Legislators voice dismay over management of state’s Medicaid rates

Scott Leitz, assistant commissioner for health care. (Staff photo: Peter Bartz-Gallagher)

David Mosley has more than two decades of experience scrutinizing public health programs at the state and federal level. In all of that time, he’s never encountered a state that did not collect paid claims data to provide a basis for setting its Medicaid rates.

Without that financial data, Mosley indicated in testimony Wednesday before a joint hearing of the House Health and Human Services Policy and Finance committees, it would be extremely difficult for the state to determine whether it’s getting a fair return on the money it sends to managed care organizations. But from 2003 to 2011, the Minnesota Department of Human Services failed to collect this vital information.

“Relying on self-reported pay data for a 10-year period seems unreasonable,” Mosley told legislators. “In our review of the MCO contracts, it appears that DHS could have had information and should have had this information each and every year.”

Mosley was part of a trio of experts who presented the findings of the Segal Company’s audit of the state’s Medicaid rates that was released at the end of March. The lack of paid claims data on which to set the rates for the $8 billion-per-year program was the most troubling finding of the probe. (Read the entire audit here.)

Mosley is not the only person who has determined that Minnesota was fairly unique in failing to collect this financial data. A 2011 report by Mathematica Policy Research looked at data collection practices by nine states that rely on managed care organizations to run their Medicaid programs. The conclusion: Minnesota was the only state that failed to collect paid claims data. (See the table on page 10 of the Mathematica report.)

The Segal audit also determined that the state had overpaid the health plans — primarily Blue Cross Blue Shield of Minnesota, HealthPartners, UCare and Medica — by more than $200 million over the course of a decade. If potential investment income is taken into account, that figure grows by another $127 million.

Those excessive profits were made possible by increases in Medicaid payments that defied reasonable expectations. The Segal auditors determined that rates increased by 6 to 11 percent annually. By contrast, programs of similar size across the country (Georgia and Tennessee are cited as examples in the audit) saw annual increases in the range of 2 to 4 percent.

In addition, the Segal auditors concluded that the state — whether intentionally or not — subsidized its General Assistance Medical Care Program with federal Medicaid dollars.  “They had profitable programs that were offset by unprofitable programs,” said Kenneth Vieira, who led the Segal company’s audit, at Wednesday’s hearing. That’s problematic because GAMC, which was eliminated by then-Gov. Tim Pawlenty in 2010, was a state-only program.

This cross-subsidization was previously revealed in correspondence relating to UCare’s decision to return $30 million in Medicaid dollars. “Historically, DHS rates set for General Assistant Medical Care resulted in health plan losses which were offset by higher Medical Assistance payments,” wrote UCare president Nancy Feldman in March, 2011. “When GAMC moved out of managed care in mid-year 2010, Medical Assistance rates were not lowered to reflect this overpayment.” (Medical Assistance is the name for Minnesota’s Medicaid program.)

Department of Human Services Assistant Commissioner Scott Leitz told legislators that they have overhauled the process for setting Medicaid rates in recent years. Most significantly, he said that the agency began collecting paid claims information in 2011. But in part because of errors found in that financial data, the agency will not be able to incorporate it into the rate-setting process until 2014.

“DHS for many, many years has collected encounter data,” Leitz said. “What was never collected before was paid data related to the encounters. We began that process in 2011 shortly after taking office.”

Legislators from both parties expressed dismay that the state had failed to collect fundamental financial data on a program that’s equivalent to 20 percent of the state’s general fund budget for so many years. “The HMOs did everything they were required, ultimately, but the state allowed them to self-report,” said Rep. Glenn Gruenhagen, R-Glencoe. “To me it’s the state that has a lot of fault by not making requirements when they’ve seen these trends.”

Rep. Dan Schoen, DFL-St. Paul Park, was even more pointed in his criticism. He suggested that the health plans should be on the hook for returning excessive profits to the state. “I’m flabbergasted,” Schoen said. “There’s some people who should be ashamed.”