"Government-Run Health Insurance" Run by Corporations? - Two Medicaid Examples

In the US, there seems to have been a constant argument between right- and left-wingers over "government-run" health insurance.  The right tends to disparage all aspects of "government-run" health care, and in the case of insurance, uses the alleged faults of the two big US government health insurance programs as examples.  (Medicare is a federal government health insurance program for the elderly and disabled. Medicaid is federal-state program for the poor.) 

For example, per the Associated Press via BusinessWeek, from a currently prominent Republican hopeful for President, former Minnesota Governor Tim Pawlenty,

The former Minnesota governor was the latest politician to participate in the Health Policy Grand Rounds program that Dartmouth-Hitchcock Medical Center has organized for its staff during the past two presidential campaign cycles. Using Medicare and Medicaid as examples, he criticized the notion that government-run health care will produce efficiency and said the answer lies in empowering consumers.

Republican Congressman Darrell Issa (California) wrote in 2010:

an expansion of the federal bureaucracy at that rate will greatly increase the incidence of waste, fraud and abuse in health care. Already Medicare, which accounts for 14% of all federal spending, is rife with waste, fraud and abuse. Even Attorney General Eric Holder has said, 'By all accounts, every year we lose tens of billions of dollars in Medicare and Medicaid funds to fraud.'

A recent analysis by the Government Accountability Office (GAO) estimated that federal subsidy programs cost taxpayers about $100 billion every year in improper payments, with Medicare and Medicaid accounting for more than half of that.

The left may advocate for government-run, "single-payer" insurance programs, perhaps using the alleged benefits of Medicare and Medicaid as examples.

Scholarly articles about health care policy may refer to Medicaid as a government "single-payer" system.  (For example, see: Robinson JC. The commercial health insurance industry in an era of eroding employer coverage. Health Aff 2006; 25:1475-1486. Link here.)

In any case, I suspect most of us think of Medicaid as an example of "government-run" health care insurance, regardless of whether we believe that is a good or a bad thing.

Yet the reality may be more complex. Two recent stories, one a follow-up on an old Health Care Renewal post, provide some dots to connect.

Connecticut HUSKY Medicaid Program

In 2007, we posted about how the state of Connecticut was going to end participation in the HUSKY state Medicaid program for poor children by four insurance companies/ managed care organizations.  They apparently refused to provide information about payments to physicians and denial of payments for prescription drugs to the state.  The two largest organizations involved were Anthem Health Plans (a subsidiary of WellPoint), and Health Net.  At the time, we noted that this case provided an example of the lack of transparency exhibited by major health organizations.

Late last year, the Connecticut Mirror documented more criticism of the HUSKY program based on a report that showed that participating companies were making big profits from it (but perhaps not from other state Medicaid programs): 

The three managed care companies in the state's HUSKY insurance program for low-income children and families recorded profits of $18.8 million last year, according to figures released by the state Department of Social Services.

In one part of HUSKY, the insurers made margins of at least 20 percent and spent less than 72 percent of their revenues on medical care.

The figures released this month drew criticism from members of the Medicaid Care Management Oversight Council, who are in the midst of considering moving HUSKY out of managed care.

In more detail, the relevant numbers were:

AmeriChoice, part of UnitedHealthcare, spent 62 percent of its revenue on medical care and posted a 22.9 percent profit margin in the HUSKY B program.

By contrast, the federal health reform law sets minimum medical care ratios for insurers of 80 percent or 85 percent, depending on the type of plan. The provision does not apply to Medicaid plans, but was cited as a benchmark in the council's discussion.

None of the insurers met those benchmarks in HUSKY B, which covers children whose family income does not qualify for Medicaid. Last year, it covered between 13,000 and 16,000 children, many whose families earned below 300 percent of the federal poverty level.

Aetna spent 70.5 percent on medical care and made a 20 percent margin, while Community Health Network of Connecticut, a non-profit with far more enrollees than the other insurers, spent 71.8 percent of its revenues on medical care and made a 20.6 percent margin.

