A Primer on Using Medicaid for People Experiencing Chronic Homelessness and Tenants in Permanent Supportive Housing. 7.1. Medicaid Fee-For-Service Payment Mechanisms


Until recently, most people with disabilities who were enrolled in Medicaid, including people experiencing homelessness and those who became tenants of PSH, have received health care and behavioral health services reimbursed through fee-for-service arrangements. As many states expand Medicaid managed care structures and explore payment reform and health care delivery system changes, some of these fee-for-service arrangements are changing, but many providers of health care and behavioral health services are likely to continue to receive fee-for-service payments for Medicaid-covered services. Financing for the Medicaid-covered services that can be delivered in PSH has most frequently been provided through the fee-for-service payment mechanism.

Under fee-for-service, qualified Medicaid providers are paid for each covered service such as an office visit, test, or procedure according to rates set by the state. States may develop their payment rates based on: (1) the costs of providing the service; (2) a review of what commercial payers pay in the private market; or (3) a percentage of what Medicare pays for equivalent services.86 The service provided must correspond to the description of covered services under the Medicaid state plan, and the service must be delivered by a qualified Medicaid provider.

7.1.1. Fee-For-Service Payment Arrangements

If they are Medicaid beneficiaries, people experiencing homelessness or living in PSH often receive covered services for medical conditions in the same way as any other beneficiary does, from clinics, doctors, and other qualified providers. These health care providers may receive payment from the Medicaid program on a fee-for-service basis, with rates that are established for specified procedures or types of encounters. Alternatively, health care providers may be compensated through other payment arrangements, such as capitation, if beneficiaries are enrolled in Medicaid managed care plans.87

Many people who are or have been chronically homeless receive Medicaid-covered behavioral health services, such as rehabilitative services or HCBS (described in Chapter 5), including services that are connected to PSH and services they may receive from other providers in the community. These services are often reimbursed with fee-for-service payment. In many states, in order to qualify for payment for some behavioral health services, Medicaid providers must have contracts with public behavioral health departments. Reimbursement for HCBS or behavioral health services is often based on a unit of service, with the covered services and activities and the units of service defined by the state. Units of service may be defined and counted by the minute or quarter hour (15-minute) increment. For some types of services, a unit of service may be a day.

PSH service providers often perform a range of activities, and Medicaid reimbursement is available only for the activities that fit definitions of covered benefits. For mobile services that are delivered in a person's home or in other settings where providers deliver care to homeless people, reasonable travel time for the service provider may be included in the definition of a covered service or unit of service and compensated through fee-for-service payments.

States have the authority to define covered services as including both face-to-face and collateral contacts made by service providers for the direct benefit of an eligible person. For example, depending upon the definition of a covered service, fee-for-service reimbursement may be available for the time a service provider spends obtaining information such as the results of medical examinations or procedures on behalf of a client, or talking with a client's family member or other responsible person (such as a housing provider) to offer advice about how to assist the client. For these types of activities, fee-for-service payment may be available for the units of service delivered (e.g., the amount of time staff perform these activities) regardless of whether the client is present or the contact is face-to-face.

From the perspective of service providers, fee-for-service payment mechanisms offer some advantages when delivering care to people with high levels of need. In general, under fee-for-service, a provider can deliver more covered services to people who need more frequent, intensive interventions during times of crisis, or initially when people are getting engaged in care and stabilized in housing, and be reimbursed for all the care delivered that is justified by medical necessity. With fee-for-service payment, as people recover and need less frequent or intensive services, costs to the Medicaid program are likely to be lower because these individuals need and receive fewer units of service, and resources can be used to pay for services to other people.

There are also some challenges associated with fee-for-service payment. These include administrative burdens associated with providing documentation to back up claims for each covered service delivered or billing for each procedure performed. States have often set up separate systems that include separate groups of providers and separate fee-for-service payment mechanisms for Medicaid-covered services to address medical, mental health, and substance use disorders--and this can make it very difficult for a provider or team to deliver integrated care when they have to use multiple fee-for-service payment mechanisms and those mechanisms are not aligned.

As described in Chapter 5, states could define covered services in ways that provide substantial flexibility for including the supports needed by people with behavioral health disorders or multiple chronic health conditions, including co-occurring mental health and substance use conditions. These conditions may be highly variable over time and in relation to each other, with one requiring a lot of attention at one time and another requiring more care at another time. Providers must be able to work very flexibly with clients to address their issues in an integrated way if they are to achieve the highest level of success.

However, current definitions in many Medicaid state plans may not include some of the activities performed by service providers that have a good track record of achieving better outcomes, including impacting positively on a participant's health, helping to motivate healthy behavior changes, and contributing to more appropriate and less unnecessary use of more expensive services that the Medicaid state plan does cover. Revising current Medicaid state plan definitions of covered services could go far toward enabling providers to serve their PSH tenants and others experiencing homelessness or having complex health care needs more efficiently and effectively, rather than leaving providers without reimbursement for the time associated with those interventions or activities that comprise an integral part of their approach.

