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The opportunities to use Medicaid as a source of financing
will vary with each program and with each State. However,
a careful review of any State Medicaid program will
likely identify opportunities in which Medicaid can
help finance State or local health programs.
Rural areas pose challenges to the availability and
access to health care. Medicaid funding can assist in
addressing the issues in several ways. Each strategy
will involve discussions and agreements with the Medicaid
agency regarding adoption and implementation. While
this overview broadly describes these strategies, each
raises detailed implementation issues that will vary
from State to State. The following avenues are worth
consideration as part of a rural health strategy.
Rural Health Clinics (RHCs): Hospital outpatient
departments and independent primary care clinics can
qualify for rural health clinic status, and thereby
qualify for special reasonable cost reimbursement from
Medicaid and Medicare. Both provider-based (hospital
owned) and independent RHCs are subject to a maximum
payment limits for services classified as RHC services.
Federally Qualified Health Centers (FQHCs):
All federally-funded health centers that receive grants
under Section 330 of the Public Health Service Act are
FQHCs. In addition, community based health care providers
that satisfy federal grant requirements can gain FQHC
status as “look alikes”. There are currently look alike
FQHCs. The Balanced Budget Act (BBA) as amended by the
Balanced Budget Reconciliation Act (BBRA) continues
reasonable cost based reimbursement on a phase-down
basis through 2004.
Local Health Departments: At State discretion,
Medicaid can reimburse local health departments for
the reasonable cost of services delivered to Medicaid
patients. Medicaid patients are a majority of patients
for many health departments. Overall eligibility changes
may have the effect of increasing the number of Medicaid
Critical Access Hospitals: Small rural hospitals,
with fewer than 15 beds, providing emergency services
and at least 35 miles from another hospital can qualify
for status as a Critical Access Hospital. These hospitals
receive reasonable cost reimbursement from Medicare.
Medicaid can at State discretion pay such a hospital
using a reasonable cost methodology.
Support for Rural Physicians: Providing 24-hour
coverage is a critical issue for doctors in rural areas.
Medicaid can contract and pay for services that support
these physicians. An example would be a 24-hour nurse
helpline, based at a local hospital, whose costs would
qualify for Medicaid reimbursement as either a medical
or administrative fee.
Adequate Reimbursement for Rural Providers:
Medicaid payment is often very low. Low payment rates
discourage provider participation in Medicaid. Because
rural areas usually do not have sufficient patients
to fully support a doctor’s practice, Medicaid can pay
rural providers at a rate more generous than that used
for providers in non-rural areas. This will help make
a rural practice financially viable.
Medicaid Payment for Telemedicine: New technologies
are bringing advanced specialty and sub-specialty medical
care to remote areas, via telemedicine. Medicaid reimbursement
can be set to compensate both in person and telemedicine
based on consultation.
Medicaid Enrollment of Ancillary Providers:
Within the scope of each State’s practice acts, Medicaid
can increase availability of medical care in underserved
areas by allowing reimbursement for services provided
by nurse practitioners, physician assistants or other
ancillary providers. Coverage of nurse midwifery and
nurse practitioner services is mandatory where such
practice is permitted by State law.
Graduate Medical Education (GME): Medicaid can
compensate for GME costs incurred by accredited training
programs in order to encourage the provision of care
in geographic and specialty shortage areas.
Disproportionate Share Hospital (DSH) Payments:
Medicaid can define the criteria for hospitals to qualify
for DSH payments. It is possible to set the criteria
such that rural hospitals that serve low-income patients
receive enhanced Medicaid payments.
Enrolling Eligible Adults and Children: Medicaid
funding can only support care for persons who are actually
enrolled in Medicaid. Experience has shown that many
eligible persons are not enrolled, but that certain
strategies increase the likelihood of their enrollment.
These strategies include: outreach; radio and TV public
service announcements; simplified forms and procedures;
and outstationed assistance to applicants. These efforts
are particularly important for children, pregnant women
and the elderly, and migrant agricultural workers.
Outstationed Medicaid Eligibility Workers: Medicaid
funding is available to support workers located in sites
such as hospitals, community health centers or local
health departments. The outstationed eligibility workers
can provide information, assist in application and eligibility
determination, and facilitate enrollment in Medicaid.
Medical Transportation: In addition to emergency
transport, transportation related to an eligible medical
service is a covered benefit under Medicaid. This service
can be especially important to rural residents who need
prescription drugs or on-going medical treatment. Medicaid
can contract with a transportation system, or reimburse
mileage or specific transportation providers who meet
This document provides an overview of the potential
for State and local health programs to use Medicaid
as a source of financing for rural health programs.
Medicaid has become a significant source of funding
for almost every health-related program in the U.S.
that serves low-income persons. Over the past decade,
the use of Medicaid has increased significantly. It
is likely that new opportunities for Medicaid to support
such services will continue to emerge. A periodic review
may identify new ways for a State to take advantage
of Medicaid as a source of funding to finance health
Other Opportunities to Use Medicaid
In addition to rural health programs, Medicaid is also
a potential source of financing for a number of State
or local health programs. Specific areas where Medicaid
can be a source of funding include: oral health, maternal
and child health, school-based health care, and mental
health and substance abuse services; and services for
children with special health care needs, homeless populations,
and persons with HIV/AIDS.
If you have questions or wish to obtain additional
information on implementation strategies, contact:
U.S. Department of Health and Human Services
Health Resources and Services Administration
Health Systems and Financing Group
5600 Fishers Lane, Room 10-29
Rockville, Maryland 20857
For copies of this document, contact:
HRSA Information Center
P.O. Box 2910
Merrifield, VA 22116
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Visit the HRSA web site at: www.hrsa.gov/medicaidprimer
This document was prepared by Health
Management Associates under contract with HRSA.