Margins were lower, and medical care ratios higher, in HUSKY A, a Medicaid program that enrolled as many as 358,088 children and adults in 2009.

Community Health Network reported a 95.1 percent medical care ratio and a -0.3 percent margin. AmeriChoice spent 86.3 percent of its revenue on medical care and achieved a 3.5 percent margin, while Aetna had an 83.9 percent medical care ratio and 6.5 percent margin.

Overall, the medical care ratio was 90.7 percent for both HUSKY programs and all three insurers. The overall margin was 2.3 percent.

The insurers involved defended themselves by noting to participate in HUSKY they also had to participate in another program, Charter Oak Health Plan, "on which they lose money."

Last month, it looked to be the end of managed care in these Medicaid programs, again as reported by the Connecticut Mirror:

The Malloy administration announced plans Tuesday to move the HUSKY and Charter Oak health programs out of managed care and increase care coordination in the state's other Medicaid programs, an effort officials said would save money while giving the state more control over health programs that serve more than 500,000 people.

This article also noted:

In the current system, the state pays three managed care companies set fees for each HUSKY and Charter Oak member every month, and the companies use the money to pay medical claims. Critics say it gives the managed care companies an incentive to deny care since they get to keep the money not spent on medical costs.

So let us deal directly with the cognitive dissonance generated by these articles. In the ongoing US health reform debate, Medicaid is usually discussed as a "government-run" health care (insurance) program. Yet these news articles from Connecticut suggest at least in that state, part of Medicaid was out-sourced to mostly large, national, for-profit health insurance companies/ managed care organizations. Furthermore, as noted just above, these corporations seemed to be mainly calling the shots in how their part of Medicaid was run. So is this "government-run" health care (insurance)?

But wait, there is more....

Minnesota Medicaid Controversy

Last month, the Politics in Minnesota web-site ran a report on an unlikely reformer:

Dave Feinwachs is no stranger to the Capitol.

For three decades he was the general counsel to the Minnesota Hospital Association. In that capacity, he negotiated with state agencies and testified regularly before legislative committees on health care issues.

But early last year, Feinwachs said, he was ordered by his superiors at the hospital association not to provide any further testimony at the Capitol. The reason for the muzzle: his vocal insistence that health maintenance organizations (HMOs) should contribute money to help salvage the state�s General Assistance Medical Care program for indigent adults.

Feinwachs says he abided by the prohibition on testimony before legislative committees, but apparently it was not enough to keep him in the good graces of his employer. In November he was fired as the group�s principal attorney. Feinwachs will not discuss the reason for his termination, citing potential litigation. But it almost certainly had something to do with his ongoing zealous campaign to force greater transparency and accountability on the state�s HMOs - primarily Blue Cross & Blue Shield, HealthPartners, Medica and UCare - which receive roughly $3 billion annually to run health plans for many of the state�s poorest residents.

So here we go again. This article suggested that Minnesota had out-sourced a very large part of its Medicaid program.

Furthermore, it also appears that the state government knows little about what happens to the money it hands over:

In the next two years, Minnesota is slated to funnel about $6 billion to the state�s HMOs to provide health care for 550,000 of the state�s poorest residents. To put that figure in perspective, it is nearly 20 percent of the state�s expected 2012-13 general fund revenues - and nearly identical to the state�s projected $6.2 billion deficit. In coming up with a solution to Minnesota�s financial crisis, Feinwachs and others believe, legislators must at least have a clear accounting of this massive pot of health care dollars.

HMOs, meanwhile, are not exactly yearning for scrutiny, especially as they launch a pitch to administer even more of the state�s health care spending.

In addition, there is reason to believe that Minnesota may be paying a significant amount for administration:

Feinwachs believes that the administrative overhead collected by HMOs could be in the neighborhood of 16 percent. He concedes, however, that this is no more than a 'guesstimate' pieced together from the limited information that is publicly available.

