Health Centers and Rural Clinics:

Payments Likely to Be Constrained Under Medicaid's New System

GAO-01-577: Published: Jun 19, 2001. Publicly Released: Jun 21, 2001.

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Janet Heinrich
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To increase the accessibility of primary and preventive health services for low-income people living in medically underserved areas, Congress made federally qualified health centers and rural health clinics eligible for Medicaid payments. Since 1989, federal law has required Medicaid to reimburse both the centers and the clinics on the basis of reasonable costs they incurred in providing services to beneficiaries. Cost-based reimbursement can ensure that service providers are reimbursed for necessary costs; it is also regarded as inflationary because providers can increase their payments by raising their costs. In part because of their mandate to preserve and expand necessary primary health care services, the centers and the clinics have traditionally been reimbursed on the basis of their costs in an effort to ensure adequate payment. However, this approach does little to encourage efficiency. The new payment system mandated by the Benefits Improvement and Protection Act attempts to ensure adequacy by basing payments on historical rates while promoting efficiency by limiting increases. However, the combination of reimbursement limits imposed historically by most states and the inflation adjustments in the new prospective payment system may contain future Medicaid payment to some centers and clinics. Finding a way to strike the proper balance between payment adequacy and incentives for efficiency has been, and will likely be, a challenge.

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