Managed Medicaid

DCOIG: Medicaid MCOs Overpaid $96.6 Million; Changes Made for '08

Reprinted from the Aug. 2, 2007, issue of MEDICARE ADVANTAGE NEWS, biweekly news and analysis on the Medicare (and Medicaid) managed care programs.

The District of Columbia overpaid its three Medicaid managed care organizations (MCOs) by $96.6 million over five years for patient care, according to a July 18 report by the D.C. Office of Inspector General (DCOIG). The Department of Health's Medical Assistance Administration (MAA) is conducting audits of the MCOs' finances, and changes have been made for the 2008 contracts, according to an MAA spokesman.

The report says that AMERIGROUP Maryland, Inc. received the bulk of the excess payments with $74 million, while local firms D.C. Chartered Health Plan, Inc. and Health Right, Inc. were overpaid $17.5 million and $5.1 million, respectively.

MAA did not use patient encounter data to evaluate the extent to which MCO members used medical services, and the agency utilized a "one size fits all method of setting capitation rates," wrote Inspector General Charles Willoughby. In addition, MAA "fiscally mismanaged the MCO program" by not adjusting capitation rates to avoid excess profits, according to DCOIG.

None of the MCOs are accused of any wrongdoing, DCOIG Technical Director of Audits Salvatore Guli tells MAN.

The report adds that the actuarial method employed by MAA "used the total medical costs of three MCOs to develop a single base as the starting point for capitation rate development." That practice is flawed, the report alleges, because the District's actuary, Mercer Government Human Services Consulting, "assumed that all the patients of each of the MCOs use the same level of service and care."

Mercer defended its method of setting payment rates. "The rate setting methodology used in the District of Columbia is consistent with the methodology used in nearly every other state in the country, is approved by CMS and consistent with the American Academy of Actuaries guidance," wrote Mercer consultant Chip Carbone in a response to the report.

DCOIG also says that AMERIGROUP spent as little as 64% of its payment on patient care, compared with the 76% to 86% spent by D.C. Chartered Health Plan and Health Right.

AMERIGROUP spokesman Kent Jenkins, Jr. on July 20 did not address the report allegations directly, but told MAN that "we endeavor to be top-rated as the District asks us to do and in compliance with the letter and spirit of our contract.and the OIG report has not suggested otherwise."

D.C. Chartered Health Plan and Health Right did not respond to requests for comment.

The report recommends that the D.C. Department of Health pursue monetary repayment from the MCOs. There are no plans as of yet to ask the MCOs to return the excess payments, according to the agency.

No Terms in Pacts Define Excess Profits

D.C. Department of Health Director Gregg Pane, M.D., wrote in a response that there are no legal terms or conditions in the current MCO contracts that define minimum loss ratios or excess profits. However, he adds that "because MAA has been concerned about MCO profit levels, independent audits are being completed on the finances of each of the MCOs.…MAA will discuss the audit results with District legal staff and make a determination on what action to take when the audits are complete."

DCOIG also alleges that the District is in danger of losing federal approval and funding because it "has not complied with the federal requirement to use valid encounter data in the development of capitation rates." Pane disagreed in his response, stating that CMS has approved the District's use of financial data in determining capitation rates, and MAA reported to CMS its progress made on encounter-data collection.

The report has no effect on the District's 2008 Medicaid contracts, for which bids were due on July 25, according to MAA spokesperson Robert Maruca. "All of the things that were in the OIG report are items that we've been working on and have been corrected in the new contracts. There are no implications from that," he tells MAN.

Maruca would not elaborate on the specific changes, but according to the DCOIG report, MAA received encounter data to use in setting payment rates for the 2008 contracts, and it added a minimum medical loss ratio (MLR) requirement of 75%.

However, the report cautions that including an MLR requirement will not prevent the MCOs from making excess profits.

The District will choose between two and four MCOs for its new contracts by early September, Maruca says. The due date for bids has been pushed back two times because of questions proposed by bidders. "We're estimating the contracts will be ready to go the first of January - that's our target," he says.

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