MACPAC wants more managed care directed payment transparency

Medicaid payment advisors on Friday recommend policymakers improve transparency of managed care directed payments, which are commonly used to increase Medicaid payment to hospitals.

The Medicaid and CHIP Payment and Access Commission staff questioned what improvements directed payments are making to a state program, because managed care rates already must be high enough to ensure enrollees have access to care.

MACPAC recommended the Health and Human Services Department make more information on payment methodology and approvals available online to illustrate how this funding stream is being used.

States can use these payments to require managed care plans to pay providers according to specific rates or methods, but the amount of spending associated with directed payments is unclear. Spending for about half the arrangements in effect as of December 2020 totaled more than $25 billion, which is more than Medicaid disproportionate share hospital payments, according to MACPAC. There’s no upper limit on the payment amounts.

MACPAC may consider recommending an upper limit on directed payment amounts in the future, but the commission needs more information before taking that step, staff said.

Directed payments have grown substantially since they were created in 2016. When MACPAC reviewed the payments in 2018, it found 65 approved arrangements. By late 2020, more than 200 arrangements existed.

MACPAC identified 35 arrangements that increased payments by more than $100 million a year—and accounted for 90% of reported directed payment spending. The majority of the 35 arrangements are for payments to hospitals and boost providers pay above the Medicare fee-for-service rate.

CMS last year approved $1.8 billion in new payments to Florida hospitals through directed payments, and Ohio tripled payments to certain hospital-based doctors, according to MACPAC. Utah used directed payments to preserve an older supplemental payment system for hospitals.

States currently need CMS approval before implementing directed payments that aren’t based on state plan rates, and states must also develop evaluation plans. But no written guidance exists on who needs to review these amounts or how states should evaluate their programs, MACPAC staff said. Because goals for the payments are unclear, it’s hard to say whether they’re meeting their objectives.

MACPAC on Friday recommended HHS require more rigorous evaluation plans for directed payments that bump provider rates substantially higher than the base state Medicaid rate, in order to better assess these payments’ performance and effect.

Commissioner Brian Burwell, whose MACPAC term ends this month, said he hopes MACPAC continues to examine Medicaid hospital financing in the future. The commission has recommended more data and transparency on supplemental dollars like directed payments and DSH, but he wants to see policy fixes on how Medicaid pays hospitals.

“The more we figure out what’s going on, the more kind of ridiculous the whole scheme seems… It’s not all bad. There are different reasons why we do this,” said Burwell, vice president of healthcare policy and research at Ventech Solutions, which manages technology initiatives for government agencies. “But it just seems totally ridiculous to me that Medicaid has ended up with this kind of financing mechanism for hospitals, particularly safety net hospitals.”

Other commissioners noted that these are federally allowable payment mechanisms, and policymakers need to be careful not to create unintended consequences by changing the systems.

Commissioner Bob Duncan, executive vice president and chief operating officer at Connecticut Children’s, also cautioned the group not to portray directed payments as inherently bad.

“I think we’re heading in the right direction, but I think we’ve got to be careful not to paint a broad brush of all supplemental directed payments or negative,” Duncan said, clarifying that his hospital does not receive any supplemental payments other than disproportionate share hospital money.

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