Medicaid Prepayment: Concept and Implementation

This paper examines the potential role of prepayment in the publicly financed delivery of health care to the poor under the Medicaid program. After briefly reviewing the theoretical advantages of prepayment for each of the principal participants: provider, funder, and user, the major implementation issues faced over the long term in actually realizing those advantages are discussed. The implementation issues are drawn from the experience gained in negotiations for conversion of the Martin Luther King, Jr., Neighborhood Health Center (MLK) in New York City to prepayment for its Medicaid population, supplemented by the results of the two large-scale Medicaid prepayment programs now in operation in New York City and California. The principal issues include (1) enrollment growth and rate of turnover, (2) underutilization of services, (3) out-of-plan use of services, (4) regulations of the quality of care, and (5) failure of the prepayment economic incentive. Two basic approaches to dealing with these issues are presented: a strong contractual agreement between the public agency and provider, and regular evaluation of the program. The major features of the Medicaid prepayment contract recently negotiated with MLK which attempts to ease these problems are reviewed in detail.

Author(s): James Hester; Elliot Sussman

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Volume 52, Issue 4 (pages 415–444)
Published in 1974