Medicaid is a joint federal-state program providing comprehensive health coverage to millions of eligible low-income adults, children, and people with disabilities. Administered by states within federal guidelines, the program uses various delivery models. One of the two primary ways states structure payment for healthcare services is through the traditional Fee-for-Service (FFS) model.
Defining Fee-for-Service Medicaid
Fee-for-Service (FFS) Medicaid represents the original, traditional method of paying healthcare providers for their services. Under this model, the state Medicaid agency directly reimburses providers for each specific medical service rendered to a beneficiary. This structure essentially treats each doctor’s visit, laboratory test, procedure, or prescription as a separate, billable unit.
The underlying principle is one of “pay per service” rather than a fixed payment for a period of care. This transactional approach means the state bears the financial risk for the total cost of care, as expenditures increase directly with the volume and complexity of services provided. This delivery system is still used by all states, either as the main mechanism for certain populations or to cover services not included in managed care contracts, often called “carve-outs.”
How Providers Receive Payment
The financial transaction begins when an enrolled provider delivers a covered service to a Medicaid beneficiary. The provider then submits a claim, a formal request for payment, directly to the state Medicaid agency or its designated fiscal agent. This claim details the service provided and the beneficiary who received it, triggering the payment process.
Payment rates are set by the state according to its approved Medicaid state plan and must adhere to federal requirements that ensure payments are consistent with efficiency and quality of care. The state establishes a fee schedule, which is a list of maximum allowable payment amounts for various procedures and services. These Medicaid FFS rates are often significantly lower than the rates paid by private insurance or Medicare, which can affect provider participation. Because the payment model is volume-based, the financial incentive is for providers to deliver more services, as their revenue is directly tied to the number of procedures and tests they perform.
Accessing Healthcare Services
For the patient, the FFS model offers a high degree of flexibility and choice when seeking medical care. Beneficiaries generally have the freedom to see any healthcare provider who is enrolled in and accepts the state’s Medicaid FFS program. This open access means patients are not limited to a specific network of doctors or hospitals, which can be particularly beneficial in rural areas or for those needing highly specialized care.
A key difference from other models is the absence of a required gatekeeper, such as a primary care physician (PCP), to authorize specialist referrals. The patient can self-refer to specialists, reducing administrative hurdles and potentially speeding up access to non-primary care services. The patient acts as their own care coordinator, managing their appointments and medical records across different providers. However, the state may still require prior authorization for certain expensive or non-routine services to control costs and ensure medical necessity.
FFS vs. Managed Care Models
While FFS was the original delivery system, the majority of Medicaid beneficiaries today receive their care through Managed Care Organizations (MCOs). The fundamental difference lies in how the state pays for care and who assumes the financial risk. Under FFS, the state pays for services after they are provided, absorbing the financial risk if a beneficiary’s care is unexpectedly high.
In contrast, under the managed care model, the state contracts with private MCOs and pays them a fixed amount per member, per month, known as a capitation rate. This capitated payment is made regardless of how many or how few services the beneficiary uses, shifting the financial risk for healthcare costs from the state to the MCO. MCOs then manage the care, establish provider networks, and process claims, acting as an intermediary between the state and the provider.
Managed care plans often have greater flexibility to implement care coordination programs and offer additional benefits not covered under FFS. However, this comes with the trade-off of less patient freedom, as MCOs typically require beneficiaries to select a PCP and stay within a defined provider network. States choose managed care largely to gain predictability over future costs and improve care accountability, whereas FFS remains for populations or services where managed care may be less effective or practical.