Improving access and quality in healthcare is a key focus area of the Centers for Medicare and Medicaid Services (CMS). But how can states, plans, and providers collaboratively make this vision a reality? Directed Payment Programs (DPP) offer a path for states to advance value-based purchasing by incentivizing and rewarding providers for meeting quality performance metrics. Although Medicaid stakeholders do face challenges when it comes to DPPs, they present growth opportunities to make further progress in healthcare.

Strategic Focus on Access and Outcomes

States are increasingly investing in the quality rather than quantity of care to improve outcomes and provide care more cost-effectively. DPPs are a key strategy in furthering value-based approaches because states with different delivery systems across the managed care spectrum can participate in them. For example, states can use DPPs to introduce quality metrics to a fee-for-service payment model or pilot innovative approaches to further enhance quality outcomes in a comprehensive full-risk managed care environment. These flexibilities provide an effective way for states and their managed care partners to design payment programs tailored to the specific needs of the populations they serve.


The magnitude of DPPs, either in terms of the number a state may have or the depth of requirements, is not without challenges. These difficulties are further exacerbated by lack of alignment on requirements across programs and the administrative burden of meeting these disparate requirements that can complicate provider participation. Additionally, because some innovative value-based programs offer services not tied to claims, it can be difficult from a budgetary perspective to see the whole picture of the care being delivered. As states and providers work with limited resources and aim for cost-effectiveness, this lack of context creates a disconnect between clinical and policy perspectives versus budgetary perspectives. The recent attention by CMS surrounding directed payments’ growth in volume and portion of Medicaid spending reveals their interest in understanding directed payment objectives and whether supplemental funding helps to advance those goals and ultimately make a difference in the lives of Medicaid beneficiaries.

Limitless Potential to Realize Opportunities

Despite these potential challenges and increased scrutiny, the advantages of DPPs provides an important mechanism in managed care to achieve state and federal health goals. In fact, value-based DPPs often increase access for members by catalyzing greater provider and plan participation in alternative payment approaches within the Medicaid program. By tying payments to health outcomes, providers and plans are incentivized and rewarded for delivering better, more coordinated care. The optional participation and flexibility of DPPs entice states to participate and drive progress by rewarding quality performance rather than dictating minimum requirements and penalizing noncompliance. This strategy promotes state, provider, and plan accountability for delivering the best care in the best possible environment for Medicaid members. DPPs also reduce fragmentation in the healthcare system by incentivizing improved care coordination with a focus on achieving better outcomes and by promoting opportunities to meet multiple individual and population health goals. These benefits demonstrate the many ways DPPs can be designed to promote sustainable outcomes and further growth.

Fostering Innovation

Since DPPs empower states to innovate, some Medicaid programs are leveraging opportunities through value-based DPPs to focus on health equity. For example, some states have been using value-based DPPs to deliver culturally and linguistically appropriate care for members, improve workforce diversity, or engage with important community partners. Related to health equity is the focus on social determinants of health (SDOH) such as housing or food security. These factors clearly have an impact on health. For example, a person with diabetes experiencing homelessness may not have the means to refrigerate life-saving medication. Addressing the underlying need for refrigeration of medication proactively and creatively aims to reduce the cost of care while improving outcomes. The flexibility of DPPs allows states and managed care partners to test novel strategies to improve health outcomes without strictly tying funds to medical encounters. This freedom supports the discovery of effective methodologies with measurable outcomes whose potential could otherwise remain unrealized. While there is always push and pull when deciding what costs fall under Medicaid, one benefit of these innovative DPPs is the ability to simultaneously reduce costs and improve outcomes.

In Summary

CMS has a clear interest in value-based purchasing, and DPPs are a key path for states to make progress in this focus area. Regardless of the maturity level of a state’s managed care delivery system, DPPs are a way to begin or further quality-driven approaches to healthcare.