States and local mental health authorities can help with efforts to use available Medicaid benefits to pay for some of these services if they provide service agency staff with training tailored to the needs of direct service providers who work in PSH or other home and community settings. It can be very helpful to give workers and service provider organizations clear guidance about how to appropriately document and claim fee-for-service payment for the covered services they deliver. Provider handbooks and training could also reduce the misunderstandings, disputes, and disallowances that can otherwise result if service providers submit claims for time spent on activities that are not included as covered benefits.

When providing payments on a fee-for-service basis, a state may control costs by limiting the maximum number of units of service a beneficiary may receive each month, or require prior authorization for more frequent and intensive services that may be justified on the basis of that person's level of functioning. States may accommodate varying levels of need for these services by setting higher limits on units of service for people with more severe or complex health and behavioral health conditions or other disabilities. For example, states may limit the amount of services that a beneficiary can receive, and then allow providers to request additional services if medical necessity can be justified.

7.1.2. Payment Mechanisms--Daily or Monthly Rates Under Fee-For-Service

A variation on minute-by-minute fee-for-service billing is a daily or monthly rate. Usually, daily or monthly rates under fee-for-service are used to pay for covered services for people with chronic conditions, particularly when a mix of services are delivered over a period of time to achieve goals established in an individualized service plan. Examples of daily or monthly rates for the general Medicaid population would include nursing home daily rates or hospice daily rates. Examples of the services that may be provided to PSH residents and reimbursed with daily or monthly rates include community support services, ACT, and some HCBS under 1915(c) waivers (see Chapter 6 for descriptions).

The daily or monthly rate must be based upon the costs of services that are defined as covered benefits under a state's Medicaid plan or waiver, just as only covered benefits qualify for payment when using billing by the minute or other unit of service, but the provider is spared the work of keeping track of time and activities minute-by-minute. Rates may be established based on time studies that determine the costs associated with the usual or average amount of a covered service that is medically necessary to achieve the desired outcomes and delivered to a qualifying client each day or month. Time studies are usually repeated once a year, often for a month, during which time minute-by-minute tracking is required to verify or adjust the rate.

Daily or monthly rates can be structured to provide more continuity of care than minute-by-minute or procedure-by-procedure billing, particularly if the definition of the covered service that is being billed on a daily or monthly basis is designed to address co-occurring behavioral health disorders or chronic health conditions with a range of activities that restore and support the skills needed for community living, facilitate illness self-management, and coordinate access to appropriate health services and other community resources. For people who are or have been chronically homeless, if service definitions include the supports needed to help them obtain housing and then remain stably housed, daily or monthly rates may allow service providers to focus on doing "whatever it takes" to achieve this goal, while reducing the administrative burden of documenting activities by the minute or quarter-hour.

Daily or monthly rates relieve providers of the administrative burden associated with detailed documentation for activities, but do not in and of themselves promote greater care coordination or an integrated approach to mental health and substance use disorders and other health conditions. Some states have adopted definitions of covered services that do incorporate care coordination, and monthly rates are paid for some of these services.88

  • Under Massachusetts's Section 1115 waiver, the Massachusetts Behavioral Health Partnership, the state's Medicaid behavioral health carve-out, has established monthly rates for community support services for people with a qualifying mental illness or substance use disorder. Covered services include providing service coordination and linkage, and assisting with obtaining benefits, housing, and health care.

  • Minnesota counties and managed care plans have established monthly rates to pay for TCM services for people with mental illness. These benefits are often used to provide case management services that help Medicaid beneficiaries experiencing chronic homelessness to move into PSH and get connected to other needed services.

Financial incentives for providers operating under daily or monthly rates may be somewhat more oriented toward promoting better health outcomes compared with those that receive payment for visits or procedures under fee-for-service arrangements, particularly if states establish contract provisions that provide incentives for improving health outcomes or shared savings for demonstrated reductions in avoidable hospitalizations or utilization of other high-cost services.

7.1.3. Payment Mechanisms for Community Health Centers that Operate as FQHCs

Before 2014, many of the patients served by Health Centers, including HCH and other programs, were not eligible for or enrolled in Medicaid. In 2012, only 28 percent of HCH patients and about 40 percent of all Health Center patients were enrolled in Medicaid.89 That situation has now changed in states that have expanded Medicaid eligibility, so Medicaid reimbursement policies have become increasingly relevant to these Health Centers.

For patients who are Medicaid beneficiaries, Health Centers typically receive Medicaid reimbursement as FQHCs. Generally, Medicaid payments are provided to these Health Centers on a per-visit basis, using a prospective payment system (PPS). While specifics vary by state, in general an FQHC receives a per-visit payment each time an eligible patient has a face-to-face encounter with a specified type of health care provider, including a physician (primary care or psychiatrist), mid-level (nurse-practitioner or physician's assistant), licensed clinical social worker, or clinical psychologist.90

The FQHC payment methodology for Medicaid beneficiaries is designed to ensure that the costs of treating Medicaid patients are not shifted to federal grant funding that is meant to pay for care to people who are uninsured and for services that are not covered by insurance payments.

