Please ensure Javascript is enabled for purposes of website accessibility

Picking the lock on HMOs’ ‘black box’

Paul Demko//February 4, 2011

Picking the lock on HMOs’ ‘black box’

Paul Demko//February 4, 2011

 Peter Bartz-Gallagher)
Dave Feinwachs, who was fired in November as the general counsel for the Minnesota Hospital Association, has become a full-time crusader for more transparency and accountability from HMOs, which receive about $3 billion a year from the state to run health plans serving Minnesota’s poorest residents. (Staff photo: Peter Bartz-Gallagher)

As HMOs seek a bigger share of Minnesota’s health care business, former Minnesota Hospital Association attorney Dave Feinwachs leads a charge to see how they are spending the money

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. (Citing privacy concerns, the hospital association would not discuss Feinwachs’ employment history.)

But if the hope was that Feinwachs would slink away quietly, he has certainly disappointed. Unemployment has only turned him into a full-time crusader. He has presented his views to groups like the Minnesota Nurses Association and TakeAction Minnesota, met with numerous legislators and courted the news media. His 30-minute PowerPoint presentation has been viewed roughly 3,000 times on That’s not exactly “Pants on the Ground” popularity, but it is impressive for a wonky lecture on health care policy. In December, KSTP-TV (Channel 5) aired a segment on HMOs titled “Billions in State Taxpayer Money Spent in Shroud of Mystery” that featured Feinwachs.

“I will give my talk to anyone who wants to listen to it, including people who want to throw eggs and tomatoes,” Feinwachs said in a recent interview at the Capitol cafeteria. “I feel fortunate that there are people who want to hear and want to listen and still have an interest in it. I have time on my hands.”

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.

Committee appearance Tuesday

So far, Feinwachs’ crusade has been a back-burner issue at the Capitol. Legislation addressing what he refers to as Minnesota’s “$3 billion black box” has yet to make any progress in the House or Senate this session.

“Obviously, I’m now an outsider,” said Feinwachs, who has a doctorate in health services administration from the University of Minnesota, along with two master’s degrees in related fields. “I no longer have a constituency. The simple and sad fact is that in this place, if you don’t represent a constituency, a lot of what you have to say won’t be taken too seriously.”

But that may change soon. On Tuesday Feinwachs is slated to testify before the House’s Health and Human Services Finance Committee, chaired by Rep. Jim Abeler. He has also developed some impassioned allies, including the Minnesota Nurses Association and Arc of Minnesota, which advocates on behalf of disabled people. Legislators on both sides of the aisle readily profess to agree that there should be greater transparency in how HMOs spend $3 billion in taxpayer money each year.

Abeler says it is vital to examine the spending in light of the state’s $6.2 billion deficit. The issue “has certainly got legs, and I think people are very interested,” Abeler said. “Is it enough to solve the deficit? No, of course not. But is it prudent to look at every dollar we spend to make sure we’re getting value? Absolutely.”

Larry Hosch, DFL-St. Joseph, a member of both of the House’s health and human services committees, plans to introduce legislation as soon as next week to address the issue, although he declined to reveal specifics.

“Getting greater transparency and understanding of how we spend $3 billion, trying to find out if there’s savings that can be had in that area, is something that we have to consider,” Hosch said. “Everybody else has received cuts. Nursing homes, disability services, long-term-care services have gotten cuts. But managed care really hasn’t.”

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.

“What’s 16 percent of $3 billion?” he asks. “It’s a lot of money.”

To be more precise, it works out to $480 million a year.

A brick wall

At the close of Feinwachs’ 30-minute PowerPoint presentation on HMOs, he lays out several broad legislative changes that he believes should be made to make the organizations more accountable. First of all, he wants the health insurance plans to be required to open their books and provide a detailed accounting of exactly how the $3 billion in annual revenue is spent and how much goes toward administrative costs. In addition, he wants the state government to have the authority to regularly audit the health plans to make sure that their financial figures are legitimate.

Another reform he is pushing involves the establishment of “medical-loss ratios” for the health plans. This would cap the percentage of money that HMOs would be permitted to use for nonmedical services like administrative costs.

“In the past, when Minnesota was financially flush, we could afford the luxury of not paying attention,” Feinwachs says in the video presentation. “With our current financial crisis, and no end in sight, we can no longer afford that luxury. … We have never, ever accepted the argument that transparency and accountability should not occur because they are inconvenient for the people we seek to monitor and regulate.”

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.”

Feinwachs believes the state’s mammoth deficit makes the current legislative session a prime opportunity to scrutinize the issue. In the past, Sen. John Marty, the liberal DFLer from Roseville, has been the staunchest critic of HMOs and the lack of transparency. But Feinwachs believes that it is a topic that will resonate with the fiscally conservative Republican majorities in the House and Senate, who have vowed to balance the state’s books without increasing taxes. He points out that last month, Wisconsin’s Republican-controlled Legislature ordered a comprehensive audit of the state’s Medicaid program.

“For the Republicans, the notion of spending this kind of money blindly is unacceptable,” Feinwachs said. “These are people turning over sofa cushions looking for change, and this is billions of dollars.”

On Tuesday, Feinwachs paid a visit to Rep. Joe Hoppe, R-Chaska, chairman of the House’s Commerce and Regulatory Reform Committee. He was joined by David Kunz, a lobbyist with the Minnesota Chiropractic Association. The presence of Kunz is likely the only reason Feinwachs was granted an audience. The pair had cooled their heels outside Hoppe’s office for more than an hour waiting for some face time with the busy chairman.

