Changes to Supplemental Payments: Medicaid Managed Care Rule

What are Supplemental Payments?

In order to partially bridge the gap between Medi-Cal base rates and the actual cost of providing care, California’s public health care system have for years financed and received supplemental payments for services provided to patients enrolled in Medi-Cal managed care plans. These supplemental payments add up to more than $1 billion in federal funds each year and are an absolutely critical source of funding for public health care systems.

As Medi-Cal is a state/federal partnership, federal funding must be matched by a “non-federal share,” which, in the case of supplemental payments, is provided by public health care systems themselves, at no additional cost to the State. When these payments were historically made, public health care systems and the California Department of Health Care Services (DHCS) agreed to an appropriate amount of funding needed to more closely approximate each public health care system’s unreimbursed costs. Each public health care system provided the non-federal share to the state, and the state then provided the total enhanced payment with the federal match back to the public health care systems, via Medi-Cal managed care plan.

In April of 2016, the federal Centers for Medicare & Medicaid Services (CMS) published the Medicaid and CHIP Managed Care Final Rule. The rule, many provisions of which went into effect July 1, 2017, is a sweeping update to the regulatory framework for Medicaid managed care for the first time in many years, aligning it as much as possible with Medicare and other commercial insurance requirements for issues like rate setting, access standards, grievances and appeals, and quality. Significantly for California’s 21 public health care systems, the rule also places new restrictions on how health care providers may receive supplemental payments in the Medicaid managed care context.

What Changed?

The Managed Care Rule limits the ability of states to make direct payments to health care providers, unless certain conditions are met. Among the allowable exceptions are payments tied to performance and payments that provide a uniform payment increase which includes a pre-determined increase over contracted rates. Some of the existing supplemental payments to public health care systems did not meet these conditions so in order to retain this critical funding, the payments must be restructured.

CMS  approved the State’s proposal to restructure supplemental payments to public health care systems for FY 17-18, which covers the period July 1, 2017 to June 30, 2018. The proposal contains two elements – a Quality Incentive Program (QIP) and an Enhanced Payment Program (EPP). The funding requested for both the EPP and QIP together is intended to replace at least the levels of certain supplemental funding public health care systems received in managed care prior the implementation of the managed care rule.

Read more about how public health care systems implemented changes to the Medicaid managed care supplemental payments into compliance with the new rule.