New Payment Models for Medicaid Coverage of Opioid Addiction Treatment in Correctional Facilities

Milbank State Leadership Network
Focus Area:
State Health Policy Leadership
Medicaid Population Health
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Substance use–related deaths among individuals in jail and prison have increased over time and people recently released from incarceration are at disproportionate risk of dying from a drug overdose. Many of these deaths involve opioids and are due to tolerance loss during periods of relative abstinence and lack of access to addiction treatment while incarcerated.  

Some states are already seeking or have attained approval from the U.S. Centers for Medicare & Medicaid Services (CMS) to allow Medicaid to cover this lifesaving treatment during a person’s imminent release from a prison or jail stay. Our first two reports proposed treatment services and standards that CMS and state Medicaid agencies should require and encourage as part of this programming, performance measures to assess programs and outcomes, and now, a third and final report in the series introduces new payment and reimbursement models for covering such care. 

The proposed payment models are comparable to existing community-based Medicaid payment models for OUD services but also consider jails and prisons’ unique circumstances and operational challenges. While factors such as length of stay, additional health needs, and security requirements vary, the payment models below can be adapted to meet a range of circumstances.  

Payment Model Options for OUD in Jails and Prisons 

Model 1:
Model 1A:
Fee-for-Service + Quality Incentive Achievement
Model 2:
Prospective Bundled Day/Week/Month Rate
Model 2A
Prospective Bundled Day/Week/Month Rate + Quality Incentive Achievement 
Model 1 reimburses each required or optional service provided to an individual after services are rendered. Model 1A includes all elements of FFS Model 1 and provides financial incentives for achieving performance or reporting measures.  Model 2 establishes a pre-determined bundled payment rate for all required or optional services on a daily, weekly, or monthly schedule. Model 2A includes all elements of the bundle in Model 2 and provides financial incentives for achieving performance or reporting measures. 

Strengths and Limitations of the Payment Models

In Model 1’s fee-for-service (FFS) arrangement, Medicaid would reimburse providers for every covered OUD service provided to an incarcerated Medicaid beneficiary. The FFS model, familiar to Medicaid agencies, may incentivize the provision of services, and its requirement that providers submit detailed information about provided services could strengthen care quality. However, the FFS model may not incentivize care coordination, could lead to inconsistent cash flow, and has complex billing requirements that may create an administrative burden. 

Model 1A includes all elements of Model 1 but also provides bonus payments for the provider’s reporting or achieving specified performance measures. This model has the same strengths as Model 1 while adding greater accountability and assurance that care delivery aligns with program goals.  

In contrast, Models 2 and 2A would set a bundled reimbursement payment rate for covered services. This rate could be informed by those already set by Medicare or Medicaid for community-based OUD services, or by using a cost-based reimbursement model based on the actual expenditures of the program. Jails would likely require the bundle to be billed daily or weekly, while monthly payments may be preferable in a prison setting due to a longer stay. 

Model 2 may be more similar to the existing budgeting structure used in carceral OUD or other correctional health programs in that health services are often budgeted on a per individual basis or are operating under a capitated type of funding appropriation or grant structure. Bundling the payment rate could encourage more coordinated clinical care and positive outcomes rather than simply driving volume in the number of encounters, with potentially less administrative burden shifted to the provider.  

Model 2 also comes with potential financial risks due to the varying needs and costs of individuals’ OUD treatment while incarcerated. However, a rate incorporating a risk-adjustment methodology can help account for this variation. 

As CMS and Medicaid agencies explore Medicaid coverage of OUD treatment in jails and prisons, these reports offer key recommendations for how states can support these programs to serve patients best. Medicaid agencies should partner with key stakeholders such as correctional facilities, managed care organizations, patients, and providers to select and tailor payment models most appropriate for jails and prisons. Providing, measuring, and adequately paying for high-quality addiction treatment programming in correctional facilities is essential to reducing overdose deaths and achieving better outcomes for individuals and communities.