Managed Medicaid

Conn. Orders End to Medicaid Managed Care, Citing Plans' Refusal to Comply With FOIA

Reprinted from the 11/29/07 issue of MEDICARE ADVANTAGE NEWS, biweekly news and analysis on the Medicare (and Medicaid) managed care programs.

In an unprecedented development, Connecticut Gov. M. Jodi Rell (R) on Nov. 16 ordered the termination of the state's four Medicaid contractors' managed care responsibilities because the two biggest of them refused to comply with a new state Freedom of Information Act (FOIA) requirement. Effective Dec. 1, the contractors' responsibilities will be limited to administrative services, depending on the outcome of ongoing negotiations with the state. The governor's move — affecting plan contracts that combined are worth more than $700 million in revenues annually — was announced even as the Connecticut Dept. of Social Services (DSS) prepares to issue a joint prospectus for two state health care programs by December. That prospectus is seeking plans interested in taking on uninsured adults in Connecticut's Charter Oak program set to begin July 1, 2008, as well as Medicaid recipients in the state's HUSKY mandatory capitated managed care program.

Plans have responded to the governor's action by stating that they want to ensure a smooth transition and uninterrupted services to their members over the holiday season — and also noting that Connecticut's Medicaid program is not a profitable business for them. A study by The Lewin Group in January 2007 found that the HUSKY plans performed effectively in terms of generating cost savings to the state. The Lewin researchers also cited program-wide operating margins for HUSKY plans of 0.2% in 2003, 0.5% in 2004 and negative 1.1% in 2005, below the national average operating gain of 2.4% for Medicaid managed care programs in those years.

In a Nov. 19 letter to the state legislature's leadership, Rell cited the ongoing refusal of the state's two largest Medicaid managed care organizations (MCOs), WellPoint's Anthem Blue Cross and Blue Shield in Connecticut, and Health Net, Inc., to comply with the state's FOIA law, "in keeping with my longstanding view of open and accountable government contracting." For this reason, Rell said that on Nov. 16 she directed Social Services Commissioner Michael Starkowski to terminate the current contract extension negotiations with Anthem, Health Net, WellCare Health Plans, Inc., and Community Health Network of Connecticut, Inc. regarding the provision of HUSKY managed care services.

Securities analyst Carl McDonald said the move "will obviously hurt revenue, but it will be accretive to earnings since the plans were consistently losing money in the state." By his calculations, the three publicly traded firms lost about $37 million in Connecticut in the first half of 2007. The absence of the loss should boost Health Net's earnings per share by about 10 cents, while WellPoint should gain 5 cents, he said. McDonald said his firm still expects growth in Medicaid managed care to continue to outpace growth in the overall Medicaid program, as has been the case since 1991, as more states turn to managed care in an effort to save money.

Rell said that the state spends more than $700 million annually on HUSKY services, "and it is only right to fully disclose how this money is spent." She asserted that Anthem and Health Net stated their willingness to drop HUSKY services with only 15 days' notice, which she described as "utterly deplorable" - a point disputed by the plans.

DSS to Take Control of Health Care Functions

The governor said she also directed Starkowski to take immediate action to relieve the four contractors of any health care decision-making responsibilities for the state's 325,000 HUSKY members (including about 229,000 children) by Dec. 1. During what she described as a period of transition, she said DSS will "take direct control of a range of health care functions traditionally done under contract by the MCOs, including coverage authorization and individual doctor payment amounts."

Rell stated that Starkowski is authorized to enter into a contract extension with the MCOs for what she described as "a substantially limited array of duties," such as membership services and other administrative duties, to ensure continuity of care from Dec. 1 until July 1, 2008. Rell said she anticipates a "new system of care" to be in place at that time as a result of the combined procurement of health services under the Charter Oak and HUSKY programs. She said compliance with the FOIA will be a "baseline requirement in this procurement."

WellPoint spokeswoman Leslie Porras told MAN Nov. 21 that Anthem negotiated for months in good faith in an effort to reach an agreement with the state. She said that Anthem gave the state a 60-day notice of its intent to allow the contract to expire on Nov. 30.

"At the end of the day, Anthem's decision to allow the current arrangement to end resulted from a dispute on a state requirement to sign an amendment relating to the Freedom of Information Act (FOIA) as proposed by the Department of Social Services (DSS)," Porras said. "The proposed FOIA amendment provides no protection for Anthem's proprietary information. Confidentiality provisions, which are also used by other health benefit plans, prevent the sharing of confidential information that would reduce competition in the marketplace and, in turn, could increase health care costs for members."

Porras indicated Nov. 21 that Anthem's talks with the state on managed care functions were continuing. "If Anthem and the state can agree to acceptable terms, this arrangement would allow us to continue serving our 142,000 HUSKY members; if not, we will work with the state on our appropriate transition plan for our HUSKY membership" beginning Dec. 1, she said.

Health Net spokeswoman Alice Ferreira told MAN Nov. 26 that the plan's response after it saw the governor's announcement was to respect the governor's decision and work with the department on a transition plan that won't interrupt services to its approximately 86,000 members. She said Health Net "always has given DSS all of the information that they request," but she contended that information should not be released to the general public because it is proprietary and keeps Health Net competitive with other plans. "We don't deny DSS..They can know about our provider fee schedule, how we pay our specific claims, what our administrative costs are..They are aware of how the money is spent and the detail of it," she said. "But the actual fee paid to the doctors is probably not of interest to the public, just the assurance that the money is well spent." Health Net's Medicaid contract in New Jersey does not contain a similar FOIA requirement, she noted.

DSS spokesman Dave Dearborn told MAN Nov. 9 that the state was awaiting and "pushing hard" for compliance from the participating Medicaid plans. At that point, only WellCare Health Plans, Inc., the Florida-based insurer at the heart of an ongoing federal investigation, had agreed to the state's contract and thus had been getting a 2% payment rate hike for the fiscal year that began July 1 compared with the previous fiscal year. WellCare's subsidiary has about 39,000 members in Connecticut.

"The state's announcement was tied to two other Medicaid health plans' refusal to sign the FOI amendment. The governor acknowledged that WellCare had already signed the FOI requirement more than a year ago. WellCare of Connecticut has begun the process of reviewing bid parameters for the contract that would begin July 1, 2008," WellCare spokesman John Aberg told MAN Nov. 21.

Cory Ludington, spokeswoman for Community Health Network of Connecticut, the only local Medicaid plan in Connecticut's program, told MAN Nov. 26 that the plan is negotiating with the state on providing administrative services for HUSKY members after Dec. 1. She noted that Community Health Network had signed an agreement Nov. 13 with the state on the FOIA requirement. Community Health Network, which is sponsored by seven federally qualified health centers, has slightly more than 61,000 HUSKY members, she said.

DSS's Dearborn said that the state elected to end the managed care responsibilities of all four Medicaid plans, even though WellCare and Community Health Network agreed to the FOIA requirement, because Anthem and Health Net have the bulk of the program's enrollment and the others could not rapidly absorb all those enrollees.

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