Hawaii's Medicaid money machine is a license to kill

Fourteen year old Mycal Johnston drowned from the fluid in his lungs on July 12 , 2009.  He had been discharged on June 24 from Oahu's Kapiolani Children's Hospital, with a prescription to fill at home for the one drug specialists had found that could control this life-threatening symptom of Mycal's cystic fibrosis.

The family lives in the Hawaiian Homelands on Molokai.  They took the prescription to the pharmacy, and Wellcare denied authorization.  The print-out received by the pharmacist on July 7 cites "prior authorization required" and "cost exceeds maximum" as the denial codes.

Prior authorization required Mycal to have a primary care physician.  Wellcare had never bothered to find him one on Molokai.  No primary physician, nobody to sign the forms that had to be submitted to Wellcare in order to get "prior authorization" for anything.  Meanwhile, Wellcare was receiving over $15,000 a month from the state for Mycal's care.

At the time of his death, Mycal's parents were trying to sell their truck in order to pay for the medication themselves.

In the first year after UnitedHealth and Wellcare took over Hawaii's Medicaid services for the elderly and disabled, the death rate rose 36%.  According to testimony presented at a hearing in March, the majority of deaths were due to the inability "to access services in time not to die."

A list of over 25 deaths in the first eight months after UnitedHealth and Wellcare took over is purportedly under investigation by the FBI. Mycal's is one of them, and the family was interviewed by the FBI only a few weeks ago.

A Mother's Day shooting in Honolulu was eventually tied to Wellcare's refusal to provide an enrollee with a doctor so that somebody could authorize his prescription medicine refills.  Sources tell me there have been at least two other similarly sourced crimes on Oahu.

While people are dying, UnitedHealth and Wellcare are taking home about $15 million a month in net revenue and profits.  That figure represents the difference between what Hawaii is paying them for taking care of our elderly and disabled, including children, and what they are actually spending on medical benefits.

The state, with the help of the media, has done a great "fog the mirror" job of deceiving the Hawaii public about the size of the contracts with UnitedHealth and Wellcare.  The phrase that was commonly used was the state was signing a $1.5 billion contract with the two companies.  In fact, the state signed one contract with UnitedHealth for about $1.3 billion and a second contract with Wellcare for another $1.2 billion.

Following the scheduled renegotiation of the capitation rates in October, the two companies are now jointly receiving about $2.3 million per day.  That comes to $840 million a year total (not the the $500 million a year figure that appeared in a recent Advertiser article).

According to their year-end financial reports, UnitedHealth typically spends about 82% of premiums on actual medical costs, and Wellcare reports paying out 86%.  On two contracts worth a total of $840 million a year, the savings realized from not spending the capitated payments they were receiving is about $117 million. This is in addition to the 3.0% guaranteed profit promised by Hawaii to Wellcare and UnitedHealth along with a five percent performance incentive.  That would be an additional $67.2 million a year in profits, or a total monthly take-home profit of over $15 million.

Since the Federal Government is currently reimbursing Hawaii for 67% of our Medicaid costs, then $10 million a month of that profit comes from federal funds, including stimulus money that could only be spent on Medicaid.

On March 25, Governor Linda Lingle asked the state legislature for an emergency $40 million in order to make the next months' Medicaid payments.  The Advertiser reported that the state spent about $100 million a month on Medicaid, and the $40 million from the state would be matched by $80 million from the federal government, and then they could pay the $100 million bill for April.

What the Advertiser did not mention was that seventy percent of that payment was going to only two of the companies:  UnitedHealth and Wellcare.

On May 6, the state called off its plan to save $8.8 million by closing welfare eligibility offices and laying off 228 public employees.

Prior to February 1, 2009, when Wellcare and UnitedHealth started their contracts with the state, the $15  million a month they take home in net income would have stayed here in Hawaii.  It would have provided medications and a doctor for Mycal, overnight care services for Erik Sorensen, and Martin Boegel's monthly prescriptions.  It would have paid for a lot of the state workers who have lost their jobs in order to make way for the "administrative" arm of the new insurance companies.

Hawaii is not the only state crying poor when it comes to making excuses for cutting Medicaid budgets.  On February 19, USA Today reported that "more than half the states are reducing Medicaid services and payments...this year as the recession propelled enrollments to record levels and sapped money from treasuries."  A May 20 article in the Wall Street Journal reported that

Across the country, budget-strapped states are focusing on Medicaid. Created in
1965, it is now a $379 billion program, including state and federal funds. State
spending grew an average 7.9% in fiscal 2009 as the economic crisis hit and more
people signed up for Medicaid.

What is being omitted from these stories is how much of that $379 billion contributed to the 56% rise in profits experienced by the health insurance industry in 2009.

As unemployment rises, commercial (employer-paid) enrollment in the health insurance companies is dropping.  The Medicaid market, however, is booming.  The top six managed care for-profit health insurance companies include two of the nation's largest insurers:  UnitedHealth and Wellpoint (the other four are Molina, Centene, Amerigroup and Wellcare).  All five of the top for-profit health insurance companies (UnitedHealth, Wellpoint, Cigna, Humana and Aetna) have entered into the Medicaid market, competing for state contracts.

