In an updated issue brief, the Medicaid and CHIP Payment and Access Commission (MACPAC) discusses the history of Medicaid managed care state directed payments (SDPs), changes made in the 2024 managed care rule, and use of directed payments based on MACPAC’s review of recently approved directed payments.
Between Feb. 1, 2023, and Aug. 1, 2024, the Centers for Medicare & Medicaid Services (CMS) approved 302 distinct SDP arrangements in 40 states and Puerto Rico. Most of these SDPs were uniform rate increases (67 percent), which accounted for most of the directed payment spending. Total projected spending for 2024 is $110.2 billion, including provider contributions, which is nearly a 60 percent increase in projected spending from SDPs approved as of February 2023.
Targeting and Financing SDPs
The targeting and financing of SDPs varied based on the directed payment type. Uniform rate increases and value-based payment (VBP) arrangements most often were targeted to hospitals. Minimum or maximum fee schedules and VBP arrangements were financed mainly with state general funds, but most uniform rate increases were financed by providers through provider taxes or intergovernmental transfers (IGTs). Finally, most uniform rate increases and VBP arrangements were incorporated through separate payment terms. Of the 29 SPDs projected to increase payments to providers by more than $1 billion a year, 24 were targeted to hospital systems and 26 were financed by provider taxes or IGTs.
Separate Payment Terms
Of the $81.5 billion in annual spending on uniform rate increases, $70.6 billion, or 87 percent, were delivered through separate payment terms. Many of these SDPs incorporated through separate payment terms raised hospital payment rates up to the average commercial rate. Furthermore, states tend to use provider contributions to finance uniform rate increases incorporated as separate payment terms. Provider taxes and IGTs financed the majority (78 percent) of these directed payments, as opposed to 34 percent of uniform rate increases incorporated via base rate adjustments. MACPAC notes that, under the 2024 managed care rule, CMS will eliminate separate payment terms beginning in 2027, and the transition from separate payment terms to base rate adjustments will have implications for a significant share of SDPs.
Current Oversight Process
The brief reviewed the current oversight process, including preprint approval, capitation rate development, and evaluations. CMS found that most evaluation plans submitted between April 2018 and February 2021 were incomplete and did not report evaluation results. The agency has implemented additional standards for evaluation plans in the 2024 managed care final rule. Beginning in July 2027, evaluation plans will be required to include at least two metrics, one of which must be a performance metric, as well as baseline statistics and performance targets. SDPs that exceed 1.5 percent of total managed care costs also must submit evaluation reports every three years.
MACPAC further reviewed other changes to SDP policy in the 2024 managed care final rule, including interim payments based on historic utilization, additional requirements to improve compliance and transparency of SDPs, and more stringent requirements for evaluation and reporting. The brief reiterated MACPAC’s 2022 recommendations to Congress to improve SDP transparency and oversight, stating further information and clarity are still needed to fully understand the goals and uses of directed payments. The 2024 rule does not include information on the sources of nonfederal share funding for SDPs, which is critical to examine the effects of any changes to SDPs on access, quality, and value for providers and beneficiaries.
MACPAC commissioners will discuss directed payments in Medicaid managed care at its next meeting, Nov. 1, at 11:15 am ET. America’s Essential Hospitals submitted comments on the association’s recent work on this issue.
Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.
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