Bloomberg News

Teen Fights for Benefits as Medicaid Contractor Says No

June 27, 2012

Senator Charles Grassley

“I’m gravely concerned that accountability is severely lacking," said Senator Charles Grassley, a Republican from Iowa. Photographer: Brendan Hoffman/Bloomberg

Melody and Steve Lancaster’s 16- year-old foster son, who’s paralyzed from the neck down, needed a mechanized ceiling lift to help him get into the bathtub or his favorite beanbag chair.

While Texas Medicaid officials had already paid as much as $13,000 for similar devices for others, the company that the state hired to look after the teenager’s health needs refused. Superior Health, a unit of Centene Corp. (CNC:US) that covers about 800,000 Texas Medicaid recipients, also rejected at least two other requests for lifts, state records show. The Lancasters’ foster son and another patient appealed, and won. The third case is pending.

“Superior is more concerned with its bottom line than the medical needs of these children,” said Peter Hofer, a lawyer with the advocacy group Disability Rights Texas who represented the teenager.

The October 2011 denial was based on Superior’s decision that the lift was a home modification not covered by its plan -- a determination a state hearing officer overruled in April, according to state records. Superior is committed to helping patients and is working with officials “to adjust our policies and procedures” on the lifts, said Sandy McBride, a Centene spokeswoman.

The teen’s story shows how states may be limiting patients’ benefits by outsourcing Medicaid, the $460 billion public health program for the poor and disabled, to for-profit companies with “little or poor oversight” from authorities, Hofer said. Texas policy prohibits releasing foster children’s names for publication.

Poor Grades

Managed-care companies, including St. Louis-based Centene, Tampa, Florida-based WellCare Health Plans Inc. (WCG:US) and Amerigroup Corp. of Virginia Beach, Virginia, cover almost half of U.S. Medicaid recipients. While such plans help officials control costs, they operate under loophole-ridden standards, some earn poor grades on quality and many spend less of their revenue on care than commercial insurers do, according to data compiled by Bloomberg Government from the five most populous states.

“I’m gravely concerned that accountability is severely lacking,” said Senator Charles Grassley, an Iowa Republican on the Senate Finance Committee, which has jurisdiction over Medicaid. “It’s kind of like this money is in a black box.”

Medicaid, which is jointly financed by the federal and state governments, had an average monthly enrollment of about 53 million people in 2010, 26 million of them in “risk-based” managed care plans -- so named because companies can lose money if they pay benefits exceeding their revenue from the state.

Care Standards

California, Florida, New York, Texas and other states have pledged to put most beneficiaries in managed care by 2014. That could be a boon for the companies, which were paid about $90 billion to run plans and pay benefits in 2011. It would also expand an approach that hasn’t focused enough on meeting care standards, according to Michael McCue, a professor of health administration at Virginia Commonwealth University in Richmond.

“We’re just winking at the quality, saying, look at the cost savings we can have here,” he said. “In the grand scheme of things, we don’t care how you allocate those dollars, we just want somebody to take these dollars and manage the population.”

Traditionally, Medicaid recipients have been covered under a fee-for-service model, with states paying doctors, hospitals and other providers at set rates. In managed care, states typically agree to pay contractors set amounts per patient every year. The system is designed to give plans an incentive to limit spending; generally, they keep the difference between their state revenue and what they spend on care.

Increased Scrutiny

Amerigroup and WellCare have settled civil fraud allegations since 2008, paying more than $200 million each to the U.S. and the states of Illinois and Florida, among others. Neither company admitted wrongdoing.

Some states are increasing their scrutiny of the plans. In Minnesota, the administration of Governor Mark Dayton, a Democrat, capped managed-care companies’ profits at 1 percent of revenue. Florida plans that don’t achieve the 40th percentile on performance scores this year face fines of $10,000 to $60,000.

