Special Medicaid funds help most states, but prompt oversight concerns

Reviewed by Emily Henderson, B.Sc.Apr 10 2023

The extra federal money comes through an obscure, complicated mechanism called "directed payments" — available only for states that hire health insurers to deliver services for Medicaid.

It's not Medicaid expansion, which Georgia Republican leaders have rejected. Instead, the state Department of Community Health is using an under-the-radar Medicaid funding opportunity that has been rapidly taken up by more than 35 states — including most of the states that have expanded the government insurance program.

Emanuel Medical Center in rural Georgia racks up more than $350,000 a month in losses providing health care for low-income and uninsured patients. But a new state funding proposal could significantly reduce those deficits, not just for the 66-bed Swainsboro facility but for most rural hospitals in Georgia, according to state Medicaid officials.

In 2020, these special funding streams, which are approved by federal health officials, sent more than $25 billion to states, according to the Medicaid and CHIP Payment and Access Commission (MACPAC), which advises Congress.

The Centers for Medicare & Medicaid Services, when asked for an updated total, referred KHN to individual states for their spending figures. "CMS has not publicly published total spending related to state directed payments,'' said agency spokesperson Bruce Alexander.

But the Government Accountability Office, Congress' watchdog agency, and MACPAC say federal health officials should do more to monitor directed payments and evaluate whether states meet the program's goals, which include improved access and quality of care. More transparency is needed, these agencies said.

A MACPAC report last year found that fewer than 25% of directed payment plans running for at least a year had evaluations available for review.

Federal health officials "are getting a lot of questions" on directed payments from GAO and MACPAC, said Debra Lipson, a senior fellow at consulting firm Mathematica, which has studied the issue. "It's a lot of money."

CMS hasn't yet released reports on quality metrics for the program, Lipson added.

Alexander, the CMS spokesperson, said the agency "takes our role in oversight and transparency seriously, and we are working collaboratively with our federal and state partners to improve our oversight and transparency" of directed payments.

Medicaid is the government health insurance program for low-income and disabled patients. It's jointly financed by the states and the federal government.

CMS launched the directed payments program in 2016. Georgia officials estimated the state will net $1 billion in federal funds this fiscal year for hospitals and other medical providers through its directed payment programs.

California estimates it brought in more than $6 billion just last year in new federal funds through directed payments. Arizona received $4.3 billion between 2018 and 2022. Florida netted more than $1 billion over a 12-month period ending in September.

This special Medicaid funding may indirectly help patients by strengthening financial stability for hospitals, along with offering the potential for capital improvements from the added cash infusions.

But patient advocates and Democratic lawmakers in Georgia said providing insurance coverage for the medical needs of the uninsured by adopting Medicaid expansion is more urgent. Hospitals, like Emanuel Medical Center, would benefit from Medicaid reimbursements for patients who now often rack up unpaid bills for care.

The uninsured "are not going to get preventive care, and that drives up health care costs," said state Sen. Elena Parent, an Atlanta-area Democrat. "The state should have expanded Medicaid."

That expansion is not going to happen in Georgia in the short run, as Republican Gov. Brian Kemp is set to launch new limits on Medicaid enrollment for low-income adults, with work requirements attached.

Under directed payments, added funding for hospitals and other Medicaid medical providers flows through different avenues, including minimum fees for services, a general reimbursement increase, and pay hikes based on quality of care.

Payments are based on the volume of services delivered. If one hospital served more Medicaid patients than another, its reimbursements would be higher, Lipson said.

"CMS initially was surprised by the volume of states' directed payment proposals," said Lipson. Some states have 25 or more, she added. They must be renewed annually. Often states finance their portion through hospital assessments or money transferred from public funds, such as hospital authorities, county governments, and state agencies.

Georgia has five such directed payment plans. Their goals include boosting Medicaid pay for hospitals and doctors, strengthening the health care workforce, and improving health outcomes and equity, said Caylee Noggle, commissioner of the state Department of Community Health, which runs Medicaid in Georgia.

Grady Memorial Hospital in Atlanta, a large safety-net provider, said it expects to gain $139 million across four of the Georgia programs.

"It's a tremendous benefit for us," said Ryan Loke, Grady's chief health policy officer. "Without this money, Grady would be in a lot worse position."

Grady is seeing more Medicaid and uninsured patients who formerly used nearby Atlanta Medical Center, which closed last year.

State Sen. Ben Watson, a physician and Savannah-area Republican, pointed out that such safety-net hospitals, which serve a large portion of people who lack health coverage, are getting higher pay through Medicaid directed payments, thus helping them cover some losses.

Georgia plans to use these funding streams as a base for extending extra help to rural hospitals.

With the extra payments, Grady and other hospitals will approach or reach their normal funding limit for hospitals that serve a "disproportionate share" of indigent patients. The state would take about $100 million of this excess money and send it to rural hospitals.

The Georgia Hospital Association said the directed payment money is helpful but won't cover costs of charity care for the uninsured.

"They're not looking at [hospitals'] bad debt," said Anna Adams, an executive with the group. "An insured patient is a healthier patient. We'd love to see as many people covered as possible."

Officials at rural hospitals in Georgia, meanwhile, are looking forward to the projected boost in Medicaid funds.

"It's going to put cash in the coffers of rural hospitals that are struggling," said Jimmy Lewis, CEO of HomeTown Health, an association of rural hospitals in the state.

Damien Scott, CEO of Emanuel Medical Center, said he's "cautiously optimistic" about the coming allocation. On his wish list: attracting a pediatrician to his county — it has none currently — and gaining the space to move the hospital's lone MRI machine from a truck into the hospital building.

As it is, he said, "we struggle every month for our survival."