Then, there is reason to suspect that the private (and nominally not-for-profit) HMOs that Minnesota pays to run Medicaid have resisted accounting for how the money they got was spent:

Past attempts to bolster accountability and transparency for HMOs have largely run into a brick wall. For instance, when legislators considered requiring the health plans to chip in on a plan to restore the General Assistance Medical Care program last year, they were told by officials from the Department of Human Services that such a move would be illegal. Efforts to provide more financial disclosure have been rebuffed by the argument that such information is proprietary and not subject to the state�s data practices rules. The complexity of Minnesota�s patchwork of publicly funded health care plans, which very few individuals clearly understand, has also helped forestall changes.

'We can�t let the complexity of data and information beat us down, and I think that�s what happened in the years past,' Hosch said. 'The systems almost seem like they�re deliberately complex in order to confuse us.'

Apparently in these parlous financial times, Mr Feinwachs got some attention. Last week, the state Governor announced his willingness to dig into the results of the state's out-sourcing of Medicaid, per the Minneapolis Star-Tribune:

It's high time that Minnesota started treating its nonprofit health plans for what they are -- some of state government's largest vendors.

Reforms announced this week by Gov. Mark Dayton's office are a promising first step toward scrutinizing health plan contracts for savings and finding new ways to rein in Minnesota's soaring medical costs.

Managing care for more than 500,000 low-income, disabled and elderly Minnesotans enrolled in state public health programs is a $3.1 billion-a-year business for health plans in Minnesota, with the state and federal government jointly footing the bill.

Over the past decade, the state's portion of this outsourced care has increased from 5 percent to 11 percent of the state budget, according to Dayton's office.

The state also has more than 249,000 people -- typically the sickest of the sick -- in a fee-for-service public program. That spending is also ripe for a cost-savings review.

On Wednesday, Dayton announced plans to do what good business leaders do in difficult financial circumstances. His administration is going to start driving harder bargains with health plans.

Key parts of the plan include making the contracting system more competitive, making financial information more transparent, and doing deeper auditing of plans' books to analyze administrative and medical expenses.

So again in Minnesota, it appeared that the state had out-sourced a large proportion of its Medicaid program, covering apparently two-thirds of the state's Medicaid patients. It appears that knowledge of the out-sourcing of most of Medicaid was relatively anechoic, and that even the state's former Governor Pawlenty was unaware of it (see his comments in introduction to this post). Despite the amounts of money and the numbers of people involved, up to now the state government had apparently very little information about how billions of dollars were being spent by private, albeit nominally non-profit health insurance companies/ managed care organizations.

Summary

Two cases from two states suggest that some proportion of Medicaid, perhaps a very large proportion, has been out-sourced to private corporations, both nominally non-profit and for-profit.

In fact, a Washington Post article last year suggested that 70% of Medicaid patients are in managed care plans, most of which are likely out-sourced, not run by state Medicaid agencies.

Our two cases above further suggest that government officials may know little about how the money given to these corporations was spent, and how the corporations managed the supposedly "government-run" health insurance.

So much for the notion that the US Medicaid program is "government-run" health insurance.  Whether one believes that government bureaucrats are good or bad at running health care, it seems that most Medicaid patients' care is managed by corporate, not government bureaucrats.

The likelihood that a substantial proportion of Medicaid patients actually get their health care coverage from corporations, be that non-profit or for-profit, raises some important questions.
- What proportion of the government funds provided these corporations goes to health care versus administration, overhead, etc?
-  What then is the proportion of all Medicaid money spent on health care versus administration, overhead, etc at the federal, state, and corporate levels?
-  What proportion of the revenue of major health insurers/ managed care organizations actually comes from tax-payers via Medicaid?
-  To what extent do health insurers/ managed care organizations influence clinical care through their role implementing Medicaid?
-  How transparent are their finances and their implementation of Medicaid?
-  How well are they supervised and regulated by national and state government?

Meanwhile, it appears that there is far more overlap between government and corporate health insurance and managed care than most of us realized.  That suggests the usual debate between the foes and proponents of "government-run" health care (insurance) was vastly too simplistic.  Maybe some of those involved in the debate should have known that.   

