Medicaid Delivery Systems: Understanding Fee-for-Service vs. Managed Care

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A state can deliver Medicaid benefits on a fee-for-service basis, through managed care plans, or both. Under fee-for-service (FFS), the state pays providers directly for each covered service. Under managed care, the state pays a health plan a fee for each person enrolled, and the plan pays providers.

Both are Medicaid, and neither arrangement changes who is eligible. A plan must provide the services in its contract at no less than the fee-for-service level. For a person on Medicaid, what changes is who pays the provider, which providers are available and where to appeal a denial. Research has not settled which one gives patients better access or care.

The payment method is not the benefit

Medicaid is administered by states under federal requirements and funded jointly by the states and the federal government. States determine benefits within federal guidelines, including mandatory services such as hospital and physician care and optional benefits they choose to cover. Eligibility and benefits belong to that public program, whichever payment route the state uses.

A plan cannot shrink a benefit it takes on: federal rules require the services in a managed care contract to be furnished in an amount, duration and scope no less than the same services under fee-for-service Medicaid. The state may impose appropriate limits based on medical necessity or procedures controlling the use of services.

States can also leave benefits such as dental care, pharmacy or behavioral health out of a managed care plan’s contract. Such a separation, often called a carve-out, does not by itself mean the service is outside Medicaid. It means the plan is not responsible for providing the service and is not paid for it. A service outside the state’s Medicaid benefit or its coverage limits is a different matter.

One federal term in this area is easy to misread. The Centers for Medicare & Medicaid Services (CMS) uses the term Non-Medicaid Services Waiver for a waiver that uses cost savings to provide additional services to people receiving Medicaid benefits. CMS is the federal agency that oversees Medicaid. Here, a waiver is federal approval to depart from certain Medicaid requirements, such as statewide operation or the same benefits for different groups. Despite its name, that term describes added services; it is not another word for fee-for-service or a label for every service Medicaid excludes.

How fee-for-service Medicaid works

In fee-for-service (FFS) Medicaid, the state pays a fee for each covered service a person receives, and no health plan handles the payment. States establish Medicaid provider payment rates within federal requirements, with changes to payment methods submitted to CMS for review and approval.

Federal rules generally let a person with Medicaid get services from any qualified provider willing to serve that person, subject to specified exceptions. This is broader than a particular plan network, but it is not a promise that any doctor will accept the patient. Ask a provider whether it accepts that Medicaid coverage and is taking new patients before arranging routine care.

In primary care case management, which CMS lists among managed care entities, a case manager under contract with the state is generally paid fee-for-service for medical services plus a monthly fee for locating, coordinating and monitoring care.

What a managed care plan takes on

A Medicaid managed care organization (MCO) contracts with the state to deliver benefits in exchange for a set payment per member per month, called capitation. The state makes that monthly payment whether or not the member uses services during that period.

The plan bears the loss if it spends more on care and administration than the state pays. If it spends less, it may keep part of the excess, provided it spends at least a certain amount, known as the medical loss ratio, on medical care and activities that improve quality. The plan may still pay its own providers per service or through fixed periodic payments. Capitation describes the state-to-plan payment, not necessarily the doctor’s paycheck.

CMS distinguishes comprehensive MCOs from limited-benefit plans that cover a narrower package, such as dental or transportation services. A member may therefore deal with more than one plan, so check which one is responsible for the particular service.

Managed care plans must coordinate services and ensure an ongoing source of appropriate care with a designated person or entity responsible for coordination.

How payment arrangements affect access to care

A managed care plan must maintain a provider network adequate for the services in its contract, with access for members with disabilities or limited English proficiency. For routine care, the practical question is whether the needed provider is in that plan’s network; a provider that sees Medicaid patients generally may not be.

If the network cannot provide a necessary contracted service, the plan must cover it adequately and promptly outside the network for as long as the network cannot supply it. The member’s cost cannot be greater than it would have been for in-network care. Ask the plan to arrange the covered service when its network cannot meet the need, rather than treating a missing provider as the end of coverage.

