Search Results for: Medicaid managed care

Lessons From Kentucky’s First Year of Medicaid Managed Care

For months, Kansas Governor Sam Brownback has planned to implement KanCare, a mandatory, statewide Medicaid managed care program, on January 1, 2013. CMS has not yet approved the waiver request, and on Monday, November 26, 2012, CMS held a listening session via conference call to hear the views of Medicaid beneficiaries. CMS representatives indicated Monday that they hoped to make a decision soon. As recently as November 27, 2012, Kansas officials maintained that KanCare was expected to go live on January 1, and there was no Plan B. The agency has auto-assigned current beneficiaries to plans and mailed notices informing them of the plan to which they were assigned. All beneficiaries were to receive their packets by the end of November, 2012.

Kansas might take a lesson from Kentucky’s experience with the implementation of Medicaid managed care. The Foundation for a Healthy Kentucky recently released a report commissioned from the Urban Institute evaluating the first year under the new system. As we have previously reported, during the first few months, there were complaints from providers and beneficiaries about denials of refills of established prescriptions, delayed authorizations, and failure to pay providers.

The researchers examined several steps that were important to the success of the launch, from the competitive bidding process to the operations of the program as of the summer of 2012; they supplemented with a discussion of developments that occurred up to mid-October, when Kentucky Spirit notified the state of the termination of the contract effective July 1, 2013.

The State’s Contracting Process

Although the state had hired PriceWaterhouseCoopers to determine the rates that would be actuarially sound, the bidders did not have access to that information when they developed their proposed rates. According to the report, the actuary stated that the plans were told during the negotiation process whether their proposed rates were within the appropriate range. One plan claimed never to have received the information, however. The plans also claim that the claims  information they received was not complete and sometimes was inaccurate. In any event, the state contracted to pay significantly different rates to each plan.

 The Start-up and Provider Networks

The state’s contracts with the plans were finalized July 8, 2011, and open enrollment was set to begin November 1st. None of the three plans had previously operated in Kentucky, so they had to find office space, hire and train staff, negotiate rates and contract with providers, adapt their existing systems to Kentucky’s Medicaid program,educate providers about the claims process, and market their services to beneficiaries.  Not many workers in the Kentucky job market had managed care experience, so employees of both the plans and the state agency had a steep learning curve. Some providers stated that the plans’ communication technology was antiquated and relied heavily on “snail mail” and fax transmissions.

Because capitated payments were already set, when they built their networks, the plans’ ability to offer attractive rates was limited. Some providers, notably Appalachian Regional Healthcare (ARH), furnished services without a contract while negotiations continued. Because the networks had not been finalized when enrollment began, the network directories were inaccurate. Beneficiaries were assigned to plans based on letters of intent from their primary care providers (PCPs) chose not to participate. Once assigned to plans, some beneficiaries were assigned to PCPs who were inappropriate to their needs or did not participate in the plan.

The state auto-enrolled beneficiaries into plans and then gave them 90 days to change plans if they chose. Because Kentucky Spirit had the lowest rates, the state assigned it 200,000 of about 520,000 members.  Many beneficiaries changed plans during the 90 day period, some, more than once, as they learned of the different incentives or benefits each plan offered. The Coventry plan required no copayments and had a broader network, so it is logical, as Coventry claims, that a disproportionate number of beneficiaries with chronic illness and heavier utilization changed from other plans to Coventry. By June, 2012, Kentucky Spirit had about 138,000 members, 27.5 percent of the Medicaid beneficiaries in the program, while Coventry had about 233,680, 44.8 percent.

Other Problems

Providers reported that denials of authorization and claims rose sharply under the managed care system, requiring an inordinate number of appeals and time spent on administrative issues. Both the fee-for-service program and the plans used the InterQual criteria for authorization, but providers complained that the plans applied the criteria differently, and, sometimes, incorrectly. The plans were not familiar with the coding system that the agency and providers used previously. The three plans had different formularies for providers to follow.

All three plans lost money during the first two quarters of their contracts. Coventry lost the most. As we’ve reported before, the plan tried to terminate and renegotiate its contracts with many providers.

The report recommends that the agency pay special attention to network adequacy and to the financial losses of both plans and providers. Open communication and accurate data are necessary to the success of the program.  The payment structure could be changed to reward improved health outcomes.

The reporters were encouraged by some recent developments. The agency has a new Medicaid Commissioner with many years of managed care experience. The state has contracted with an external quality review organization, which will help with oversight of the plans. And the plans all have better information to plan for the future.

Developments in Medicaid Managed Care Contracting, Profits

Some of the major competitors in for-profit Medicaid managed care have experienced unexpected losses, but they expect to remain profitable. Recently, Kentucky Spirit, owned by Centene, notified Kentucky Medicaid officials that it intended to terminate the contract effective July 5, 2013, one year before it expires. A company spokesperson stated that it had lost $120 million on the contract, claiming that its low bid was based on “bad information from the state.”

