Medicaid Upper Payment Limit Policies: Overcoming a Barrier to Managed Care Expansion
November 2006
Medicaid Health Plans of America
The potential benefits of managed care have led many States to consider expansions in capitated Medicaid programs to the extent that they are consistent with state health care policy goals and specific market and political conditions. However, current Medicaid hospital reimbursement calculations only include fee-for-service Medicaid utilization, which places significant barriers to expanded use of capitated Medicaid managed care contracting in some states. States considering expanding Medicaid managed care must balance any potential benefits against the risk of losing substantial Federal Upper Payment Limit (UPL) funds that play an increasingly important role in supporting the public health care sector, including public safety net hospitals. This report explores Medicaid UPL issues and recommends a policy solution to preserve existing federal funds flow to support public safety net and other providers while also removing barriers to the expansion of Medicaid managed care. The recommended policy change would remove an unintended barrier to managed care expansion, which would in turn allow policy makers to evaluate more clearly the costs and benefits of their Medicaid contracting strategies and make policy choices according to what works best for their state.