For several reasons, FQHC Medicaid rates for clinic sites or programs that serve large numbers of people experiencing chronic homelessness and PSH tenants are often higher than rates paid at sites that serve mostly other types of patients. People experiencing chronic homelessness and those who live in PSH often have multiple chronic medical and behavioral health conditions that must be treated or monitored during each visit. In addition to having high levels of vulnerability and complexity, they may be distrustful of health care providers and challenging to engage in needed health care services because of past experiences or because of the symptoms of mental illness, trauma, brain injuries, or substance use disorders. For these patients, visits with Health Center clinicians often require more time, and these clinicians therefore may see fewer patients in a day, than those who deliver care in clinics that primarily serve people with less complex needs.

In addition, Health Centers often use multi-disciplinary teams that include community health workers, social workers, case managers, and other front-line workers or "care extenders" to engage hard-to-reach people in health care services, make sure they get to appointments with clinicians, and provide health education, coaching and encouragement for patients to follow through on the recommendations of their health care providers.

Some innovative programs operated by Health Centers rely on specialized funding in addition to their HRSA grants and Medicaid reimbursement to cover some of the costs for implementing team-based models of integrated care, including state and federal grants, contracts with states or local governments, philanthropic support, and other funding sources. Some of these other sources of funding are time-limited, and funders often expect Health Centers to sustain and expand effective program models using Medicaid reimbursement. States may consider these costs, including personnel costs for unlicensed members of multi-disciplinary teams that deliver health care and behavioral health services to high-need patients, when establishing FQHC prospective payment rates or adjusting rates in conjunction with changes in the scope of services provided by a Health Center. The text box below illustrates the approach and funding mix of Boston's HCH Program.

Using Multiple Funding Sources in a Health Care for the Homeless Program
Most Boston HCH Program clients have multiple chronic health conditions, including medical and behavioral health disorders. Treatment and supportive services are delivered by multi-disciplinary teams that include physicians, physician assistants, nurse-practitioners, nurses, case managers, and behavioral health practitioners. Team members work collaboratively to deliver care to homeless people on the streets, at McInnis House medical respite, in outpatient primary care, in behavioral health and dental clinics in several locations, in shelters, and in housing. Continuity of caregiving relationships is maintained across settings for the same people. The program integrates primary care, behavioral health care, dental care, vision, pharmacy, and case management services, as well as linkage to a range of nonmedical supports.

To cover the range of services it offers, the Boston HCH Program uses Medicaid reimbursement in addition to several other funding sources, which include the following:

  • FQHC Medicaid reimbursement, which covers medical and nursing care.
  • Reimbursement through MassHealth's Massachusetts Behavioral Health Partnership (a behavioral health carve-out) for a program serving a targeted group of people with co-occurring SMI and substance use conditions who are experiencing chronic homelessness.
  • Coverage for street-based and home-based clinical team services with its HCH grant and reimbursement from MassHealth for services to eligible clients.
  • HRSA grant funding plus additional funding from other sources to cover the work of some nonmedical personnel (e.g., social workers and case managers) that is not reimbursed through the FQHC financing mechanism.
  • Private fundraising and foundation grants for capital and operating funds for selected services, particularly specialty dental and medical respite services.

As many states are relying on Medicaid managed care to provide health care for a growing number of beneficiaries, most Health Centers have become part of these managed care plans' provider networks to assure that they will receive payment to care for clients who are health plan members. In many cases, the health plans make payments to the Health Centers as a fixed amount of funding per-member per-month for health plan members who have selected or been assigned to the Health Center for purposes of receiving primary care. This amount will be similar to the monthly rates the plan pays to any provider. Usually this practice results in payments from the health plan to Health Centers that are lower than the Medicaid reimbursement they would get based on payments at the FQHC rate for billable encounters based on the PPS. States are required by federal law to give FQHCs additional "wraparound" Medicaid payments based on the gap between the health plans' per-member per-month payments and the revenues they would otherwise have received using the FQHC PPS payment methodology (based on the number of visits with a center's licensed health care providers, as described above). However, FQHCs often have to wait a year or more to complete the cost reconciliation process and receive this wraparound payment, which comes to them directly from the state Medicaid program.

7.1.4. Looking Beyond Fee-For-Service and Payment Based on Encounters

Increasingly, health policy experts agree that fee-for-service payment rewards volume but not value. If health care providers deliver more covered services, under a fee-for-service payment structure they receive more income. But fee-for-service does not provide strong incentives for health care providers to reduce avoidable service utilization, either by preventing health crises or by delivering interventions that reduce the need for more costly covered services. Fee-for-service payment mechanisms do not reward health care providers for keeping people healthy and improving health outcomes.

Further, it is not easy to obtain reimbursement for care coordination and integration under fee-for-service. With fee-for-service payment mechanisms, each provider of covered services gets reimbursed separately for activities and interventions that often could be much more effective if they were coordinated. When hospitals, specialists, primary care providers, and behavioral health services providers receive fee-for-service payments separately, they face little incentive to coordinate with one another or to facilitate transitions in care across settings to achieve the best results for shared patients, or to reduce avoidable hospitalizations and readmissions.

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