Governor Steve Bashear and Audrey Tayse Haynes, Secretary of the state’s Cabinet of Health and Family Services, responded that they intended to hold the company to its contract. So Kentucky Spirit has sued, seeking a declaration that it may terminate the contract. The company claims that the other two Medicaid managed care organizations (MCOs), Coventry Cares and WellCare, also have lost substantial sums because of mistakes made in the alleged rush to implement the program. Kentucky Spirit’s bid was significantly lower than the other MCOs—$311 per member per month, compared to Coventry Care’s $341 and WellCare’s $360.

As we reported earlier this year, Coventry Cares gave notice of termination to several hospitals and health systems, including Appalachian Regional Healthcare (ARH). A court ordered Coventry to continue with ARH until at least November 1, 2012. KentuckyOne Health, which formed in 2012 to operate St. Joseph Health System, Jewish Hospital, and St. Mary’s Healthcare, terminated its contracts with Coventry Cares. But Coventry must have decided to stay with Kentucky’s Medicaid program. It was one of the four successful bidders on the Medicaid managed care contract for the Louisville area, along with Humana, Passport, and WellCare. On October 26, 2012, Coventry announced that profits were down, but revenue was up; it has both cut costs and raised premiums in Kentucky. And its government business was enough to attract Aetna, which has agreed to acquire Coventry.

WellCare also is profitable, though not as much as originally projected. On October 31, 2012, WellCare informed investors that its profits for the third quarter of 2012 did not meet expectations. The company stated two factors contributed to this outcome: (1) CMS’ disallowance of Georgia Medicaid’s planned payments to settle a dispute between the state, WellCare and other MCOs; and (2) an unacceptably high member benefit ratio (MBR) because of unexpected claims. Even so, WellCare is expanding to cover the Louisville region in Kentucky. Depending on the number of new enrollees from this fall’s open enrollment, WellCare expects its Medicaid premium revenue from Kentucky to be $675 million to $700 million next year.

WellCare is instituting a free fitness program for its Georgia Medicaid members and taking on a behavioral health carve-out to manage the care of Hawaii Medicaid beneficiaries with serious mental illness. It also has agreed to purchase United Health Care’s South Carolina Medicaid business.


Do Medicaid Managed Care Plans Succeed Financially?

Can a company actually make a profit managing—and paying for— the care of Medicaid beneficiaries? CMS and the Commonwealth Fund recently published a study on the financial health of Medicaid managed care organizations. The study compared the profitability of Medicaid managed care organizations operated by insurers with other lines of business (multi-product plans) to those operated by insurers focused specifically on Medicaid members (Medicaid-dominant), considering three ratios: medical loss (MLR), administrative cost, and operating margin.

The author defined “operating margin” as premium revenue minus both medical and administrative costs;the operating margin ratio was a measure of how well the organization managed its costs in relation to its revenue.The relationship between financial health and provider sponsorship also was examined. The author defined provider-sponsored plans as plans owned, operated by or affiliated with hospitals, health care systems or medical clinics.

Which were more profitable?

Medicaid-dominant plans did better than multi-product plans. Provider-sponsored plans did better than those sponsored by others. Medicaid-dominant plans sponsored by providers had an operating margin ratio of 2.2. Of the Medicaid-dominant plans that were not sponsored by providers, publicly traded plans had the worst results financially, with an operating margin of 0.6.

In contrast, the multi-product plans all fared poorly. Those that were provider-sponsored broke even; their operating margin was zero. The others all lost money. Publicly traded plans did as well as those that were privately owned, with operating margins of -1.1.

So, how did the plans spend their money? What percent was paid out for medical care, and what was spent on administrative costs?

On this measure, one variable that stood out was the difference between provider-sponsored plans and those that weren’t.Provider-sponsored plans, on average, spent the most on medical care (90.6 percent) and the least on administration (8.9 percent). When provider-sponsored plans were analyzed further  by Medicaid-dominant or multi-product status, they still were consistent in spending more on care and less on administration. To be fair, the spending pattern of the Medicaid-dominant plans that were not provider-sponsored but also were not publicly traded was the same as the provider-sponsored Medicaid plans,unlike plans that were publicly traded. The publicly traded Medicaid-dominant plans had the lowest MLR (86.2) and the highest administrative cost ratio (13.3). In contrast, the MLRs of the other Medicaid-dominant plans were 88.5 (provider-sponsored) and 88.6 (not publicly traded), and their administrative cost ratios were 9.5 and 9.6, respectively, which might mean that the priorities of smaller, locally owned plans differ from those of the publicly traded plans.

The multi-product plans tended to spend less on administration and more on medical care than the Medicaid-dominant plans. The multi-product provider-sponsored plans had the highest MLR, 91.6 percent, and the lowest administrative cost ratio, 8.4 percent. They were the ones who broke even.

