The Virginia Department of Medical Assistance Services (DMAS) sets Medicaid provider rates for all services that are paid as claims and are paid for directly by DMAS. Managed care organizations (MCOs) use similar rates for payments they make to providers. DMAS targets making Medicaid payment rates at 78 percent of cost statewide for inpatient services (84 percent for psychiatric services) and 69.8 percent of cost for outpatient services for most hospitals.

Supplemental payments are additional amounts paid to targeted providers. Supplemental payments have been used to help fund costs for indigent or charity care and the training of health care professionals. The General Assembly has also authorized Upper Payment Limit (UPL) supplemental payments and managed care directed payments, if there are funding sources other than general funds.

Reimbursement may vary by Type One (state-owned teaching hospitals on January 1, 1996) and Type Two hospitals (all other hospitals). Virginia also enrolls out-of-state hospitals in Tennessee, North Carolina and the District of Columbia who serve Virginia Medicaid individuals who live near these hospitals. For the most part, Virginia reimburses these out-of-state hospitals like Virginia hospitals including paying them supplemental payments.

Historically, DMAS only made hospital supplemental payments as fee-for-service (FFS) payments. The Centers for Medicare and Medicaid Services (CMS) also allows state Medicaid agencies to make supplemental payments through MCOs as “directed payments". In FY 2021, a FFS supplemental payment was included for the State’s only freestanding children’s hospital and an additional supplemental payment was included for the non-state government owned (NSGO) Chesapeake Regional Medical Center (formerly Chesapeake General Hospital). In FY 2022, a supplemental payment was added for NSGO Lake Taylor Transitional Care Hospital.