Meanwhile, the concerns I discussed in 2002 that "health care has become dominated by large, bureaucratic organizations" appear increasingly well-founded.  This domination seems to be increasingly facilitated by collaboration - or should that be collusion? - among government and private bureaucracies.  The danger, as we have repeatedly discussed, is that the leaders of these bureaucracies may feel increasing loyalty to the managers' and executives' guild, and decreasing pressure not to fulfill their own and their cronies' self-interest.  We need at least to have some frank discussions about the increasing corporatism of health care and all of society, and what to do about it. 

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Pharmacia, or Maybe Pfizer Settles, Only Eight Years Later

Didn't somebody say "justice delayed is justice denied?"* 

Here is a story for a Friday afternoon, via a press release from the New York state Attorney General's office, per Bloomberg:

Attorney General Eric T. Schneiderman today announced a multimillion dollar settlement with a pharmaceutical company that inflated the cost of drugs sold to state health programs. The company, Pharmacia Corporation, has paid $2.5 million to the New York Medicaid program and to the Elderly Pharmaceutical Insurance Coverage Program (EPIC), and also to cover the costs of the investigation.

Here is more information about the lawsuit:

The lawsuit, filed in 2003, charged that Pharmacia failed to report real and accurate prices, and did not take into account discounts, rebates, chargebacks and other price concessions to their wholesalers. As a result, New York's Medicaid Program and the EPIC program paid more for certain drugs manufactured by Pharmacia than those state programs should have.

This is an unusual entrant into our march of legal settlements. As noted above, this lawsuit took eight years to settle. The entity that made the settlement, Pharmacia, is actually long gone as an independent company. It merged into Pfizer in 2003 (see this). Despite the eight years of waiting, the settlement is extremely paltry compared to the size of the company to which the settlement now applies. According to Google Finance, in 2010, Pfizer's annual revenues were more than $67 billion.

This settlement adds in a small way to a series of settlements Pfizer has recently made.  Pfizer paid a $2.3 billion settlement in 2009 (see post here), and three other major settlements from then to early 2010 (see post here).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).  For other discussions of Pfizer on Health Care Renewal, look here. 

The New York Attorney General's press release claimed, "These are hard financial times for our state, and my office will do its part by uncovering every dishonestly claimed dollar, and holding those who take advantage of New York accountable."  Begging his pardon, but could he really have been serious that nicking Pfizer for $2.5 million eight years after the lawsuit was filed is really holding this giant company accountable?  Will this settlement make the company any more accountable than all those that came before, some almost one thousand times bigger?  Meanwhile, as is usually the case in these stories about the march of legal settlements in health care, no person who authorized, directed or implemented the questionable activity apparently paid any penalty or suffered any sort of negative consequences.

This week, Matt Taibi asked "why isn't Wall Street in jail?" in the title of his most recent Rolling Stone article.  I should also ask, why aren't some leaders of pharmaceutical, device, biotechnology, and managed care corporations in jail? 

Just as the leaders of big financial service firms seem to be completely unaccountable for the havoc they created in the global economy, and despite bluster by various government officials, the leaders of big health care corporations seem to be completely unaccountable for the unethical behavior of their companies that continue to inflate the health care bubble.

So for the nth time I will repeat:  we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Meanwhile, the continued unwillingness of government leaders to take on corporate leaders suggests how corporatist the US has become. Government for the corporations, by the corporations, and of the corporations, bodes no good for the people whose rights are increasingly being displaced.

Mr Taibi encapsulated the problem in a more colorful way, and I will end with his version, somewhat edited for this family publication:

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

'Everything's f***ed up, and nobody goes to jail,' he said. 'That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that.'

* - the quote has been attributed to William Gladstone in a 1868 speech. but may be older than that (link here)

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Passport to ... Fraud? - AmeriHealth Mercy Settles

Back in November, 2010, we discussed the relatively opulent pay and perks given to and conflicts of interest affecting leaders of Passport Health Plan, a non-profit, state (Kentucky) supported Medicaid managed care organization/ health insurer.  This seemed to be another case of health care organizational insiders putting their personal gain ahead of their mission, which was particularly unseemly because their mission was serving the poor. 

