On January 8, 2021, the Centers for Medicare & Medicaid Services (CMS) issued a State Medicaid Director Letter (SMDL) outlining additional guidance on Medicaid managed care directed payments, as well as a revised preprint form for use in seeking approval of directed payments. The Trump Administration’s review of directed payments prompted CMS to issue the SMDL to address  several specific concerns with the program, including the following:

  • CMS reiterates the requirement that all managed care rates be “reasonable, appropriate, and attainable.” The letter introduces a detailed impact analysis that states are required to complete to demonstrate the effect of a directed payment on the reimbursement level for the specified provider class.
  • The letter expresses concerns around the use of separate payment terms rather than adjusting base capitation rates. Though CMS has routinely approved separate payment terms in the past, the letter indicates that going forward, CMS will require additional documentation and justification from states as to their rationale for separate payment terms. 
  • The letter articulates CMS’ concern with general rate enhancement requirements in state managed care contracts, structured to avoid characterization as a directed or pass-through payment, and revises prior guidance to clarify that unless provider payments are directly tied to a specific service or enrollee under the contract, payments must comply with either the directed payment or pass-through requirements (as applicable).  
  • The letter acknowledges the flexibility afforded to states in defining provider classes so long as the class is “reasonable and identifiable.” CMS clarifies that while the payment terms must be the same for all providers within the class, final payment amounts may differ based on each provider’s performance/utilization.