A study released on March 25 summarized it by saying "increasingly more companies are showing interest in the Medicaid segment as a means of growing revenues."  Another article from April states the issue more bluntly:

The share of Medicaid recipients in managed care plans has risen from 56 percent to 71 percent in the past decade. That suggests states are seeing financial benefits from Medicaid HMOs. But the real attraction to states is that managed care helps them budget their Medicaid expenditures. If that budgeting was working so well — in other words, if it meant the states could drive hard bargains with private insurers — they wouldn’t be complaining that
Medicaid is eating up more and more of their revenues. And insurance companies wouldn’t be seeing Medicaid as the goose that promises to lay golden eggs.

In the case of Hawaii, there is no evidence to show that the state is saving any money from its contracts with UnitedHealth and Wellcare.  If the actuarial data Hawaii used in calculating its per person per month rates is corrected for the October 1 payment figures (the existing figures end immediately prior to the scheduled October rate increases), the numbers show that the per person per month plan was going to cost the state fifty-one percent more than the previous fee-for-service plan would have.   The January 2009 actuarial report instead reported the managed care plan would save the state 5.9% from the fee-for-service model.

On January 1, Wellcare ceased offering any Medicaid plans where they have to reimburse for actual costs incurred.  They are only offering plans where they can get a set payment per person per month, regardless of what they spend.  Wellpoint only offers Medicaid managed care plans, and I have yet to identify any UnitedHealth Medicaid plans that are not managed care.

A Medicaid system that pays the same amount per month per person regardless of actual expenditures is doomed to lead to decisions made on the basis of increasing net per person profit rather than meeting the individual's medical needs.  The Hawaii plan is cursed twice, however, by being authorized under Section 1115 of The Social Security Act rather than Section 1915.

Section 1115 and Section 1915(c) of The Social Security Act both give states the regulatory framework to provide in-home services to community members who are too incapacitated or disabled to live in their homes without these supports.  Both sets of programs allow family income and assets to be "waived", so that the individual with the chronic health need or disability is qualified on the basis of their own income and assets. The most significant difference between the two is how each calculates the "cost neutrality" component that the state must meet.

A Section 1915(c) Medicaid waiver program compares the average per person cost for home services with the average per person cost for institutional services.  Individual budgets can be flexible since it would be extremely unlikely for a single person to throw the overall average off.

For a Section 1115 Medicaid waiver program, the state must show that they are spending no more money with the waiver program than they would have if it did not exist. The budgetary cap is usually calculated either per person per month or per capita.  There is no room to accommodate medical emergencies or needs that are simply greater than originally imagined.  The individual's budget is under constant scrutiny for ways to minimize expenditures.

The combination of this "individual as profit center" approach with the natural instincts of the two for-profit companies managing Hawaii's program Is the source of the rising death rate amongst Hawaii's disabled and elderly.  Similar 1115 programs are in place or under development in Arizona, Florida, Illinois and Colorado.

The irony of the situation here in Hawaii is that UnitedHealth and Wellcare, in spite of record profits, continue to cry poor.  Federal regulators from CMS and OCR have been telling me since December that the companies were trying to get more money out of the state, or reduce what they had to cover.  That's where our battle over EPSDT has arisen here, as UnitedHealth and Wellcare are clearly responsible in their contracts for any EPSDT coverage but equally clearly did not intend to pay for any wide array of services. 

What keeps getting pushed to the side, if mentioned at all, in national stories about Medicaid cuts is the issue that these cuts can represent violations of the civil rights of people with disabilities.  Civil suits have been filed, heard or decided in twenty-one states since Obama's election.  Either the Department of Justice, the DHHS Office for Civil Rights or Federal Medicaid regulators (CMS) have openly intervened in at least eleven states with a combination of formal, informal and even criminal investigations into civil rights violations related to Medicaid cuts.

Nine of those eleven states use Medicaid managed care by a for-profit insurance company for their disability population.

UnitedHealth operates a managed care Medicaid program in 19 of the 21 states where lawsuits have been filed or heard.

All these numbers are "at least" since, with the exception of Hawaii, it is usually only possible to find out about these investigations after they are concluded and documentation shows up on the internet. It is a curious fact that the Department of Justice has publicly intervened in five states since December, citing civil rights violations against people with disabilities stemming from Medicaid cuts.

The Hawaii investigations would likely be completely secret right now if I had not been involved directly with CMS and OCR.  How many other states have similar ongoing investigations is unknown.

In Hawaii the investigations are centered on our managed care Medicaid plans run for the disabled.  All but two of the states where cuts have resulted in law suits have for-profit managed care for their Medicaid populations.

The states are in trouble over Medicaid, but how much of that trouble is directly related to the obscene profits being paid out to for-profit Medicaid insurance companies is incalculable.  Certainly here in Hawaii, the profits collected by UnitedHealth and Wellcare are enough to make up for the vast majority of cuts, and return state workers and home healthcare providers to their jobs.  If the plans are not only not saving the state money, but actually cost more than paying actual medical costs incurred, then why is Hawaii not ditching these two companies and keeping the money here?

The 1115 managed care plan was the brainchild of our current Governor and her team.  It does not speak well of how lives are prioritized against corporate profits in what used to be called "the Health State."