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State Directed Payments

The Centers for Medicare & Medicaid Services (CMS) Medicaid managed care regulations at 42 C.F.R. § 438 govern how states may direct plan expenditures in connection with implementing delivery system and provider payment initiatives under Medicaid managed care contracts.

State Directed Payments: Additional Guidance

Based on CMS reviews of state directed payment arrangements since this part of the regulation took effect beginning with contract rating periods on or after July 1, 2017, CMS is publishing this State Medicaid Directed Letter (SMDL) (PDF, 174.85 KB) to provide additional guidance on the broader policy regarding state directed payments. Specifically, this guidance:

  • Clarifies what is considered a state directed payment;
  • Alleviates burden faced by states by proactively addressing common questions that arise during the preprint review;
  • Enhances program integrity in the use of state directed payments; and
  • Reminds states of the quality-related requirements that must be met to secure CMS approval.

CMS is also publishing a revised preprint form (PDF, 715.08 KB). This form has been revised to include more information in tables and check-box formats to make completing the preprint easier and clearer. Additionally, by including more information in the revised preprint, CMS hopes to reduce processing time.

States will be required to use this revised preprint form for all state directed payment requests for contract rating periods that begin on or after July 1, 2021.

To help expedite the review process for state managed care contract(s) and rate certification(s), CMS strongly recommends that states submit preprints for state directed payments to CMS at least 90 calendar days in advance of the start of the rating period that includes the state directed payment. To ensure proper processing, States should submit the preprint(s) to the following new mailbox: StateDirectedPayment@cms.hhs.gov.

COVID-19 Delivery System and Provider Payment Initiatives

The COVID-19 public health emergency is causing dramatic shifts in utilization across the healthcare industry, causing financial uncertainty for both healthcare providers and managed care plans. While some providers are experiencing surges in COVID-19 related utilization, other providers are experiencing dramatic declines in utilization and revenue. The Centers for Medicare & Medicaid Services (CMS) understands that many states are now seeking ways to temporarily modify provider payment methodologies and capitation rates under their Medicaid managed care contracts to address the impacts of the public health emergency while preserving systems of care and access to services for Medicaid beneficiaries. This guidance (PDF, 213.82 KB) provides several options that states can consider under their Medicaid managed care contracts, including the following:

  1. Adjusting managed care capitation rates exclusively to reflect temporary increases in Medicaid fee-for-service (FFS) provider payment rates where an approved state directed payment requires plans to pay FFS rates;
  2. Requiring managed care plans to make certain retainer payments allowable under existing authorities to certain habilitation and personal care providers to maintain provider capacity and access to services; and
  3. Utilizing state directed payments to require managed care plans to temporarily enhance provider payment under the contract.

CMS is also publishing 2 examples of 438.6(c) preprints to facilitate review of state-directed payments discussed in this CIB:

Delivery System and Provider Payment Initiatives

Delivery System and Provider Payment Initiatives under Medicaid Managed Care Contracts: This Informational Bulletin (CIB) (PDF, 181.11 KB) describes states’ ability to implement delivery system and provider payment initiatives under Medicaid managed care contracts. These types of payment arrangements permit states under 42 CFR 438.6(c) to direct specific payments made by managed care plans to healthcare providers and can assist states in furthering the goals and priorities of their Medicaid programs.