Usually, the state Medicaid program designates a service area, invites providers to submit bids for providing a service in this area, and awards contracts based on the lowest bid. Medicaid recipients then can obtain these services only from the contracted providers. Selective contracting is intended to hold down costs while maintaining or enhancing patient access to quality services. Providers will offer lower prices in return for a guaranteed volume of patients. Contract provisions can and should be drafted to ensure quality of care.
States commonly use two types of selective contracting.
Either bids are awarded based on the lowest fixed-price bid, or the state establishes price ranges in advance and awards the contract to any bidder who meets specific technical requirements and submits the lowest bid within the state's range. States can include selective contracting criteria and methodologies to improve or maintain quality of care of services and access to services by clients. Ohio's program, implemented in 1985, has become a model for other states. Ohio contracts with three ophthalmic labs to manufacture, deliver, and repair all eyeglass supplies, lenses, frames, and associated parts for Medicaid recipients. These labs deal directly with participating Medicaid providers who dispense the eyeglasses to clients.