In 2016, the Centers for Medicare & Medicaid Services updated the regulations for Medicaid managed care and created a new option for states, allowing them to direct managed care organizations (MCOs) to pay providers according to specific rates or methods. Typically, these directed payment arrangements are used to establish minimum payment rates for certain types of providers or to require participation in value-based payment arrangements. However, a few states use the directed payment option to require MCOs to make large additional payments to providers similar to supplemental payments in fee for service.
This issue brief discusses the history of directed payment policy and examines the use of directed payments based on MACPAC’s review of directed payments approved as of February 1, 2023. Further discussion of this issue, including MACPAC’s recommendations for improving the transparency and oversight of directed payments, is included in Chapter 2 of MACPAC’s June 2022 Report to Congress on Medicaid and CHIP (MACPAC 2022a).