Medicaid State-Directed Payments Help Ensure Patient Access to Care
About State-Directed Payments (SDPs)
SDPs are additional payments made to health care providers to support Medicaid quality and access goals. The Centers for Medicare & Medicaid Services (CMS) reviews and approves SDPs for each 12-month rating period. Payments to providers are made via managed care organizations (MCOs) and are based on utilization of Medicaid services. Every year, states must demonstrate that SDPs are actuarially sound and result in reasonable and appropriate provider payment levels. In addition, CMS requires evaluation plans that demonstrate payments are effective in meeting program access and quality objectives.
Read on for more frequently asked questions about SDPs in California:
SDPs are a cornerstone of the California Medicaid program (known as Medi-Cal), ensuring that adequate resources are available to pay for care provided to more than 14 million Californians enrolled in Medi-Cal managed care. If approved by CMS for 2025, SDPs will:
Account for approximately 10% of Medi-Cal funding ($15.5 billion)
Be self-financed using provider taxes and intergovernmental transfers — instead of state general fund dollars — to ensure program sustainability
Ensure aggregate Medicaid payments for private hospitals reach approximately 80% of the cost of providing care to Medicaid patients
Did you know: As of August 2024, there are 302 distinct directed payment arrangements in 41 states and territories providing an estimated $110 billion to support care delivered by Medicaid providers. (source)
SDPs help states close gaps in reimbursement between Medicaid and other payers, enabling health care providers to invest in initiatives that improve quality and access in their communities. In California, SDPs:
Improve access to care in rural areas
Expand and support key services, such as primary care, emergency care, maternal and child health, and behavioral health care services
Secure critical access hospitals and children’s hospitals
Advance state quality goals related to well-care visits; prenatal and postpartum care; depression screening; and other prevention, wellness, and chronic disease management strategies
Support hospitals and health systems in providing 24/7 standby capacity to respond to natural disasters, mass casualty events, and other emergencies
Federal cuts to the Medicaid program disproportionately affect California. As the most populous state in the nation, California has the largest share of Medicaid enrollees.
Because of its population, California has the largest dollar value amount of SDPs of any state, followed closely by other populous states like Texas. (source)
California’s budget includes $161 billion for Medi-Cal, more than half of which is paid for with federal funds that are now at risk. (source)
Current Medicaid policy changes being debated in Congress are estimated to cut between $10 billion and more than $20 billion from the state of California alone. (source)
Health care access would be at grave risk without these funds. For many hospitals, losing this revenue would mean closure of service lines; for others, it would threaten their viability altogether. That means million of Americans — regardless of what type of insurance they have — would lose access to their health care providers.
Medicaid Provider Taxes Protect Californians’ Access to Care
Medicaid provider taxes are a cornerstone of the Medicaid financing structure.
Without federal revenue generated from these taxes, reimbursement for care provided to patients covered by Medicaid would be woefully insufficient and health care access would be at grave risk. For many hospitals, losing this revenue would mean closure of service lines; for others, it would threaten their viability altogether.
Cutting Medicaid means millions of Americans — regardless of what type of insurance they have — would lose access to their health care providers.
Medicaid and California’s hospital tax
In California, Medicaid pays 80 cents for each dollar spent on care; without the additional payments from the hospital tax, reimbursement would drop to just 70 cents on the dollar.
The federal Medicaid statute expressly authorizes provider taxes as permissible sources of funding the nonfederal share of program expenditures, in recognition of finite state revenue sources.
State Medicaid agencies work closely with CMS to ensure provider taxes comply with all federal requirements and CMS must approve every program year after year. California’s hospital tax program has been approved for more than 10 years.
Forty-five states rely on a form of a hospital tax. California’s hospital tax program is broadly similar to states such as Indiana, Tennessee, West Virginia, Georgia, and Nebraska.
Approximately one-third of Californians are covered by Medicaid — nearly 15 million people. Without the hospital field’s ability to self-finance additional payments via the hospital tax, some 150 hospitals in California would lose money — greatly increasing the risk of service line and facility closures.
Hospitals pay provider taxes to the state before receiving any federal funds to care for patients. This is increasingly difficult to do with more than half of hospitals in California currently losing money.
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