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Understanding Medicaid Supplemental Payments: The Basics
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A great deal of attention has been paid recently to supplemental Medicaid payments to healthcare providers. To understand these payments, it is helpful to first outline the background of the Medicaid program, its purpose and how that purpose can be a benefit for Louisiana residents and beyond.
Through Medicaid, hospitals and physicians provide care to eligible needy individuals, and the cost of that care is shared between the state and federal governments. Under federal Medicaid law, the federal government reimburses states for its share of allowable expenditures according to a statutory formula.(1) A state may collect up to sixty (60%) percent of its portion of the Medicaid cost from local governments, as long as the state government contributes at least forty (40%) percent. In other words, local governmental entities can contribute to the state’s share of Medicaid payments,(2) and a state can then claim federal reimbursement for the federal share of that certified amount.(3) In this way, Medicaid coverage can be expanded without the use of increasingly scarce state funding.
Medicaid payments to healthcare providers are made using Medicaid rates established by the states within broad federal guidelines. Generally, the maximum amount which federal law will allow a state to pay(4) is referred to as the Upper Payment Limit (UPL). However, standard payment rates in most states, including Louisiana, are almost always far below the allowable maximum, creating a gap between those standard Medicaid payment rates and the UPL.
While states can’t afford to increase standard payments to cover the UPL gap, they have begun to establish supplemental payment programs in state Medicaid plans to provide additional reimbursement payments above standard Medicaid rates, but below the determined UPL. Under federal guidance, the Centers for Medicare and Medicaid Services (CMS) reviews and approves all state plan amendments prior to implementation.
So how is an Upper Payment Limit determined? The payment is calculated by comparing either the amount Medicare would have paid for a service provided to a Medicaid fee-for-service (FFS) patient, or FFS cost, to the amount of Medicaid payments made on a fee-for-service basis. To access the amounts above standard Medicaid reimbursement payments, a state must review potential opportunities and submit the UPL program plans to CMS. By working within the parameters outlined by the Medicaid program, states, such as Louisiana, have been able to make steps towards helping achieve Medicaid’s ultimate purpose - to provide needed funds to serve the state’s low income and needy population.
In fact, Louisiana’s Department of Health and Hospitals (DHH) announced this past month that Louisiana has developed a Low-Income and Needy Care Collaboration Agreement (LINCCA) program which has already begun to help with the state’s goal of improving access to care for the uninsured and Medicaid patients. Under this program, a private hospital provides needed care in the community and a collaborating public hospital makes a voluntary contribution to DHH for the state portion of a supplemental payment to that private hospital. In this way, Louisiana governmental hospitals are realizing tremendous savings when non-governmental hospitals provide needed community services which the governmental hospitals might otherwise have provided. This effectively expands the governmental hospitals’ service capabilities while providing additional revenue to the non-governmental hospitals.
This hospital-based program is only the beginning for Louisiana and its commitment to securing the necessary funds to make healthcare work for its residents. Another example is the state plan amendment which was recently approved to allow supplemental payments to physicians. Under this program, physicians who are employed by or contract with public hospitals not owned by the state may be eligible for supplemental physician payments. The DHH estimates approximately ten to fifteen million could be paid out through this physician-specific program annually.
[Next Month – “Understanding the Rules – The Limitations on the Hospital UPL Program.”]
(1) 42 U.S.C. §§1396b(a), 1396d(b).
(2) See 42 U.S.C. § 1396r-4(g).
(3) See 42 U.S.C. § 1396a(a)(2).
(4) Technically, states can pay above the UPL limit, but will not receive federal matching funds for the excess. See 42 C.F.R. §§ 447.272, 447.321 (2006).
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