States have considerable flexibility to design their Medicaid payment methods—whether they are direct payments to providers under fee-for-services arrangements, capitation payments to managed care plans, or some combination of the two. States also can make supplemental payments to certain classes of providers.
In general, provider payments under fee for service must be consistent with the principles of efficiency, economy, and quality of care, and sufficient to provide access to care equivalent to the general population. Capitation payments must be actuarially sound, meaning that they cover reasonable, appropriate, and attainable costs in providing covered services to enrollees in Medicaid managed care programs. This fact sheet examines state plan requirements and options for paying providers and plans, including states’ use of supplemental payments.
From: Federal Requirements and State Options: How states exercise flexibility under a Medicaid state plan
