Medicaid and CHIP Risk-Based Managed Care in 20 States. Experiences Over the Past Decade and Lessons for the Future.. Provider Reimbursement.


As mentioned, provider reimbursement is the most critical factor contributing to provider participation in MCOs. While federal legislation mandates that Medicaid health plans must be paid an actuarially sound rate,11 there is no requirement that plans pay their providers in a particular way or at a particular level. In addition, there is no existing quantitative data on the amount that Medicaid/CHIP MCOs reimburse their providers, or how those rates compare to Medicaid fee-for-service, Medicare, or commercial insurance rates.

When we asked states what their plans pay providers, most state officials said that they take a hands-off approach to provider reimbursement for MCOs. In addition, most do not even know how or how much their plans reimburse providers. Most state officials feel that, as long as health plans meet provider network standards, payment arrangements negotiated between health plans and their providers are between those parties, and the state prefers not get involved.

From the plan’s point of view, their market power with providers is the factor that determines whether they can negotiate a lower rate than, for example, Medicaid fee-for-service rates, with certain providers.

We can negotiate under the fee-for-service schedule sometimes if they accept it. (Plan Representative)

Plans may also negotiate a capitation rate with providers, thus pushing the risk down to the provider level.

In contrast to this general pattern of lack of involvement by the state in what plans pay their providers, four of the study states (Arizona, Connecticut, Maryland, and New Mexico) do have minimum provider reimbursement requirements. Even without any such requirements, officials in several states said they expect their health plans are usually benchmarking from Medicaid fee-for-service. In four states (California, Maryland, Ohio, and Pennsylvania), provider representatives thought that the rates that MCOs pay their providers might actually be somewhat higher than fee-for-service for some services, although there is uncertainty about how prevalent this pattern is.

Even when the state uses risk-based managed care and takes a hands-off approach to provider reimbursement, it cannot avoid political controversy or litigation surrounding the issue of adequate provider reimbursement by health plans. This can occur when the state cuts fee-for-service payment rates (for example, as happened recently in California), leading to a reduction in the capitation rate, and in turn to what plans can pay providers.

Specific comments on how CHIP plans pay their providers were rare, since as noted most study states operate risk-based managed care programs seamlessly. In one of the states with separate administration, a provider association noted that CHIP reimbursement rates are higher than for Medicaid. Generally state CHIP officials were unable to make an informed comparison, but their opinion is that CHIP MCOs pay their providers either the same rate, or potentially a higher rate, than for Medicaid.

As states move more and more Medicaid and CHIP beneficiaries into risk-based managed care, there are fewer people in the fee-for-service system, so fee-for-service rates become only a hypothetical benchmark for provider rate-setting. For example, in Arizona, there are only small, specialized subgroups in fee-for-service.

From the point of view of most provider representatives, Medicaid MCO provider reimbursement rates are too low—often at cost or below cost. Some doctors also feel that the plans are not paying an adequate rate given what plans receive as capitation rates from the state.

Our Medicaid fee-for-service rates are below our costs. We continue to take cuts and managed care plans continue to get increases on a per member per month amount based on "actuarial soundness." (Provider Representative)


Some providers, those with more market power, may judge that the rates offered by the plans are insufficient and consequently decide not to participate in the network.

When I negotiate, we will not sign a contract for less than 100% Medicaid fee-for-service schedules. Plans try to come in at 85–90%, and we do not sign anything.
(Provider Representative)

But some providers do not have that option, depending on the market dynamics they face.

The money that comes in is barely covering our costs. We are barely surviving. But we don’t want to leave here. We like what we are doing here; we are making a difference. (Provider Representative)

The issue of low provider reimbursement by MCOs has become more acute in some places recently. Due to the budgetary constraints imposed on states by the recent recession, many of our provider informants (for example, in Arizona, California, Connecticut, Massachusetts, Michigan, Minnesota, and Texas) reported that their states have reduced fee-for-service provider payment rates. Since states adjust their capitation rates to reflect such provider payment cuts, capitation rates have also decreased. Only one provider informant (in Tennessee) noted that Medicaid payments have improved in recent years, in part due to the state’s previous experience with risk-based managed care in which rates were viewed as too low to sustain adequate participation by plans and providers. This situation is somewhat less severe for providers who negotiate with health plans for both commercial and Medicaid enrollees, since they can potentially cross-subsidize by having a mix of commercial and Medicaid reimbursement.

View full report


"rpt.pdf" (pdf, 1.42Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®