State Governors Elect Not to Implement Parts of PPACA

After the United States Supreme Court’s ruling last week that states cannot be forced to expand their Medicaid programs to receive federal funding, states are given the tough decision to make whether they will indeed expand their Medicaid rolls as suggested by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148).

Thus far, five states have made it clear that as a result of last week’s decision, they do not plan to expand their Medicaid programs: Florida, South Carolina, Louisiana, Mississippi and Wisconsin.

All of those five states, which have Republican governors, participated in the lawsuit against the bill, which was the subject of last week’s ruling. In addition, six states have publicly raised doubt as to whether they will participate: Iowa, Missouri, Nebraska, Nevada, New Jersey and Texas. Currently, only ten states have affirmatively pledged to participate in Medicaid expansion, which leaves nearly two-thirds of the states in question.

Wisconsin Governor, Scott Walker issued a statement on the same day the Supreme Court released their decision on PPACA, indicating, “Wisconsin will not take any action to implement ObamaCare.” (Obama Care is a casual term commonly used to refer to PPACA and its provisions.) Walker emphasized his concerns that the bill would cost his state’s tax payers to “pay more money for less healthcare” and that both quality of and access to care would be reduced under the bill. He expressed his hope that this year’s elections would ultimately result in the repeal of the bill at a federal level.

Governor Bobby Jindall of Louisiana announced that his state will not be expanding its Medicaid program in response to PPACA; nor will it be setting up private health insurance exchanges called for by the bill. Under the provisions of PPACA, if Louisiana or any other state fails to establish a fully operable exchange by January 1, 2014, the federal government will implement an exchange for that state. Jindall agreed that reform of the health care system is necessary, but that an “expensive, unsustainable entitlement program is not the solution to our problems.”

In Florida, Governor Rick Scott similarly announced that his state will neither set up exchanges nor expand its Medicaid rolls to comply with PPACA. Approximately 20 percent of Florida residents are uninsured, however, Scott pointed out that it would cost Florida taxpayers $1.9 billion to add those residents to the Medicaid program. He raised concern over the rapidly increasing Medicaid program in the state, which he said is growing “three and a half times as fast as Florida’s general revenue.”

South Carolina Governor Nikki Haley declared that her state will opt out of expanding its Medicaid program and that block grants, which offer flexibility to states as to how they will use the money, offer the best solution to state-specific problems. She referred to PPACA’s changes as a “broken system that further ties our hands.”

Lt. Governor Tate Reeves of Mississippi “is not inclined to drastically expand Medicaid” as called for by PPACA. He explained that such an expansion, which would add nearly 400,000 residents to the program, would cost the state nearly $1.7 billion over ten years. He maintained that “(t)rue health care reform should look at reducing costs for services not increasing the burden on taxpayers.”

Medicaid Whistleblower Leads to $137.5 Million Settlement

Tampa-based managed care company WellCare Health Plans, Inc. recently agreed to pay $137.5 million to settle allegations of fraud and other abuses, the Justice Department announced. The federal government will share the proceeds of the settlement with nine states: Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio. The for-profit company served about 2.6 million Medicaid beneficiaries as of August 2011. The four relators who brought whistleblower suits against the company will receive about $25 million.

The alleged fraud, which the company has not admitted, included:

  • inflated reports of the amounts spent on medical care to avoid returning funds to state agencies
  • retention of overpayments
  • operation of a sham special investigation unit
  • cooperating with providers who overbilled for services
  • falsification of records of patients’ medical condition and treatments provided and
  • manipulation of grades of service in reports on the performance of its call center

The company also allegedly violated federal marketing requirements for Medicaid managed care organizations by “cherrypicking” potential members to keep costs down. It was reported that WellCare performed a study of its costs for certain patients and then encouraged patients to disenroll to shift the cost of their care to state Medicaid agencies. A relator who worked undercover to assist in the federal investigation alleged that the company dropped premature infants and terminally ill patients. Arguing that the company’s actions cost the government between $400 and $600 million, the relator initially objected to the settlement; he disbelieved the company’s claim that it could not possibly afford more than $137.5 million.

