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Financial Incentives

Key Considerations

Providing incentives with capitated payments.  A key feature that distinguishes MLTSS from traditional programs is how the Medicaid agency pays for services.  In the traditional system, most LTSS services are paid on a fee-for-service reimbursement basis, meaning that an amount is paid to the provider each time an individual service is provided.  In an MLTSS program, the state calculates the average cost of providing a group of services and pays the MLTSS contractor that amount each month for each member who is enrolled with the contractor.  This is called a per-member-per-month (PMPM) payment, or capitation.

Stakeholders may express concern that capitation provides an incentive to skimp on care, and without adequate monitoring and quality improvement systems in place, "the MLTSS contractor may not provide all needed services. However, if properly designed, financial incentives in MLTSS programs can align the interests of beneficiaries, contractors, and the Medicaid program by re-calibrating the balance of services toward greater HCBS and less institutional care.

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