Now Passport Health is in the news again, and not in a favorable way, as per the Louisville (Kentucky) Courier-Journal:

Passport Health Plan�s main contractor has agreed to pay more than $2 million in damages to the Kentucky Medicaid program to settle a fraud investigation, Attorney General Jack Conway announced Wednesday.

The settlement with AmeriHealth Mercy Plan is the result of a nine-month investigation by the Attorney General's Medicaid Fraud Unit into alleged falsification of records by the company that entitled it to more than $677,000 in bonus money for good performance.

Conway said the investigation centered on an allegation from a whistleblower that AmeriHealth falsely reported data to the state Medicaid Services Department on the number of Medicaid recipients who received cervical cancer screenings in 2009. The false numbers allowed AmeriHealth to receive the bonus money under the terms of its contract.

We have discussed a variety of cases of leaders of health care organizations getting compensation or benefits that seemed disproportionate in their organizations' context. The usual justification seems to be that it takes such rewards to attract the excellent leaders needed by health care organization.

Here is another example of leaders who not only seemed to get excessive compensation and benefits, but whose performance seemed far from excellent.

Moreover, it suggests that compensation and benefits may actually have an inverse correlation to performance. Organizations whose stewards seem unrealistic about the talents of their hired managers, and dependent on material rewards to retain such managers may lack good stewardship. Leaders who find themselves rewarded beyond any reasonable evaluation of their work may learn the lesson that they cannot ask for too much. Meanwhile, the excess of their rewards may inspire increasing greed rather than increasing devotion to the mission, while the pay and perks increasingly place them in a bubble that insulates from the concerns of the common people who their organizations are supposed to serve.

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

PS - Also note that this is also another example of the sort of legal settlements of misbehavior by health care organizations that seems to have little deterrent effect, mainly because no individual who authorized, directed or implemented the bad behavior suffers any negative consequences.  See our discussion in these previous posts.  True health care reform would also hold leaders accountable for their organizations' misdeeds.

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"Living High Life on Money to Treat the Poor"

Here is another story that has developed over the last week about questionable goings on at a not-for-profit health care organization.  The organization in question this time was the not-for-profit, but state government supported Medicaid managed care organization/ health insurer for the Louisville, Kentucky region.  The details came from a Louisville (Kentucky) Courier-Journal article about a state auditor's report on the Passport Health Plan:

The organization providing Medicaid services in Jefferson and surrounding counties has spent lavishly on such things as travel, meals, salaries, bonuses and lobbying in recent years, the state auditor�s office said in a report released Tuesday.

The scathing report, which Gov. Steve Beshear described as 'disheartening,' said two Passport Health Plan officials � Executive Vice President Shannon Turner and Associate Vice President Nici Gaines � were paid well, ate well and traveled extensively.

'Lodgings were often luxury spas and resorts,' the report said. 'The executives used limousine services and dined at expensive restaurants. While these types of expenditures may be routine for many private, for-profit companies, they should not be typical in nonprofit, health care organizations.'

The report also said Passport made extraordinary efforts to burnish its public image and gain political support by spending $1 million since 2007 on lobbying and public relations, as well as $423,000 in donations and sponsorships.

Many of the donations had no connection with health care, the report said � including $600 to sponsor a reception for the Senate Republican majority in 2009, $10,000 to sponsor an 'inflatable character' for the Kentucky Derby Festival's Pegasus Parade, and contributions to the Boy Scouts, Kentucky Opera, Volunteers of America and others.