In 2009, the company paid $80 million—$40 million in restitution and forfeiture of another $40 million—and entered into a Deferred Prosecution Agreement for fraud against the Florida Medicaid program. Thus, according to DOJ, its total recovery against WellCare will exceed $200 million. And if the company is acquired or there is a change of control in the next three years, the company will have to pay an additional $35 million. In April, 2011, the company entered into a corporate integrity agreement with the HHS Office of Inspector General to come into compliance with the law.

In 2009, in a related enforcement action by the Securities and Exchange Commission (SEC), WellCare agreed to pay $10 million to the SEC and return another $1 million in profits. Top-level executives, including the former general counsel, were prosecuted for fraud. One pleaded guilty in 2007; three others are scheduled for trial in 2013. SEC brought a civil suit against the three in January 2012.

In 2011, the company also settled a class action brought by investors alleging misrepresentations in violation of federal securities laws. The $200 million settlement is to be paid with $87.5 million in cash and $112.5 million in bonds. As with the DOJ settlement, if the company is acquired or experiences a change in control within three years of the agreement, it must pay another $25 million.

Florida Health News reports that resolution of its legal difficulties makes WellCare an attractive target for a buyout. Because many states are moving toward mandatory managed care, there are many opportunities to grow its business. One analyst says that the company’s revenue could double. If the Supreme Court upholds the Affordable Care Act, the expansion of Medicaid eligibility will make contracts with Medicaid agencies even more valuable.

Even while the settlement was on hold, the company picked up a contract with the Kentucky Medicaid agency, which began in the fall of 2011. Problems with the roll-out of Kentucky’s managed care program were discussed in an earlier post.

Competition for those Medicaid managed care contracts is fierce. States usually must use competitive bidding. Bidders and their affiliates make large campaign contributions to state officials. In Missouri, Centene donated $50,000 to the governor’s campaign in the two years preceding the contract award and $175,000 to the Democratic governors Association. Centene is based in Missouri but did not have a Medicaid contract previously; Molina, which lost despite 16 years of managed care contracts with the state, sued and asked the court to enjoin the state’s open enrollment, set for April 19, 2012. The case is being litigated at this writing.

According to the Chicago Tribune, in November, 2005, WellCare and its affiliates contributed a total of $100,000 to the reelection campaign of then-Governor Rod Blagojevich. The local affiliate had given him $25,000 earlier in the year.

 According to the Orlando Sentinel, three Medicaid HMOs— Humana, United and WellCare—were among the top 100 spenders for lobbying the Florida legislature in 2011. Humana spent more than $300,000. United and WellCare each spent an amount in the mid-210’s. In addition, the Florida Association of Health Plans, which seeks to influence Medicaid policy, among other issues, spent more than $300,000 on lobbying. Blue Cross Blue Shield, which isn’t a Florida Medicaid contractor but plans to bid, spent just under $300,000.

All the money that any plan spends on fines, unlawful remuneration, campaign contributions or lobbying isn’t going to pay for health care. It’s not paying for quality review, patient education, or even upgrading electronic health record systems. Could these facts be related to the findings of the study described in an earlier post, showing poorer health outcomes for beneficiaries in publicly traded Medicaid managed care organizations?

HHS Deems Insurance Premium Hikes in 9 States Excessive

HHS Secretary Kathleen Sebelius has announced that health insurance premium increases in nine states are “unreasonable” under the rate review authority granted by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which requires insurance companies to justify rate increases of 10 percent or higher.

The announcement was made after HHS determined, based on independent expert review, that two insurance companies have proposed unreasonable health insurance premium increases in Arizona, Idaho, Louisiana, Missouri, Montana, Nebraska, Virginia, Wisconsin, and Wyoming. The rate hikes would affect over 42,000 residents across these nine states. Sebelius has called upon these companies to immediately rescind their unreasonable rate hikes, issue refunds to consumers or publicly explain their refusal to do so.

