In a policy brief prepared for the Center for Health Care Strategies (funded by the Robert Wood Johnson Foundation), Deborah Bachrach and Melinda Dutton of Manatt Health Solutions explore Medicaid supplemental payment arrangements within broader payment reform objectives.

Medicaid is rapidly becoming every state's largest health insurer, and with that status comes increasing focus on Medicaid's payment policies and purchasing strategies. Supplemental payments -- a significant component of Medicaid payments -- have largely been omitted from Medicaid payment reform initiatives. Historically supplemental payments have been used to subsidize uncompensated care costs and backfill for low reimbursement rates under Medicaid for hospitals serving large numbers of Medicaid and uninsured patients. More recently, supplemental payments are being used to provide additional Medicaid revenue to a wider array of hospitals. But because they are generally disconnected from the specific services provided to specific patients, they are often delinked from the efficiency or quality of the care provided. The brief examines the impact of supplemental payment arrangements for hospitals on efforts to reform Medicaid's payment and purchasing strategies to ensure that beneficiaries have access to quality, cost-effective care.