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Since the beginning of February, at least 11 bills have been introduced with the purpose of providing greater accountability or reducing payments to the state's health maintenance organizations. Currently, the state's nonprofit health plans receive roughly $3 billion annually to provide coverage to more than 500,000 of the state's poorest residents.

One budget target emerges: HMOs

"I think that (HMOs have) had pretty free rein to call it their way.  We’re saying we want to know more about what's going on." -Greg Davids, chairman, House Taxes Committee

"I think that (HMOs have) had pretty free rein to call it their way. We’re saying we want to know more about what's going on." -Greg Davids, chairman, House Taxes Committee (Staff photo: Peter Bartz-Gallagher)

Pressure builds to  slash payments to health plans as part of HHS budget fix

Since the beginning of February, at least 11 bills have been introduced with the purpose of providing greater accountability or reducing payments to the state’s health maintenance organizations. Currently, the state’s nonprofit health plans receive roughly $3 billion annually to provide coverage to more than 500,000 of the state’s poorest residents.

The latest batch of proposals comes from House Taxes Chairman Greg Davids. The Preston Republican has introduced half a dozen bills directed at HMO reform. “This issue cuts across party lines,”  Davids said. “The HMOs are serving the entire state. I think that they’ve had pretty free rein to call it their way. We’re saying we want to know more about what’s going on.”

Here is a rundown of what Davids is proposing:

  • Profits for HMOs from administering state health plans would be limited to 6 percent. Any excess dollars would be returned to the state’s general fund. A similar measure passed the House last session but was ultimately dropped during conference committee.
  • HMOs would be required to have “medical loss ratios” of at least 90 percent. In other words, all but 10 percent of their state funds must be spent on providing medical care.
  • Health plans would have to keep segregated books for managed care plans and other health care programs.
  • Within 90 days after the end of each calendar year, HMOs would be required to provide detailed financial information, including a breakdown of administrative costs, to the health care providers that serve their clients. In addition, either health care providers or Medicaid enrollees would have the right to seek an audit of the health plans’ books.
  • HMOs would be required to use generally accepted accounting principles.

• Managed care plans would explicitly be subject to public records rules under the state’s Data Practices Act.

Davids says he is motivated to cut HMO costs in part by concerns about financially shaky nursing homes, which are crucial institutions in his rural district. “We’re spending billions and billions of dollars on this, and there seems to be very little accountability as to where that money’s going and what we’re getting for it,” Davids said.

But how much could such proposals potentially contribute to eliminating the state’s $5 billion budget deficit? No fiscal notes have been produced on any of the bills that have been introduced, so there are no hard dollar figures. But Davids believes that the 6 percent cap on HMO profits could return $300 million to the state’s coffers in the next biennium.

Similarly, Rep. Larry Hosch has introduced a bill that would provide a flat 15 percent cut in payments to HMOs beginning next year. He estimates that the change could save the state roughly $600 million in the next biennium. Hosch’s bill would require that HMOs keep separate financial books for public and private business and conduct annual cost-effectiveness audits.

“This bill isn’t meant to pick on anybody but is meant to live up to our obligations as policymakers to look at where our money’s going and to ask difficult questions,” Hosch said at a news conference laying out the proposal. “Hopefully, this will be a component of the end-of-session solution.”

Some HMO critics suggest that even more money could be shaved from the state’s managed care programs. Dave Feinwachs, the former general counsel of the Minnesota Hospital Association, argues that overhead charges are probably in the neighborhood of 16 percent. If that is true – and even Feinwachs acknowledges it is just an educated guess – that would mean nearly $1 billion per biennium is not being spent directly on medical care. (Feinwachs has filed a lawsuit against the Minnesota Council of Health Plans, an umbrella group for the state’s HMOs, alleging that staff members defamed his character and caused him to be fired.)

Officials with the Minnesota Council of Health Plans point out that managed care administrative expenses are already capped at 6.6 percent. In addition, Gov. Mark Dayton has proposed in his 2012-13 budget to further reduce that figure to 5.3 percent. The HMOs also point out that they already provide more than 200 reports to various government agencies about their financial and program activities.

But legislators concerned about the issue say that the sheer volume of paperwork does not necessarily add up to transparency, and that nobody can really determine whether they are meeting that 6.6 percent threshold. “It’s hard for us to know what they’re doing because so much of the data is private and proprietary for us right now,” said Rep. Erin Murphy, DFL-St. Paul, a co-sponsor of Hosch’s bill. “Making that information public will help us direct the care coordination.”

Minnesota is not alone in taking a hard look at HMOs and their stewardship of Medicaid programs recently. In 2009 Wisconsin renegotiated its contracts with HMOs, shaving $200 million off the cost. That included $26 million in reduced payments for administrative costs. It was part of a systemic, statewide overhaul of the state’s Medicaid program that cut expenditures by $625 million even while adding 41,000 individuals to the roles.

But Wisconsin legislators are still concerned about the skyrocketing costs of the health care program. In January, a joint House-Senate committee unanimously voted to mandate a comprehensive audit of the state’s Medicaid program, which has roughly 1 million enrollees, by the nonpartisan Legislative Audit Program.

In 2006 the Connecticut Freedom of Information Commission ruled that HMOs administering public health care plans are subject to the state’s public data rules. The reason: The health plans were paid more than $2.5 million annually to perform governmental functions.

The HMOs filed a lawsuit seeking to overturn the decision but lost in court. Rather than comply with the state’s public records laws, however, two of the health plans opted to drop out of the Medicaid program entirely.

“These were profitable businesses that decided [freedom of information] was just too much for them,” said Ellen Andrews, executive director of the Connecticut Health Policy Project. “They just didn’t want any sunlight.”

Last month Democratic Gov. Dannell Malloy’s office announced that it was scrapping its reliance on HMOs entirely. Instead, the state government is soliciting bids for enrolling its nearly 600,000 Medicaid recipients in a fee-for-service plan. According to Andrews, the change is expected to save the state $86 million annually. “It’s been coming for about 10 years, because the HMOs kept asking for more and more money and delivering less and less,” she said.

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One comment

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