States make different types of Medicaid payments to hospitals and have broad flexibility to design their own payment methods. The two broad categories of payments are (1) base payments for services and (2) supplemental payments, which are typically made in a lump sum for a fixed period of time. States vary in the mix of base and supplemental payments that they make, as well as the overall level of payment to hospitals.
This issue brief reviews each type of Medicaid hospital payment, with information on payment goals, payment amounts, and the relationship to other types of Medicaid payments. It also provides illustrative examples showing how the use of supplemental payments varies by state and additional information about how state methods for financing Medicaid payments affect net hospital payments. We provide complete state-by-state information on supplemental payments to hospitals.
Erratum: The version of this issue brief released in April 2024 contained an error in the amount of directed payments in which directed payment amounts for fiscal years (FYs) 2023 or 2024 were included for six states. The version dated May 2024 has corrected this error, resulting in a decrease in hospital directed payments from $47.8 billion to $42.6 billion for FY 2022.