Congressional Hearings Question Minnesota Medicaid Managed Care

On April 25, 2012, the Joint Congressional Committee on Oversight held hearings on the question, “Is government adequately protecting taxpayers from Medicaid fraud?”. The committee heard testimony about alleged provider fraud on a massive scale in Texas and New York but the major focus of the hearing was managed care contracting in Minnesota.

Minnesota Medicaid contracted with four health maintenance organizations (HMOs) to managed the care of beneficiaries. All four were nonprofit entities, but they appear to have been quite profitable. In 2009, the state paid the HMOs $4,400 per Medicaid beneficiary, more than twice the national average. According to the staff report of the joint committee, the four HMOs had a combined surplus of $1.6 billion at the end of 2010.

A witness from the Government Accountability Office (GAO) testified that CMS’ reviews of state rates for managed care are inconsistent As the GAO found in 2010, there are certifications of actuarial soundness as required by statute, but there is no review of the underlying data.

One of the witnesses had been General Counsel to the Minnesota Hospital Association and directed its legislative advocacy program. In 2010, he was assigned to push for legislation to promote transparency and accountability in the state’s publicly funded health programs. The MHA advocated legislation requiring state health programs to meet medical loss ratios, apply Generally Accepted Accounting Principles and undergo independent audits. The Pawlenty administration and the health plans opposed the legislation.

He testified that, in a conference call with the then director of contract management for the Medicaid managed care program, the director stated, “If you can’t keep a secret you have to leave the room, but we have been adjusting the reserve amount for state-only funded programs by making it essentially zero, and increasing the amount for [capitated] federal programs, blending the rate and returning it to the insurers.”  In other words, the agency’s rates underpaid the HMOs for the state-only programs and overpaid them for  the Medicaid program to maximize their federal reimbursement. Late in the 2010 legislative session, in discussions about the impending repeal of the state-funded general assistance medical care (GAMC) program, the witness said that repeal would be a windfall for the HMOs because they had been paid capitated rates for the state programs as a whole. GAMC was eliminated, but the state did not “claw back” the payments attributable to the program.

In January, 2011, a new governor, Mark Dayton, took office. He appointed Lucinda Jessom to the post of Commissioner of the Department of Human Services. In mid-March, UCare, the smallest of the four Medicaid HMOs, announced that it was making a one-time contribution of $30 million toward the state’s budget deficit. In a letter to state legislators, UCare’s president and CEO stated that the payment was “what we consider to be excess operating margin for state public programs.”   The stated reasons for the excess margin included the costs of the discontinued GAMC program which had been born by the Medicaid program. The check would be presented in July.

Such a large “contribution” is highly unusual, and the question arose how it should be treated. If the payment was a refund of excess Medicaid payments, the federal government was entitled to its share of those payments.And it’s the treatment of that contribution that interested the oversight committee. The day before the UCare letter, the DHS Commissioner emailed another staff member about the payment: “In order to have a good chance of keeping all this money, it must be characterized as a donation. If a refund, feds clearly get half. Can you work with Scott on redrafting? Also, I thought we were going to handle this through phone calls.”

Representative Trey Gowdy (R. -S.C.) grilled Commissioner Jessom about the email. Although she argued that the passages were taken out of context, Gowdy would have none of it, claiming that her agency was “trying to keep as much of other people’s money as you possibly can.”  “Don’t you see how this looks?” he asked repeatedly. Congressman Dennis Kucinich (D.-Ohio) also took Jessom to task, asking how she could have reasoned that the UCare payment would not have to be shared with the federal government.

According to the staff report, in July, 2011, Center for Medicaid and State Operations Director Cynthia Mann questioned the state’s contention that the payment was a donation. In March, 2012, Mann’s office asked for more details about the source of the reserve UCare drew on to make the donation and the extent to which the reserve was related to Medicaid payments UCare had received.  On Monday, April 23, the Minnesota agency agreed to pay about $15 million to CMS.

It’s too bad that the agency’s handling of the UCare payment distracted lawmakers from the systemic problem, the payment of excessive rates to Medicaid HMOs. In 2011, the Governor and commissioner negotiated a 1 percent cap on HMO profits from publicly funded plans, and they reported that $73 million would be refunded by the four HMOs. The legislative auditor will scrutinize the HMOs’  finances. A bill to require independent audits failed in 2011 and was not expected to pass this year.