Medicaid financing and provider reimbursement models are extremely complex. As states expand their Medicaid programs and search for ways to control costs, understanding how public healthcare dollars flow to providers will be essential to the analysis of options. In a separate fact sheet, we have discussed how the federal government and states share in financing the Medicaid program through Federal Medical Assistance Percentages (FMAPs). This fact sheet is one of two discussing supplemental payments to providers in addition to direct payments for services. These supplemental payments–Disproportionate Share Hospital (DSH) and Upper Payment Limit (UPL) payments–serve to offset uncompensated care costs and augment Medicaid reimbursement rates that are lower relative to Medicare and private payer rates for comparable services. Estimates show that these payments represent more than one-third of Medicaid fee-for-service (FFS) hospital payments. Consequently, policymakers should carefully consider reform options that disrupt or eliminate the flow of these payments.
This fact sheet provides information on the development of Medicaid UPL payments, details the UPL payment methodology for hospitals in Arkansas, and describes changes to UPL payments in relation to managed care.