Highlight on Iowa: Privatizing Medicaid with managed care

In August 2015, the Iowa Department of Public Health took a major step in what Governor Terry Branstad calls “Medicaid Modernization.” Iowa is joining the ranks of states (estimated at 24) that require all disabled beneficiaries to receive their Medicaid services through a managed care organization (MCO), including individuals with disabilities and those receiving long-term care.

The process

The agency and the governor announced a competitive bidding process in February. Eleven companies submitted bids. On August 17, 2015, the state Department of Public Health announced its intention to offer contracts to four commercial Medicaid managed care organizations: Amerigroup Iowa, Inc.; Amerihealth Caritas Iowa, Inc.; United Healthcare Plan of the River Valley, Inc.; and WellCare of Iowa, Inc.

Two of the disappointed bidders, Magellan and Meridian, had existing Medicaid managed care contracts with Iowa agencies. Magellan has administered the behavioral health benefits since the 1990s, but it will have to turn its responsibilities over to the incoming MCOs. Three of the disappointed bidders, Aetna, IowaTotalCare, an affiliate of Centene, and Meridian, requested reconsideration of the award, which the agency denied.

Several concerns have been raised about the governor’s decision to convert all of Iowa to Medicaid to managed care. Some critics question whether the governor and the Medicaid agency can, or should, have begun the contracting process without any legislation or public discussion of the change in policy. The Cedar Rapids Gazette observed that Governor Branstad never mentioned the changes he planned to propose during the 2014 election campaign.

The governor argues that the cost of Medicaid has risen 73 percent since 2003, but opponents note that the cost of health care through private insurance has risen more than 80 percent during the same period. In addition, all four of the chosen entities have histories of misconduct. The Iowa Hospital Association has pointed out that in Florida, Massachusetts, and New Hampshire, the managed care organizations lost money and required millions of dollars in increases after a year or two.

Past misconduct

In August 2008, Amerigroup settled claims of Medicaid fraud by agreeing to pay $225 million to the state of Illinois and the federal government. The fraud claims involved allegedly avoiding and discouraging enrollment in its Medicaid plan by pregnant women and others beneficiaries with expensive illnesses when the law required that it enroll all eligible beneficiaries. A jury in a whistleblower action had entered a verdict against Amerigroup for $334 million in 2006; the settlement involved withdrawal of Amerigroup’s appeal.

WellCare’s Florida affiliate in 2009 agreed to pay a total of $80 million—$40 million to Florida’s Medicaid and Healthy Kids programs and $40 million in civil penalties to resolve criminal charges that it had withheld mental health care from children and falsified expenditure reports so that it would appear to have met a medical loss ratio requirement.

The investigation had expanded, however. In 2012, WellCare agreed to pay $137.5 million to resolve False Claims Act litigation based on its conduct in Connecticut, Georgia, Hawaii, Illinois, Indiana, Missouri, and Ohio in addition to Florida. In addition, four former executives of WellCare and its affiliates were convicted of health care fraud in 2013 based on the same events. Chief executive officer Todd Farha was sentenced to three years in prison.

AmeriHealth Mercy Health Plan, an affiliate with the same parent company as winning bidder Amerihealth Caritas, agreed to pay more than $2 million to the Kentucky Medicaid agency to resolve allegations that it falsified records to bill for services it had not performed. Finally, in 2014, United Healthcare was fined $173.6 million by the California Insurance Commissioner for alleged mismanagement arising from its 2005 takeover of PacifiCare; allegedly, the company mismatched physicians with medical groups with which they were not affiliated, and patients claimed that they went without medical care for months at a time because of lost and miscoded patient records, some of which turned up in India. An administrative law judge reduced the fine to $11.5 million, but the Commissioner did not adopt the order. United’s appeal is pending.

Next steps

The agency submitted the waiver request to CMS in early September 2015. CMS must publish the request on its website and allow a comment period before it approves the request or negotiates final changes with state officials. Opponents of the governor’s plan, including the Cedar Rapids Gazette, have urged the public to submit comments.