Prior authorization is a plan’s advance decision about whether a requested service is medically necessary. Managed care emergency services require no prior authorization, and members have a right to use any hospital or other setting for emergency care under the federal rule. Medicaid managed care enrollment also cannot remove the choice of qualified family-planning providers.

Approval rules can apply in either system

A managed care plan’s handbook must explain any requirements for service authorizations and referrals for specialty care and for other benefits the member’s primary care provider does not furnish. A referral is a primary care doctor’s written order for a patient to see a specialist or receive certain services. A referral directs care, while authorization concerns the payer’s approval. Fee-for-service Medicaid also has prior authorization rules for items and services. Check the applicable authorization and referral requirements before scheduling nonemergency services.

Federal deadlines for a plan’s authorization decisions depend on its rating period, a twelve-month span the state selects for developing and certifying the plan’s capitation payment rates. The plan must decide a standard request as fast as the member’s condition requires and no later than seven calendar days after receiving it, or fourteen calendar days if the rating period started before January 1, 2026. The plan may take up to fourteen more calendar days if the member or provider asks, or if the plan justifies a need for more information and shows the extension is in the member’s interest. That clock concerns the initial request for approval, not an appeal after a denial.

A non-drug request gets a faster, expedited decision when the provider indicates or the plan determines that the standard wait could seriously jeopardize the member’s life, health or maximum function. The plan must then decide and give notice as quickly as the member’s health requires and no later than seventy-two hours after receiving the request. An expedited authorization decision can be extended by as much as fourteen calendar days if the member asks, or if the plan justifies needing more information and shows the delay is in the member’s interest. Covered outpatient drug authorization decisions follow a separate statutory notice rule. That drug rule requires a response by telephone or another telecommunications device within twenty-four hours of a prior authorization request. Ask the plan which deadline and decision process apply to the requested service, especially when delay itself poses a risk.

How to identify the Medicaid coverage arrangement

CMS directs people to their state Medicaid agency for eligibility, applications, replacement cards, claims and finding a provider, and supplies a state contact directory. Start there to confirm whether coverage is fee-for-service or managed care and which office or plan handles a disputed service. A managed care handbook must explain the plan’s benefits and how and where to obtain benefits provided by the state. Read both parts, especially when a benefit is carved out of the plan.

With federal approval, a state can require people to receive their Medicaid services from a managed care plan. Under one route, known as section 1932(a), the state amends its Medicaid plan with CMS approval, naming the types of plans it will use and the groups it will enroll. That route does not allow a state to require enrollment by people also eligible for Medicare, American Indians or children with special health care needs. Those limits are stated for that route, so ask the state which rules apply to the member’s eligibility group.

When a state requires enrollment in an MCO or a limited-benefit plan, the general federal rule provides a choice of at least two plans, with exceptions including specified rural arrangements. Where a state limits a rural resident to one plan, the member must still be able to choose from at least two primary care providers and to go outside the network in specified circumstances, including when the needed service or type of provider is not available in it. Choosing a plan and choosing whether to enter managed care are separate questions. Before choosing a plan, ask whether a needed provider participates and which arrangement handles the needed benefits.

If the state limits when members can leave a plan, a member may still leave for cause at any time. Without cause, a member may leave during the ninety days after initial enrollment or after the state sends notice of that enrollment, whichever is later, and at least once every twelve months afterward. Recognized causes include moving outside the service area, poor care quality, lack of access to covered services or lack of providers experienced with the member’s needs. A serious access problem can therefore lead to two requests: one for the care and one to change plans.

What to do when care is denied or unavailable

A managed care denial notice must explain the decision and reasons, how to appeal, when to seek expedited review, and how to request continued benefits. Members can request relevant records, including medical-necessity criteria, free of charge. Use the written reason to identify what is disputed: coverage, the need for the service, or the proposed reduction of existing care.

Managed care: appeal to the plan, then a hearing

A member has sixty calendar days from the date on the plan’s adverse-decision notice to request an appeal, orally or in writing. A standard appeal must be resolved, with notice, as fast as the member’s health requires and within a state deadline no longer than thirty calendar days after the plan receives it.