New rate review report issued by HHS

Sebelius also released a new rate review report showing that, six months after HHS began reviewing proposed health insurance rate increases, health insurers have proposed fewer double-digit rate increases and states have begun to take an active role in reducing rate increases. In fact, since March 10, 2012, the justifications and analysis of 186 double-digit rate increases for plans covering 1.3 million people have been posted at HealthCare.gov, resulting in a decline in rate increases. In the last quarter of 2011 alone, according to the report, states have reported that premium increases dropped by 4.5 percent, and in states like Nevada, premiums actually declined.

In these nine states, the insurers have requested rate increases as high as 24 percent. HHS has deemed these increases unreasonable because the insurer would be spending a low percentage of premium dollars on actual medical care and quality improvements and because the justifications of the insurers for the premium increases were based on unreasonable assumptions.

It should be noted that most rates are reviewed by states and many states have the authority to reject unreasonable premium increases. In addition, since the passage of PPACA, the number of states with this authority has increased from 30 to 37, with several states extending existing “prior authority to new markets. The HHS report also shows that:

• Texas, Kentucky, Nevada and Indiana are reporting fewer requests for rate increases over 10 percent;

• California, New York, Oregon, and many others, have proactively lowered rate increases for their residents; and

• the rate review program has made insurance companies explain their increases, and more than 180 have been posted publicly and are open for consumer comment.

Michigan, Missouri High Courts to Examine Caps on Noneconomic Damages

Is it constitutional to place a cap on noneconomic damages in a medical malpractice case? If not, how should that cap be calculated when one of multiple defendants settles prior to the trial?

These are questions soon to be decided by the Supreme Courts in Michigan and Missouri.

In the Missouri case of Sanders v. Ahmed, the plaintiff contends that the state’s noneconomic damages cap, which lowered a jury award of $9.2 million to $1.2 million, is in violation of the state’s constitution. The plaintiff’s attorney claims that the cap denies a plaintiff’s right to receive the “full and intended” effect of a jury’s determination of damages. However, counsel for the defendant argues that the constitutional right to a trial by jury does not translate into a right to a jury award, but a right to have a jury determine the case’s facts and make a judgment.

In Velez v. Tuma, the cap itself is not being challenged, but the method of calculating damages when a plaintiff receives a jury award as well as a pretrial settlement from a joint tortfeasor. In Velez, the jury awarded the plaintiff $1.4 million in noneconomic damages, which was reduced by the judge to $394,200 in compliance with the state’s cap. The defendant physician argues that the award should also have been offset by the $195,000 settlement that the plaintiff received from two other hospital defendants prior to trial. The physician’s position is supported by the American Medical Association, which is filing an amicus curiae brief.

The issue of caps on noneconomic damages has already been litigated in Illinois, where the state’s Supreme Court found a cap to violate the separation of powers between the judicial and legislative branches by limiting the ability of a judge to award damages. The court stated, “It is the province of the court system to determine damages and not the prerogative of the legislature to require judges to reduce damages to a predetermined level.”

Agreeing with the court’s rationale, the President of the American Bar Association, Carolyn B. Lamm stated that research showed that it is inappropriate to adopt statutory limits in medical malpractice compensation because “courts have inherent power to increase or reduce verdicts if they are…excessive or…inadequate.” However, one justice dissented, contending that the judiciary’s function is not to make law, but to utilize it to achieve justice and that the legislature’s function is to formulate “statutory solutions to social problems.”

Many believe that reining in jury awards in medical malpractice cases will lower medical malpractice insurance premiums, which had become so high in Illinois that physicians were allegedly leaving the state to practice. According to the American Medical Association, after the cap was passed in Illinois, liability costs stabilized, insurance competition increased, and more specialists were attracted to shortage areas. Only time will tell whether this progress will become undone as a result of the Lebron decision.

Do you believe that legislative caps on noneconomic damages are necessary for tort reform? Do they violate the concept of separation of powers?

Sanders v. Ahmed, Mo. Cir. Ct., Case No. 0516-CV12867, September 28, 2010.

Velez v. Tuma, Mich. Ct. App., Doc. No. 281136, April 16, 2009.