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COVID-19 Guidance for Medicaid Managed Care Directed Payments

The Centers for Medicare & Medicaid Services (CMS) on May 14 issued an informational bulletin outlining options for states to leverage Medicaid managed care directed payments in response to COVID-19.

Specifically, the bulletin announces temporary flexibility for states to modify provider payment methodologies and capitation rates that direct expenditures under managed care contracts to address the impacts of the public health emergency (PHE).

Directed Payment Arrangements

Under current Medicaid managed care regulations, states can develop directed payment arrangements to further delivery system reform and provider payment initiatives under managed care contracts. CMS has outlined a framework that allows states to establish directed payment arrangements to support COVID-19 response while complying with regulatory requirements, which includes:

  • States can direct expenditures under managed care contracts for a class of providers, defined by the state. During the PHE, states can use this authority to direct payments to targeted providers, such as hospitals filling a safety-net role. These arrangements cannot be contingent on providers entering into or upholding intergovernmental transfer agreements;
  • Directed payment arrangements must be based on utilization and delivery of services under the managed care contract. To implement a temporary COVID-19 related increase in provider payment rates, states can require plans to institute a uniform, per-service payment amount or consider combinations of directed payment arrangements to increase payments; and
  • States must tie directed payment arrangements to goals and objectives in their managed care quality strategy, such as preserving and maintaining services for managed care enrollees. In light of the COVID-19 pandemic, CMS notes it is an appropriate goal for a state quality strategy to use directed payments that increase provider payments to ensure access to services during the PHE.

CMS also provides details about risk mitigation, rating periods, and rate certification documentation considerations for directed payment arrangements. States will have to document and submit justification for any temporary directed payments during the PHE to demonstrate that payments were appropriate as compared with provider payments absent the PHE.

States must submit a directed payment preprint for approval, which CMS has prepopulated to expedite the review and approval process. Additionally, the agency has published an appendix of example arrangements that CMS would approve during this PHE.

Adjustments to Capitation Rates

Several states have received approval for a Medicaid Disaster State Plan Amendment (SPA) to increase Medicaid fee-for-service (FFS) provider payment rates in response to COVID-19. Many states with an approved state-directed payment require managed care plans to adopt FFS rates for specific providers and services. As such, the temporary FFS rate increases for COVID-19 response must be reflected in the capitation rates.

In the bulletin, CMS provides these options for states to revise capitation rates:

  • De minimus rate adjustments: States currently have authority to make de minimus rate adjustments to capitation rates if the increase or decrease per rate cell is less than 1.5 percent. If the temporary COVID-19 rate increases fall below that threshold, states only have to submit a contract amendment to CMS and do not have submit a new actuarial rate certification; and
  • Rate amendment: States adopting a rate increase above 1.5 percent per rate cell will need to submit a revised actuarial rate certification and contract amendment. To expedite review and approval, CMS is allowing states to submit revised certifications and amendments that contain only the information needed for the temporary rate increases. Further, if a state wants to revise utilization assumptions for a state-directed payment to account for the COVID-19 pandemic, CMS is accepting certifications and amendments that reflect those proposed changes.

Retainer Payments

States can make retainer payments for certain providers when circumstances prevent beneficiaries from accessing habilitation and personal care services, as long as these payments are authorized as part of a home- and community-based services waiver, a Section 1115 demonstration waiver, or other Medicaid authority. Under current regulations, states have the authority to implement directed payments that require managed care plans to make retainer payments to habilitation and personal care providers for authorized services under the plan contract.

States can seek approval for this type of directed payment arrangement by submitting a directed payment preprint for CMS approval. CMS has published a pre-populated preprint template to expedite the approval process.

The bulletin also includes a technical assistance contact and an appendix with example state proposals. CMS is committed to an expedited review and approval process for COVID-19 related contracts and amendments. Further, CMS will consider state requests to retroactively amend or implement risk mitigation strategies only for purposes of responding to the PHE. States should submit all managed care documentation related to COVID-19 to

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Zina Gontscharow is a former senior policy analyst for America's Essential Hospitals.

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