States have canceled some contracts over the years because of poor performance. Texas last did so in 2009. In February, New York officials put a plan operated by WellCare on probation after it didn’t meet performance standards three years in a row. “If we have not seen an improvement, we will terminate their contract,” said Jason Helgerson, New York’s Medicaid director.

WellCare “recognizes that continued improvement is needed,” Jack Maurer, a spokesman for the firm, said in a statement. “The company has been working diligently to meet the state’s performance standards” with good results, he said.

Connecticut’s Decision

Calling private Medicaid plans “overly profit-driven at the expense of taxpayers,” Connecticut officials decided last year to drop them, joining Alaska and Wyoming as the only states without them.

In Illinois, Jim Parker, deputy administrator for Illinois’s Medicaid program, said the performance of two of his state’s risk-based managed-care plans, Harmony and Family Health Networks, “can honestly only be described as abysmal.”

“There is a strong belief in some political quarters” that the Medicaid program needs more managed care, Parker said. “To get rid of them would have been sending the message we are going the opposite direction.”

Illinois is trying to increase the number of Medicaid beneficiaries in managed care from less than 10 percent to at least half by 2015. Officials intend to improve the program by threatening to withhold money for poor performance, and contracting with more plans so the government can credibly threaten to remove the worst, Parker said.

Avoiding Waste

Managed-care plans help states avoid wasting money on such costly items as emergency-room visits by focusing on better preventive care, said Thomas Johnson, president of Medicaid Health Plans of America, a Washington-based trade group.

“In this model, plans have a financial incentive to keep costs down, which they accomplish by providing innovative preventative care services that keep people out of the hospital and in better health,” he said in an e-mailed statement.

Johnson said some of Bloomberg’s findings in New York, California, Texas, Florida and Illinois don’t apply nationwide.

“State program characteristics and requirements vary widely, and it would be a mistake to make broad, sweeping assumptions that apply nationally based off information from a few plans in five states,” Johnson said in a statement posted to the group’s website.

Shrinking Savings

While the managed-care approach costs less per enrollee than traditional Medicaid in all five of the largest states, the advantage is shrinking in places, the data show. California in 2010 spent $2,222 on the average managed-care patient, compared with $5,791 on the average fee-for-service patient. At the same time, managed-care spending in California grew 10 times as fast as traditional spending between 2002 and 2010.

“We were hoping for more savings than have been demonstrated to date,” said David Sundwall, vice chairman of the Medicaid and CHIP Payment Access Commission, or MACPAC, which advises Congress.

Costs may increase as states move more disabled and elderly people into managed care plans, because the services they require are generally the most expensive. A pilot program in Broward County, Florida, paid managed-care contractors $888 a month for each disabled patient, almost seven times the $132 a month for patients who aren’t disabled.

Emergency Rooms

One indication that managed care isn’t saving as much as it could in Illinois is the rate of emergency-room visits. Infrequent ER use is a “litmus test” for managed care, which is designed to emphasize preventive medicine, said Jeffrey Gold, vice president of the Healthcare Association of New York State, a Rensselaer-based nonprofit that represents hospitals and health-care networks.

Illinois’ managed-care beneficiaries were more likely to visit hospital emergency rooms in 2009 and 2010 than were Medicaid recipients in the traditional program, state figures show. New York saw virtually no difference in ER visits between the two groups in 2010. In California and Texas, managed-care patients were less likely to visit emergency rooms -- though in California, the difference is narrowing. Florida has only two years of data, which show no clear trend.

Harmony, the largest managed care program serving Illinois Medicaid recipients, ranked in the bottom 10th percentile of all Medicaid plans nationally for delivering prenatal and postpartum care to women in 2009, according to figures reported in October 2011 by Health Services Advisory Group Inc., a Phoenix-based company that evaluates managed-care plans for states. Harmony is operated by WellCare.

Fewer Mammograms

Throughout Illinois, 33.8 percent of eligible women enrolled in Medicaid managed care got mammograms in 2009. The median rate among women covered by U.S. commercial plans that year was 71.3 percent, according to Health Services’ data.