Feinwachs’ presentation was somewhat bewildering, as he jumped from the notion of the $3 billion black box to medical-loss ratios to a recent Wall Street Journal article on health plan profits. After about five minutes, Hoppe halted him with a question: “What’s in it for you guys?”

Only at that point did Feinwachs explain that he spent three decades as general counsel to the Minnesota Hospital Association. “I got fired from that job a couple months ago because of this,” Feinwachs said. “These are not questions that people like to address. These are not politically correct questions.”

This seemingly got Hoppe’s attention. But he professed a lack of expertise on health care issues, suggesting that they take up the issue with Abeler. By the end of the 15-minute chat, however, Hoppe was at least intrigued by the notion of untapped millions of dollars that could be used to help solve the state’s budget problems. Then again, who wouldn’t be?

“This is interesting,” Hoppe said, in closing. “I don’t have the answer, but I have questions.”

High stakes for HMOs

Feinwachs’ allegations come at a time when HMOs are making a push to further expand the clientele they serve through state-funded programs.

At midday last Monday, disability advocates filled Room 181 of the State Office Building to register their outrage over a 37-page report titled Minnesota’s Healthcare Imperative, which provides a blueprint for trimming nearly $2 billion from the state’s budget deficit through changes in health care services. It was put together by seven health care plans and hospitals, including Fairview Health Services, Medica and HealthPartners. Among the recommendations: $150 million in increased taxes on tobacco, alcohol and soda, and $55 million in savings from reducing hospital admissions by 5 percent.

But the proposal that spurred Monday’s news conference is a plan to transfer disabled individuals – who currently receive health care through a fee-for-service model – into managed care plans similar to those available to most other poor residents of the state. The health care groups estimate that the change would save up to $300 million in the next biennium. It would also potentially add 100,000 or more individuals to the plans overseen by HMOs.

“Expanded managed care enrollment can slow Medicaid cost growth, provide more efficient service delivery, and promote high-quality integrated systems of care,” the report said. “Moreover, managed care also offers greater budget predictability compared to fee-for-service.”

That argument did not sit well with disability advocates, who responded to the proposal with howls of protest. They invoked fears of disabled individuals being forced to return en masse to state institutions because they would no longer be able to get the health care services they require to function independently.

At the news conference, Steve Larson, who is co-chairman of the Minnesota Consortium for Citizens with Disabilities, ceremoniously tossed a copy of the report into a trash can. To close the gathering, disability advocates sang a bowdlerized version of “Don’t Cry for Me Argentina,” with lyrics lampooning the health care organizations that had compiled the report.

“We’re appalled at this report because they had no interaction whatsoever with representatives of the disability community, as far as a meeting or anything else,” Larson said in an interview. “They’re scaring the hell out of persons with disabilities.”

Larson and other disability advocates acknowledge that the current system is expensive and financially unsustainable given the state’s budget straits. But they argue that reforms to the fee-for-service program, like better coordinated care, are a safer route to rein in costs. “We believe that individuals with disabilities can be wise spenders of the dollars available to them,” Larson said. “We have a number of ideas that we’d like to share as the legislative session unfolds here.”

Some health care lobbyists think that the doomsday rhetoric is out of line, noting that disability rights advocates have long argued that such individuals should be treated the same as the rest of society. “If managed care kills people, how come I’m still alive?” scoffed one veteran Capitol observer.

Another aspect of the proposal put forth by hospitals and health plans – consolidating the state’s health care intake workers – has drawn strong criticism from organized labor. The plan estimates that eliminating redundancies in the enrollment system for the state’s various plans could reduce labor costs by 30 percent and save $15 million in the next biennium.

Eliot Seide, executive director of AFSCME Council 5, which represents many intake workers at both the state and county level, points out that roughly 330 people would lose their jobs under such a scenario.

“HMOs are notorious for denying health care to people,” Seide said. “The workers they want to cut help people gain access to health care. … If the health plans are really intent on cutting costs, they should have to reveal their bloated administrative fees and cut them.”

Reaction to the plan from legislators has been guarded. They generally laud the health care organizations for coming up with potential solutions to the state’s budget crisis. With a $6.2 billion hole to fill, all ideas are welcome. But few express enthusiasm for moving the state’s disabled residents into managed-care programs. In large part, the reluctance stems from the lack of information available about existing publicly funded programs run by HMOs.

“I’m very nervous about that in terms of quality and the flexibility that some of the disabled people need,” Abeler said. “I don’t know that the HMOs have a great track record in saving money or producing great quality improvements, because so much of that information is proprietary. So we don’t know how they’re doing. I’m nervous to give them a blank check to serve another few hundred thousand people.”

Rep. Erin Murphy, a key Democrat on health care issues, is only slightly more optimistic about the viability of the proposal. “I think it’s worth exploring,” she said, “but I would want to make sure that making that change will yield a good health outcome for the disabled community if they were enrolled in managed care. I would want proof that they would get a better standard of care.”

The seven health care organizations that put forth the plan are not speaking publicly about the criticisms. Calls to them were referred to the public relations firm of Padilla Speer Beardsley, which they have hired to handle media requests. In response to an inquiry from Capitol Report, the firm issued a statement about the plan.

“Health care providers and plans developed the Healthcare Imperative document as a resource for the new administration and Legislature to use as they address the state’s publicly funded health care programs in light of the budget deficit,” the statement reads. “Although many of the ideas are not new, some will be met with resistance. We firmly believe that the five opportunity areas in this document, if taken as a package, could improve access, affordability and quality of health care for all Minnesotans, including – and especially – those now served by publicly funded programs.”

Top News

See All Top News

Legal calendar

Click here to see upcoming Minnesota events

Expert Testimony

See All Expert Testimony