A new study suggests that the federal government's formula for calculating its share of Medicaid matching funds has a significant flaw that undermines the program. Because Medicaid upper payment limit matching funds for hospitals are based on fee-for-service payments, rather than capitated arrangements, states paying capitations can lose millions in upper payment limit funds, according to a study by The Lewin Group. The report, which was funded by the Medicaid Health Plains of America, recommends that the federal government establish a ceiling on federal upper payment limit funds to states, indexed to inflation or changes in the state's Medicaid eligibility or inpatient volume. Most notably, it suggests that the hospital upper payment limit funding mechanism should remain the same whether a patient day occurs in a fee-for-service or capitated setting. The group has forwarded these recommendations to the Federal Medicaid Commission.