Both Harmony and Family Health Network are attempting to improve their performance, spokesmen told Bloomberg.

The 2010 health care overhaul that’s now before the U.S. Supreme Court would bring 17 million new enrollees into the Medicaid program by 2014. At the same time, the law might make Medicaid’s managed-care component more lucrative than the private commercial insurance market.

One provision of the law requires most large private health plans to spend at least 85 percent of their premium revenue on medical care -- a figure known as the “medical loss ratio.” Medicaid plans are exempt from the requirement, and many fall short of that target, according to state records.

Loss Ratios

In Texas, Amerigroup (AGP:US) spent 77.5 percent of premium revenue on medical care in 2010, according to reports published by the Texas Health and Human Services Commission. In Illinois, WellCare spent 78.9 percent. In Florida, where the 2010 average for plans was 89.6 percent, Humana Inc. (HUM:US) spent 77.4 percent.

Some of Amerigroup’s administrative spending in Texas was aimed at improving medical results, yet couldn’t be included as spending on care, said Maureen McDonnell, a company spokeswoman.

WellCare officials believe the company’s MLR should be assessed companywide -- where it was 82.4 percent -- not at the state level, said Maurer, the company’s spokesman. “Each state’s programs have different quality assessment methodologies, benefit coverage, member populations and demographics,” he wrote in an e-mail.

Humana’s Florida plan later raised its 2010 spending on care by reclassifying some administrative spending as medical costs, said Jim Turner, a spokesman for the Louisville-based company. Shelisha Coleman, a spokeswoman for Florida’s Medicaid agency, disputed that, saying 77 percent was the company’s final medical-loss ratio for the year.

Setting Minimums

At least 11 states have set minimum levels of medical spending for their Medicaid managed care plans, according to a 2011 study by the Kaiser Family Foundation. New York will require its plans to spend 85 percent of revenue by April 2015.

Pretax earnings in 2010 equaled 5 percent or more of premium revenue for several plans in the five largest states -- outstripping the average for commercial health plans, which was 3 percent, according to the National Association of Insurance Commissioners.

In Florida, Humana had a 6.7 percent margin in 2010. WellCare’s plan in Illinois, the state’s largest, had pre-tax income of 5.2 percent. The latest figures for New York, from 2009, show that its largest for-profit plan, run by UnitedHealth Group Inc. (UNH:US) of Minnetonka, Minnesota, posted pre-tax income of 5.3 percent. California refused a freedom-of-information request for its plans’ financial records, citing a state law that declares the information proprietary.

Texas’ Clawback

In Texas, officials claw back an increasing share of Medicaid plans’ profits above 3 percent, leaving a total possible profit of 7.2 percent. In 2010, plans serving its main managed-care program returned $122 million to the state, according to the Texas Health and Human Services Commission.

That year, Amerigroup insured 450,000 Medicaid enrollees in five Texas counties, receiving $888 million in premium revenue. Of that, $688 million went to medical expenses, and $104 million to administrative costs, including salaries. That left pre-tax income of $96 million, or 10.8 percent of revenue. Amerigroup returned $44 million to the state, leaving pre-tax income of 5.9 percent -- almost twice the commercial plans’ average in 2010.

“Amerigroup Texas has an experienced, dedicated team that implements very effective cost management programs for the state and the members we serve,” said McDonnell, the company’s spokeswoman. “Given our operational efficiency, it is not unexpected that our margins are at or above average relative to state or national benchmarks for certain measurement periods.”

In 2009, Centene insured more than 200,000 Texans at a margin of 7.5 percent, or $38.6 million. It repaid the state $13.9 million.

Some Unprofitable

Not every plan is profitable. In Texas, Centene spent more than its revenue in 2010. In Florida, despite some plans’ success, overall costs exceeded revenue by 1.5 percent that year. In New York, Amerigroup and WellCare had pre-tax income below 1 percent of revenue.

