Medicaid directors have been pushed to find cost savings in their programs in the midst of recent budget shortfalls, often using blunt instruments such as cuts in benefits, provider rates, and eligibility. But Medicaid directors are also evaluating and implementing more sustainable reforms to ensure Medicaid continues to provide quality services within tight state budgets, a report from the National Association of Medicaid Directors (NAMD) says.

In particular, state Medicaid agencies are considering or pursuing five types of reforms:

1. Targeted payment adjustment policies, which reduce or eliminate payments for preventable events such as hospital-acquired conditions or medical errors. Texas, for example, implemented such a policy in 2010 for Medicaid fee-for-service payments and in 2011 for Medicaid managed care.

2. Managed fee-for-service care programs, designed to promote better care and often are paired with programs to share with providers savings created by strengthening primary and preventative care.

3. Bundled payments to providers to cover all services provided during an episode of care – typically encompassing wide range of services, procedures, or visits to physicians and hospitals.  More specifically, bundled payment – sometimes known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, or global payment – is where providers are paid a fixed rate based on the of expected costs for clinically-defined episodes of care.  Bundled payments are intended to create an incentive for providers to deliver the best outcomes for patients in the most cost-efficient way.

4. Managed care initiatives, in which state Medicaid programs contract with managed care organizations, with Medicaid paying a per-person or capitated rate to the managed care organization.  Long an effective way for states to reduce Medicaid spending and improve access and quality in ways not feasible in unmanaged fee-for-service, state contracting with Medicaid health plans is expected to increase dramatically in the next two years.

5. Health homes programs, part of the Affordable Care Ac (ACA) health reform law, coordinate care for chronically ill Medicaid enrollees. Missouri, North Carolina, and Oklahoma have all implemented health homes programs, which come with a federal match of 90 percent for up to two years and which designate specific providers to coordinate care for people with chronic illnesses.

The National Association of Medicaid Directors also outlines considerations that are important when selecting a reform path, including the state’s readiness and the local political environment, and the federal authority pathway chosen for implementation. Another essential component of any strategy is the development of a plan to determine and track the impact of payment reforms on Medicaid expenditures, service utilization, quality and patient safety, access to care, and patient outcomes.


Kip Piper is a Medicaid, Medicare, and health reform consultant, speaker, and author.  For more, visit  Follow on Twitter at @KipPiper and connect with Kip on LinkedIn.