An expedited appeal is available when the plan determines or a provider indicates that ordinary review could seriously jeopardize life, physical or mental health, or maximum function. The plan must resolve an expedited appeal and give notice within a state deadline of no more than seventy-two hours after receiving it. Request expedited review when that risk applies, rather than relying on the ordinary appeal timetable. The plan may extend an appeal deadline by up to fourteen calendar days if the member asks, or if the plan shows a need for more information and how the delay is in the member’s interest.

A member can generally request a state fair hearing only after notice that the plan upheld its decision. If the plan fails to meet the notice and timing requirements for its own appeal, the member is treated as having finished that process and may request a hearing. For that hearing request, the state must allow between ninety and one hundred twenty calendar days from the date of the plan’s appeal-resolution notice. Read the notice for the state’s actual filing deadline and instructions.

Keeping existing services during review

A plan must keep providing a service during an appeal only if all of the following are true: the member appeals on time; the appeal concerns ending, suspending or reducing a previously authorized service; an authorized provider ordered it; the original authorization has not expired; and the member asks on time for the service to continue. This protection preserves existing care that qualifies; it does not secure a newly requested service during an appeal.

The request to continue must be filed within ten calendar days after the plan sends its notice of the decision or by the date the proposed action takes effect, whichever is later. After an unsuccessful plan appeal, keeping benefits through a hearing requires requesting both the hearing and continuation within ten calendar days after the plan sends its appeal-resolution notice. The longer hearing-filing window does not preserve services by itself.

If the final decision goes against the member, the plan may recover the cost of services supplied solely because of the continuation, consistent with the state’s usual recovery policy and the plan’s contract. Ask about both continuation and possible repayment before relying on this protection.

Fee-for-service: the state’s hearing process

The state must offer a hearing to someone who believes it wrongly denied eligibility or covered benefits, made a wrong determination of what the person is liable for or failed to act promptly. In that hearing rule, financial liability includes determinations about medical expenses needed to establish eligibility, premiums and cost-sharing charges. The state must allow a reasonable time to request the hearing, no more than ninety days from the date its notice of action is mailed. Follow the state notice rather than borrowing a managed care plan’s appeal deadlines, and ask the state whether services can continue while the hearing is pending. If the state sends the required ten-day or five-day notice and the member requests a hearing before the action date, the state generally must not terminate or reduce services until the hearing decision. It may terminate or reduce them pending that decision only if the hearing determines that the sole issue is federal or state law or policy and the state promptly gives written notice. If the hearing upholds the state’s action, the state may recover the cost of services furnished solely because of this continuation rule.

What oversight shows about access and quality

The Medicaid and CHIP Payment and Access Commission (MACPAC), which analyzes Medicaid policy, identifies cost predictability, accountability for performance and opportunities for care coordination as reasons states use managed care. MACPAC concludes that research has not established definitively whether managed care improves or worsens access or care quality compared with FFS.

The Department of Health and Human Services Office of Inspector General found that the 115 plans in its review, operated by seven large parent companies in thirty-seven states, denied one in eight prior authorization requests in 2019. In the same review, most surveyed state agencies reported that they did not routinely examine whether a sample of plan denials was appropriate. That historical finding identifies an oversight problem; it does not establish that every denial was wrong or describe every plan today.

Federal managed care rules set routine appointment limits of ten business days for contracted outpatient mental health and substance-use services and fifteen business days for primary and obstetric/gynecological care. Those standards take effect with the first contract rating period that begins at least three years after July 9, 2024. CMS’s calendar chart puts appointment wait-time standards at the first rating period beginning on or after July 9, 2027. These are phased standards, not a claim that every plan already meets them.

States must also arrange annual independent secret-shopper surveys to check appointment availability and provider-directory accuracy. The survey requirement takes effect with the first contract rating period that begins at least four years after July 9, 2024. CMS’s calendar chart puts the survey requirement at the first rating period beginning on or after July 10, 2028.

When care stalls, identify whether the obstacle is an unavailable network service, an authorization decision or a denial requiring review.