Here are some more specifics about amounts spent:

Travel: Passport spent $106,722 on more than 36 trips including trips to conferences at resorts in New Orleans, Key West, Las Vegas, Seattle, Philadelphia, Tucson, Washington and Coeur d'Alene, Idaho.
Meals: Spent $72,994 on 753 meals for groups large and small. These were mostly at Louisville restaurants but included tabs at some famous restaurants outside Kentucky, such as Emeril's and Commander's Palace in New Orleans.
Limo services: Five uses of limos totaling $3,996.
Lobbying and public relations: Spent $1 million.
Donations and sponsorships: Spent $423,000, some with no connection to health care, including $10,000 to be an �Inflatable Character Sponsor� for the Kentucky Derby Festival.
Gifts: Spent $9,311 for 95 gifts, which included flowers and Christmas gifts.
Salaries: Paid salary and bonuses of $303,750 to Executive Vice President Shannon Turner and $156, 000 to Associate Vice President Nici Gaines in most recent year.

Here are more specifics about conflicts of interest:

Conflicts of interest: Both Turner and Gaines received additional compensation in contracts with subcontractor they were overseeing, AmeriHealth Mercy. Also, Larry Cook, Passport's chairman and CEO, had divided loyalties because he serves as an executive vice president of U of L. He also was reimbursed $1,717 by AmeriHealth for expenses for a trip to Ireland in 2007.
Grants: Many grants were made by Passport to groups with ties to staff and/or board members

The organization also was charged with distributing additional funds to area health providers based on their initial investment in the not-for-profit managed care organization, but not on the amount of care they were providing to Medicaid patients:

[State Senator Tim] Shaughnessy was particularly concerned about distributions of $10 million in excess funds in late 2008 and again in and 2009 to the large Jefferson County health-care providers that formed Passport.

These distributions were reported to the Kentucky Department of Insurance as grants to cover indigent care costs incurred by Passport's provider partners � University Medical Center, University Physician Associates, Norton Healthcare, Jewish Hospital and St. Mary's Healthcare, and the Louisville/Jefferson County Primary Care Association.

But the auditor�s report said the money was distributed based on the percentage of the providers' initial investments to create Passport � not the amount of indigent care they provided. And the report said this money was placed in the general funds of these providers 'rather than specifically set aside for uncompensated indigent care.'

Finally, it appears that Passport tried to block disclosure of important information, including the compensation of its executives, even though it is a not-for-profit organization entirely funded by the government:

Early this year The Courier-Journal filed a request under the state open records law seeking Passport records on compensation of its executives and minutes of its board meetings. But Passport refused to release them, claiming that the law did not apply.

The attorney general's office disagreed, saying that Passport is 100 percent publicly funded and must release the records. But Passport again refused and took the matter to Jefferson Circuit Court, where it is pending.

So again we have the same tiresome features of leaders who apparently regard their organization as their own personal sandbox: lavish compensation, given the context, luxuries supplied the leadership out of organizational funds, conflicts of interest that apparently increased further the leaders' personal gains, and attempts to keep the whole thing secret. As a Lexington (Kentucky) Herald-Leader editorial ("Living High Life on Money to Treat the Poor") noted, given the mission of the organization, this sort of sleaze is particularly unfortunate:

In one way, though, Passport's profligacy deserves special condemnation. Every dollar Passport executives spent on their own pleasurable pursuits, on lobbying to insure tax money kept flowing their way, on buying goodwill in the Louisville area or on any other unnecessary expense was a dollar taken away from providing Medicaid services to the most vulnerable, needy members of society.

This case resembles one we discussed previously, that of the non-profit community health agency in Florida whose leaders again seemed to regard their job as an opportunity for personal enrichment.  It seems that even leaders of non-profit organizations whose mission is to help the needy may seem to put their own needs before those of their disadvantaged constituents.  Of course, given they may have seen leaders of not-for-profit universities and hospital systems making millions, and leaders of for-profit pharmaceutical, device, and especially managed care organizations/ health insurers making tens of millions, and conclude that their six-figure salaries and occasional luxuries were barely adequate compensation.

As we have noted before, the "executives take all" mentality of an era economically dominated by financiers as aristocrats seems to have infected health care.  Somehow we have to restore the idea that executives and managers  like doctors and nurses, should regard their work as calling meant to put the needs of patients and public health first, rather than a quick way to get rich. 

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