New Payment Models Would Help Medicaid Cover Opioid Addiction Treatment During Incarceration

Overdose deaths in jails and prisons have risen sharply in recent decades, and data shows that people recently released from incarceration are at heightened risk of dying from an overdose. When it comes to opioid use disorder (OUD)—which is largely driving fatal overdoses—experts attribute risk of death to reduced tolerance to opioids many experience after their relative abstinence while incarcerated. In contrast, studies show that when these individuals receive medication to treat OUD during their stay, they are more likely to engage in community-based treatment upon release.

Medications for opioid use disorder are proven to save lives. Yet far too few jails and prisons provide this treatment, with many officials citing cost as a barrier. For the first time, some states recently sought approval from the U.S. Centers for Medicare and Medicaid Services (CMS) to allow Medicaid, the health insurance program for low-income Americans, to cover and thus help pay for addiction treatment during a person’s stay in jail or prison. As of mid-January 2024, CMS had approved two states—California and Washington—to provide Medicaid-reimbursable care to individuals soon to be released from incarceration.

A new report on payment models—the third and final in a series supported by Bloomberg Philanthropies and written by Viaduct Consulting LLC—expands on recommendations for how the Medicaid program should set standards and measure outcomes for OUD treatment coverage in jails and prisons. The report authors developed the payment models to be comparable to existing community-based Medicaid payment models for OUD services but with a focus on the unique circumstances of people in jails or prisons. For example, the models must take into account critical variations between those settings—such as length of stay and focus on patient triage and stabilization in jails and long-term chronic care management in prisons—and operational challenges such as security requirements.

Payment Model Options for Treating Opioid Use Disorder in Jails and Prisons

Breaking down the models

In Model 1, fee-for-service (FFS), Medicaid would reimburse providers for each covered OUD service they provide to an incarcerated Medicaid beneficiary. Because reporting performance measures would not be a factor in paying providers, each state’s Medicaid authority, known as the SMA, would be responsible for program oversight and integrity.

The strengths of this model are that it is familiar to SMAs, may incentivize the provision of services, and requires providers to submit a level of detail about the care provided that could strengthen care quality and outcome measurement. Among the limitations are that reimbursement is tied only to provided services and not individual outcomes. In addition, the model may not incentivize care coordination, could lead to inconsistent cash flow, and has complex billing requirements that could create an administrative burden on jail and prison health care providers.

Model 1A includes all elements of Model 1 but also provides bonus payments if the provider achieves or reports on specified performance measures. This model has the same strengths as Model 1, while adding incentives that create greater accountability and help to ensure that care delivery aligns with program goals.

Models 2 and 2A would set bundled payment levels for the services provided (more details on this process are in the rate-setting section of the report). The reimbursement rate could be informed by existing community Medicare or Medicaid rates or by using a cost-based model that provides reimbursement based on the actual expenditures of the program. In a jail setting, bundle-rate billings would typically be made daily or weekly, while in a prison setting, a bundle might be billed monthly because of the typically longer stays.

A key strength of Model 2 is that it may be more similar to the existing budgeting structure used in OUD or other health programs for people who are incarcerated. A bundled reimbursement model could encourage linkage of fragmented and disjointed clinical care and result in a more consistent, predictable cash flow for the provider than the FFS model allows. If actual patient care costs less than the bundle price, the providers could reinvest the savings into the program or facility, leading to less risk that providers will administer services unnecessarily.

However, providers could face some financial risks with Model 2. Individuals will have varying needs, some costing more or less than the bundle pays, but a rate that incorporates risk-adjustment methodology can help smooth this variation.

Together, the three reports provide guidance to CMS and a blueprint for SMAs on how to approach Medicaid coverage of OUD services in jails and prisons. The combination of high-quality treatment and reliable payment models has great potential to make a difference in the lives of people in correctional facilities seeking to recover from OUD.

Alexandra Duncan works on The Pew Charitable Trusts’ substance use prevention and treatment initiative. Maria Schiff is a consultant for Pew.