Generally, the risk-based managed care model gives plans an incentive to minimize health-care costs, said Julia Paradise, an associate director of the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. Officials have a duty to ensure the plans aren’t limiting patients’ access to care, she said -- an obligation that isn’t always met.

“There are substantial gaps in oversight,” Paradise said.

Oversight includes annual reports that the federal government requires states to publish, showing their plans’ quality of care. The federal Centers for Medicare & Medicaid Services, or CMS, give states wide discretion in the evaluations. Each state chooses from more than 150 standards to measure, including childhood immunizations, breast cancer screening, comprehensive diabetes care and annual dental visits.

Plans Pick

There’s no minimum number of measures states must use. Some states let the managed-care companies pick the indicators, said Alper Ozinal, a CMS spokesman. He declined to say which states.

States also have leeway in deciding how to present the scores. In evaluations for California and Florida, HSAG scores health plans with stars -- one star means below-average, two means average and three above average. “Average” is broadly defined -- anywhere between the 25th and 90th percentiles.

The system is designed to identify high or low performers, “not those in the middle tier, or as a means to measure contract compliance,” said Steve M. Wilson, an HSAG spokesman.

Other states alter the way they calculate the scores -- called Healthcare Effectiveness Data and Information Set, or HEDIS -- in a way that inflates them. Many of the quality measures compiled by the National Committee for Quality Assurance, a non-profit group, gauge how often beneficiaries got medical services from a certain kind of physician or provider. For example, a prenatal visit only counts toward a plan’s quality rating if that visit is with an obstetrician or midwife.

Any Visit

Texas counts any visit with a primary-care doctor or family practitioner toward its prenatal-care scores.

“When we do our quality of care reports, we’re not really worried about trying to make a lot of comparisons to other states,” said Scott Schalchlin, the state’s director of program management for Medicaid managed care. Federal CMS supervisors “never raised any concerns” about Texas’ method, he said.

Sarah Thomas, vice president for public policy and communications at the quality assurance committee, called such adjusted HEDIS measures “shmedis.”

“Texas is definitely not the only one,” Thomas said. “If they wanted to do the benchmark and really go for the transparency approach, they should go for the standard measures.”

No Report

Last year, Texas failed to publish its annual quality report. It was eventually released a year late. “We got behind on reviewing those,” said Stephanie Goodman, a spokeswoman for the state’s Medicaid agency.

David Sundwall, the MACPAC vice chairman, expressed concern that federal officials didn’t impose any consequences on Texas.

“If they skip the annual reporting plan, that doesn’t surprise me,” Sundwall said. “What should be surprising is that nobody holds them accountable for that.”

Ozinal, the CMS spokesman, said oversight of managed care plan outcomes and finances “are among our highest priorities.”

Meaningful data about how managed-contractors treat Medicaid patients is “quite spotty at the state level,” Richard Kronick, deputy assistant secretary for health policy at the U.S. Department of Health and Human Services, told a Congressional advisory panel in April. Medicaid data is so poor that many fraud audits are ineffective, the General Accounting Office reported this month.

In Azle, Texas, Melody Lancaster’s foster son, who was paralyzed after he was hit by a car three years ago, got “total freedom” to move around after he received his new lift, she said. She and her husband have been foster parents for 25 years, and they’re now seeing more Medicaid benefits denied, she said.

“These kids are vulnerable,” she said. “They’re not standing in a welfare line waiting for a handout. They were dealt a bad hand to begin with.”

To contact the reporters on this story: Christopher Flavelle in Washington at cflavelle@bloomberg.net Charles R. Babcock in Washington at cbabcock@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net


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Companies Mentioned

  • CNC
    (Centene Corp)
    • $82.56 USD
    • 2.52
    • 3.05%
  • WCG
    (WellCare Health Plans Inc)
    • $63.29 USD
    • 1.56
    • 2.46%
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