The author concludes that Medicaid managed care organizations do best financially when they focus on serving the Medicaid population. Those that are publicly traded might do better if they shaved their administrative costs, but perhaps they are hiring staff with expertise on the needs of the diverse Medicaid population, or investing in modern computer systems, which would result in greater efficiency.

The developments discussed in earlier posts might lend support to a different conclusion, however.  Perhaps the multi-product plans spend more on care because they are serving members who expect it. Do plans that are paid more in premiums spend a higher percentage on care? Maybe the publicly traded plans spend more on administration because they must report to shareholders and a parent corporation, or they have more layers of bureaucracy.And how do all these changes affect quality of care?

With the states increasingly moving to a model where care is managed by private companies, more research is certainly needed.

Kentucky’s Continuing Controversy Over Medicaid Managed Care

The implementation of Medicaid managed care continues down a rocky road in Kentucky. As we discussed a few months ago, on November 1, 2011, Kentucky turned over most of its Medicaid program to three for-profit managed care organizations (MCOs)—Wellcare, Coventry and Kentucky Spirit, a Centene affiliate. By February, providers complained of late payments, delays and denials of authorizations and general unresponsiveness, and the state’s auditor general began an investigation.

Since then, the MCOs say they are paying claims faster. But there have been lawsuits by providers against at least two of the MCOs. One plan, Coventry, was pressuring hospitals to renegotiate and terminating contracts before six months had passed.  

Appalachian Regional Healthcare (ARH), a nonprofit that operates ten hospitals, home health agencies, clinics and physician practices in eastern Kentucky and southern West Virginia, never contracted with Kentucky Spirit. However, because it is the predominant, and sometimes the only,hospital in the rural areas it serves,it has to serve Kentucky Spirit members with medical emergencies or in active labor despite its out-of-network status.In April, ARH sued Kentucky Spirit for $5.9 million, which it claimed more than 80 percent comprised undisputed claims that remained unpaid after 30 days and 48 percent remained unpaid after 90 days. Federal Medicaid law requires 90 percent of clean claims to be paid within 30 days and 99 percent within 90 days, but Kentucky law is more stringent. PremierTox, Inc., a provider of laboratory services in a network under contract with the plan, also sued Kentucky Spirit in late December, alleging that the plan refused to pay for more than 2,000 tests it performed.

The Louisville Insider reported that Centene/Kentucky Spirit was the low bidder, and the state agency initially assigned it about 180,000 members at $330 per month. However, during the open enrollment period in November and December 2011, about 40,000 of those members switched to Coventry or Wellcare when they learned that their physicians or pharmacies were not in the Centene network. Recently, Kentucky Spirit announced that it was tightening its rules for coverage of emergency department services, newborns in intensive care units, and short stay inpatient admissions; it also advised providers that payments to have been processed on May 31 would be delayed due to a “technical processing issue.”

On another front, Coventry demanded that ARH, Baptist and other hospitals renegotiate their contracts.In late March, Coventry announced that it was terminating the ARH contract effective May 4. ARH sued Coventry in mid-April,alleging about $12 million had not been timely paid for services to Coventry’s members and asking the federal court for an injunction against termination.

Before Coventry responded to the lawsuit, however, Executive Vice President Timothy Nolan sent a letter to ARH’s president and chief executive officer, Jerry Haynes, in which he blamed the entire situation on Kentucky Governor Steve Beshear. Nolan contended that because state officials had insisted that Coventry could not develop an adequate network without ARH, the MCO agreed to pay ARH substantially more than the Medicaid fee-for-service rates. But the state had not held another MCO (presumably Centene/Kentucky Spirit, which never contracted with ARH) to the same requirement. Nolan also claimed the state refused to adjust the capitation rates to account for the higher costs of covering sicker beneficiaries, as the contract required.

Coventry says its members have more health conditions and use more services than the members of the other two plans. Because Coventry was the only plan to offer members prescription drugs without any copayments, House Speaker Greg Stumbo says it should have expected to enroll members with more prescriptions. He questions Coventry’s good faith.

The court ordered Coventry to continue covering its members’ services at ARH for another 30 days. The parties then extended their agreement through June 30th. However, at the end of May, ARH and Coventry reportedly reached an impasse. According to the Harlan Daily Enterprise, state officials have encouraged members who want to continue using ARH to submit their requests to change plans by June 20 to complete processing in time. Coventry has offered to treat ARH as an out-of-network provider, which would allow it to pay less than the former Medicaid fee-for-service rate.

ARH contends that the standard Medicaid rate covers only 75 percent of its costs and that Coventry’s offer is lower still. According to the Lexington Herald Leader, rate appeals by ARH and other hospitals have been pending since October 2007, but the state has not addressed the issue.

Coventry also had notified King’s Daughters Medical Center in Ashland, Kentucky that its contract would be terminated as of May 26, 2012. It later agreed to continue covering KDMC’s services through June 30, 2012. On May 31, the hospital announced major layoffs.