Medicaid fee-for-service (FFS) is a payment model where the state Medicaid agency pays healthcare providers directly for each individual service a beneficiary receives. Rather than paying a flat monthly rate to an insurance company to manage your care, the state handles payments one claim at a time: you see a doctor, the doctor bills the state, and the state pays based on a set fee schedule. About 15 percent of Medicaid beneficiaries receive all their services through this model, though a larger share encounters it for specific types of care.
How FFS Differs From Managed Care
Most Medicaid enrollees today are in managed care. As of 2021, about 85 percent of Medicaid beneficiaries were enrolled in some form of managed care plan, with 74.6 percent in comprehensive managed care organizations (MCOs). In managed care, the state pays a private insurance company a fixed amount per person each month, and that company coordinates your care through its own provider network.
Fee-for-service works differently in a few key ways. There is no insurance company acting as a middleman. The state itself processes claims and pays providers. You typically have broader provider choice because any provider who accepts Medicaid in your state can see you, rather than restricting you to a specific network. The tradeoff is that FFS generally lacks the care coordination features that managed care plans offer, like assigned care managers or referral systems designed to connect your different providers.
The financial risk also sits in a different place. In managed care, the insurance company absorbs the risk of costs exceeding expectations. In FFS, the state bears that risk directly since it pays for every service rendered. Some research has suggested that administrative costs can actually be lower for state-run FFS programs than for outsourced managed care contracts, though this varies significantly by state.
Services Often Covered Under FFS
Even in states that rely heavily on managed care, certain services are frequently “carved out” and paid through fee-for-service instead. Behavioral health services are the most commonly carved out category. States may also keep dental services, pharmacy benefits, and non-emergency medical transportation under FFS rather than including them in a managed care plan’s responsibilities. This means you could be enrolled in a managed care plan for most of your healthcare but still receive certain services through the FFS system.
Some states also use FFS for populations that are harder to serve through managed care, such as people who are dually eligible for both Medicare and Medicaid, or people receiving long-term care in nursing facilities.
How Providers Get Paid
The payment formula under FFS is straightforward: the rate for the service, multiplied by the number of units provided, minus any cost-sharing the patient owes and any amount a third-party insurer is responsible for. In practice, this means a provider delivers a service, submits a claim electronically using standardized billing codes, and the state’s claims processing system reviews it.
Each state operates a Medicaid Management Information System that checks incoming claims through a series of automated steps. The system verifies the claim format, confirms that all required information is included, and then runs the claim through edits that determine whether it should be paid, denied, or flagged for further review. Claims are also checked against other insurance coverage the patient might have, since Medicaid is typically the payer of last resort.
Federal law requires that 90 percent of straightforward provider claims be paid within 30 days, and 99 percent within 90 days. Most payments go out through electronic funds transfer as claims are processed.
How States Set FFS Rates
Medicaid FFS rates are not uniform across the country. Each state sets its own fee schedules, and those rates are almost always lower than what Medicare pays for the same services. Federal law requires only that rates be high enough to ensure sufficient provider participation so that Medicaid beneficiaries can access care at least as readily as the general population in their area.
For physician services, states generally use one of three approaches: adapting Medicare’s relative value scale (a system that assigns a weight to each service based on the time, skill, and resources involved), setting rates as a fixed percentage of Medicare’s fees, or developing their own fee schedules based on local market factors. During 2013 and 2014, the Affordable Care Act temporarily required states to pay Medicare-level rates for certain primary care services, but that mandate has since expired.
Hospital inpatient and outpatient services follow different rate-setting methods. For outpatient hospital care, states typically choose among cost-based reimbursement, grouping systems that bundle related services together, or their own fee schedules. Nursing facility payments give states particularly broad flexibility. Community health centers are generally reimbursed based on their actual costs of providing services.
What FFS Means for You as a Beneficiary
If you’re enrolled in Medicaid FFS rather than a managed care plan, the practical differences come down to how you access care and how much structure surrounds it. You can generally see any Medicaid-enrolled provider in your state without needing a referral from a primary care doctor or checking whether they’re in a specific plan’s network. This can be an advantage if you live in a rural area where managed care networks are thin, or if you need a specialist who doesn’t participate in your area’s MCO plans.
The downside is that nobody is actively coordinating your care. Managed care plans are financially motivated to keep you healthy and manage chronic conditions proactively, since they receive a fixed payment regardless of how many services you use. In FFS, each provider is paid per visit or per service, which creates less structural incentive for preventive care or coordination between your different doctors. Some states have responded to this by incorporating managed care principles into their FFS programs, such as adding care management services or utilization review processes, to get the benefits of both models.
Your out-of-pocket costs under FFS follow the same Medicaid rules as managed care. Medicaid cost-sharing is minimal by design, with small copays for certain services depending on your state and income level. The difference is that any cost-sharing amount you owe gets subtracted directly from the provider’s payment by the state, rather than being collected and managed by an insurance company.