The Medicaid Rate Problem

Medicaid’s payment problem is simple to state and hard to fix: it pays providers less than anyone else. On average, Medicaid fee-for-service physician rates are about two-thirds of Medicare’s, and generally below commercial rates too. Low rates are the root cause of much of what follows in this course.

Why low rates matter

• Access. Physicians frequently cite low Medicaid payment as their main reason for not accepting new Medicaid patients. Coverage without providers who accept it is coverage in name only.
• Provider finances. Safety-net hospitals and community health centers that serve many Medicaid patients operate on thin margins precisely because so much of their revenue comes at Medicaid rates.
• Value-based math. As the foundations module noted, a value-based model that starts from low base rates has a different savings calculation than a Medicare model does.

The apparatus of extra payments

Because base rates are low, states have long layered additional payments on top to keep providers whole. Historically this meant supplemental payments such as disproportionate share hospital (DSH) payments for hospitals serving many low-income patients, and upper payment limit arrangements in fee-for-service.

Worth remembering: as Medicaid shifted to managed care, these fee-for-service supplemental payments no longer fit, because the state now pays plans, not providers. States needed a new way to boost provider payment inside managed care. That need produced state directed payments, the subject of the next lesson.

Key takeaways

• Medicaid base rates are low, roughly two-thirds of Medicare for physicians, which threatens access and strains safety-net providers.
• States have always layered extra payments on top of low base rates.
• The shift to managed care broke the old supplemental-payment tools and created demand for a new mechanism.

Sources

• MACPAC, Provider Payment and Delivery Systems (opens in a new tab)
• MACPAC, Medicaid Base and Supplemental Payments to Hospitals (opens in a new tab)