In a February 24th blog post, we described Medicaid block grants and per capita caps in terms of A x B = C to demonstrate how those payment policies work. ‘A’ is the amount a state is paid per beneficiary, ‘B’ is the number of beneficiaries in a given state, and ‘C’ is the total state payment from the federal government. We have since been asked by numerous providers to describe the nuts and bolts of how a per capita cap, the current Medicaid financing structure in the proposed American Health Care Act, would work. For the Medicaid provider, the nuts and bolts of how they are paid would change very little while the amount they are paid might change a lot.

How are Medicaid providers paid today? The following description is a simplification into one paragraph that epic tomes could describe. The state, or its managed care plan, and providers agree upon a payment rate. The providers send a bill for a service to the state or managed care plan. The provider gets paid. The state then compiles all the payments for services onto a form which it sends to CMS. CMS then pays the state for those total compiled claims based the state’s federal match.

Yes, we do understand that every sentence in that paragraph could come with an asterisk and note that could go on for pages. But this is the general form.

How would Medicaid providers get paid in a future Medicaid with per capita caps as described in the House proposal? The state, or its managed care plan, and providers would still agree upon a payment rate. The providers would still send a bill for a service to the state or managed care plan. The provider would get paid. The state would provide a form describing all the beneficiaries covered to CMS. CMS would then pay the state for those beneficiaries based on a formula proposed in the bill and the state’s federal match.

So if you are a Medicaid provider, on the surface, nothing changes. You will negotiate a rate with the state or a managed care plan. You will provide the service. You will get paid for the service provided.

Where everything may change is the pressure on the state to reduce the payment to the provider. Under current law, whatever the state negotiates with the provider, the state knows with absolute certainty what it is getting from the federal government in return: its federal match. In a state with a 60% FMAP (Federal Medical Assistance Percentage), for every dollar the state spends, it knows it’s getting 60 cents back.

Under the per capita cap proposal, the state knows exactly how much it is going to get for every covered beneficiary. Between the formula, the growth rate, and the federal match, the state will get the ‘C’ of our original equation. If the state spends less than ‘C’, the state will make money off the system. If the state spends more than ‘C’, it will come out of the state budget. Obviously this creates tremendous pressure on the state to keep costs below ‘C’.

If you are a Medicaid provider, your concern is that the pressure on the state to keep costs below ‘C’ translates into significant downward pressure on your reimbursement. Some providers look at per capita caps and think they’d love to have the guaranteed growth rate added to their service payments every year. But, there’s absolutely no guarantee that guaranteed growth rates will translate to increased service payments, especially if costs are outpacing the growth rate. The Congressional Budget Office (CBO) estimates that the House proposal will save the federal government $337 billion over ten years. That estimate includes a $880 billion reduction in Medicaid spending over ten years, which includes the reduction in federal funding through the per capita cap. That portion of the federal savings will fall to the states to find.

If the Medicaid payment system changes, providers will provide services. They will get paid. But the amount of that payment could change significantly.