Steven H. Goldberg, Paula M. Lantz, and Samantha Iovan from the University of Michigan P4A Research Hub published a new paper with the Federal Reserve Bank of San Francisco examining the use of federal Medicaid dollars as a payout source for non-medical services aimed at addressing social determinants of health (SDOH) under the 2016 Medicaid Managed Care Final Rule.

As “value-based purchasing” arrangements continue to gain traction, (supplanting more traditional “fee-for-service” models), insurers and providers are keen to understand the potential for federal matching funds and social impact investing to help reduce total cost of care and ultimately improve population health outcomes.


The research team focused on three questions: 

  1. What are the regulatory limits on federal Medicaid payments for non-clinical prevention and early-intervention programs, services and interventions to address social determinants of health?
  2. To what extent will decreased utilization and cost of medical care reduce future capitated rates (“premium slide”)?
  3. How can Medicaid Managed Care Organizations (MCOs), as well as third-party social-impact investors, provide up-front funding to develop, implement and sustain upstream social programs and services?

The team concludes that the Final Rule does allow federal Medicaid funds to support outcomes-based spending on non-medical interventions and programs. Future rate reductions are unlikely to offset potential cost savings from reduced demand for medical care over a multi-year planning period. The regulations modernize incentives for states and MCOs to expand the availability of SDOH-related programs that might improve population health outcomes at a lower total cost of care.

Implications for Policy and Practice

The Final Rule provides fertile ground for providers to proactively pursue value-based purchasing arrangements that support the expansion of SDOH programs and services. However, the question about the choice between self-funding and social-impact investments is less clear. Self-funding is likely to be simpler and quicker, but impact investment transactions, such as Pay for Success, might have greater scaling potential. Medicaid MCOs seeking to address SDOH should consider conducting financial feasibility studies and pilot projects to develop rigorous business cases for potential program expansion among their enrolled members.

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