27), in order to bring about State fiscal relief in the current troubled economy, made three temporary modifications to the States' FMAP calculation: (1) the FMAP for the last two quarters of 2003 equaled the greater of the current law FMAPs for 2002 or 2003; (2) the FMAP for the first three quarters of 2004 equaled the greater of the current law FMAPs for 2003 or 2004; and (3) for the last two quarters of 2003 and first three quarters of 2004, the newly calculated (under 1 and 2 above) FMAP increased by 2.95 percentage points.

The Federal government also reimburses States for 100% of the cost of services provided through facilities of the Indian Health Service; provides financial help to the 12 States that provide the highest number of emergency services to undocumented aliens; and shares in each State's expenditures for the administration of the Medicaid program. Most administrative costs are matched at 50 percent for all States, although higher percentages are paid for certain activities and functions, such as development of mechanized claims processing systems.

Except for the SCHIP program, the Qualifying Individuals (QI) program (described later), and DSH payments, Federal payments to States for medical assistance have no set limit (cap). Rather, the Federal government matches (at FMAP rates) State expenditures for the mandatory services plus the optional services that the individual State decides to cover for eligible recipients, and matches (at the appropriate administrative rate) all necessary and proper administrative costs. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (as incorporated into Public Law 106-113, the appropriations bill for the District of Columbia for fiscal year 2000) increased the amount that certain States and the territories can spend on DSH and SCHIP payments, respectively. The BIPA set upper payment limits for inpatient and outpatient services provided by certain types of facilities.

See these topics for additional information:

·   Medicaid - Overview

·   Medicaid - Eligibility

·   Medicaid - Scope of Services

·   Medicaid - Amount and Duration of Services

·   Medicaid - Data Summary and Trends

·   Relationship of Medicaid and Medicare

Source

http://www.cms.hhs.gov/MedicareProgramRatesStats/02_SummaryMedicareMedicaid.asp

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