The Medicaid Money Machine: Is it creating a corporate criminal culture?

The link between well-publicized Medicaid cuts, state budget deficits, criminal Medicaid fraud and the corporate penetration of Medicaid (and Medicare) has gone largely unnoticed. There are further correlations between corporate expansion into Medicaid, and November’s congressional races where Republicans ousted sitting Democrats with the help of more than $54 million in “outside” contributions.  Eighty-five percent of those funds were spent in states with corporate Medicaid operations owned by one of six companies.

Forty-one of these turnovers (or 61%) were in states with pending or recent federal investigations into either criminal Medicaid fraud or violations of the civil right of people with disabilities not to be segregated into institutions.

Eight companies in Florida were recently ordered to pay the state back $6.8 million in Medicaid funds.  As best I can tell, they all retained their contracts.  One Florida-based company, Wellcare, paid Florida $80 million in May 2009 for Medicaid fraud and this summer tried to settle a criminal fraud whistleblower suit in Florida for another $137 million.  Wellcare’s third quarter 2010 Medicaid revenues were up five percent even though Medicaid membership was down one percent.

Florida’s new Republican governor was the co-founder and CEO of a healthcare company that pled guilty to criminal fraud charges during his tenure.  This still holds a national record for the largest Medicare settlement, paying more than $1.7 billion in fines, damages and penalties.

Is there a growing criminal corporate culture where defrauding state and Federal governments isn’t just accepted, it’s rewarded with more contracts?

If there is, it’s a culture that threatens to tear apart families at their very core, taking children from their parents, and grandparents from their children.

Who is buying Medicaid

As of September 30, 2010, more than eleven million people on Medicaid were receiving their medical care through state contracts with just six publicly traded corporations. In the previous fifteen months, corporate penetration into Medicaid for “the six” was up eleven percent while Medicaid revenue shot up twenty percent.

UnitedHealth Group, Amerigroup, Wellpoint, Wellcare, Centene and Molina (“the six”) together control almost twenty percent of the national Medicaid market. The six received a total of $19.6 billion in the third quarter of 2010 from states and the Federal government for policyholders on Medicaid or Medicare.

Market-share leader UnitedHealth (with 3.235 million Medicaid policyholders) experienced a 20% increase in Medicaid enrollment between June 30, 2009 and September 30, 2010, at the same time that commercial membership was stagnant. During the same period, the company’s gross Medicaid revenue increased 35%, and total net earnings were up 49%.

Amerigroup, 99% of whose membership is Medicaid, commented in their 2009 SEC filing that just a single state contract (with Texas) “represented approximately 25.0% of premium revenues and a significantly higher percentage of our net income.”

Wellcare’s small group contract in Hawaii represents less than two percent of the company’s total Medicaid membership but generated 18% of their Medicaid revenues, as of June 30, 2009. New rate increases went into effect in July 1 2010 per the company third quarter 2010 SEC filing, which the company credited for having “improved the stability of the program.”

UnitedHealth’s Hawaii program represents less than one percent of the corporation’s Medicaid enrollees but generates almost six percent of its Medicaid revenue.

The Medicaid market is obviously lucrative.  In order to understand why it is so profitable we have to understand the new Medicaid math.

The New Medicaid Math

Back in the old days, before Medicaid became privately owned, states paid the bills for people enrolled in Medicaid as they came in.  The state Medicaid apparatus created lots of local jobs, but the point was that that bills paid were actual bills incurred.

That is not how it works now.

Over the past years, the insurance companies have sold the states on the idea that hiring them will save the states money in both the long and short term.  They will provide managed, coordinated care, for which the state will pay them on an individually calculated flat per capita rate.

These “per person per month” rates can range anywhere from a few hundred dollars to as high as $30,000 per person per month (for a medically fragile child).  They are called “capitation payments” since they are based per capita. The insurance company receives the cumulative total of all those individually allocated amounts once a month.  It comes as a check from the state, but at least two-thirds of that money represents Federal stimulus funds that were given to the state to pay for increased Medicaid costs.

Medicare capitation checks come directly from the Federal government (CMS) and can range $3,000 to $5,000 per month per person easily.

The issue that makes these capitation payments a political hot potato is how much of each individually calculated fee paid by the state actually needs to be spent on that particular policyholder’s medical care.

The Medical Loss Ratio

The Medical Loss Ratio, also known as the Medical Benefits Ratio or the Health Benefits Ratio, is the percent of the monthly insurance premium that is actually spent on health benefits for the policyholder.  Companies report their MLRs to the SEC as a consolidated company-wide average.

Part of the Affordable Care Act was a requirement that MLRs be calculated per individual policyholder. If a certain limit is not met, the company would have to reimburse the policyholder the difference.

In late November DHHS released potential regulations to implement minimum MLRs of 80% for small commercial groups, and 85% for large commercial groups.  Last May, an Oppenheimer analyst had already calculated that if these regulations had been in effect in 2009, UnitedHealth alone would have owed commercial policyholders $867 million in rebates.

The Oppenheimer study looked at state insurance records as well as SEC filings.   They found that average MLRs differed widely across the country:  two different Wellpoint subsidiaries in Colorado spent only 33.2 percent and 53 percent respectively on actual patient care.  A UnitedHealth program had an average MLR of about 63 percent.

In July 2010, it was reported that UnitedHealth, Wellpoint, Aetna, Cigna and Humana were talking about bankrolling upcoming elections to the tune of about $20 million. 

Overall, the insurers are expected to focus on swaying about two dozen close House contests, says one source. The insurers’ goal will be to help elect members who can be allies in the all important regulatory writing process now underway to implement key parts of the health care legislation that was signed into law earlier this year.

The issue of the MLR, whether those 80 and 85% figures will hold or slide, and what the insurance companies will be allowed to count in calculating those figures, is part of what they were paying to influence.

It Gets Worse

All the hubbub right now over the MLR is focused on commercial policies.  States can set their own MLRs in Medicaid service contracts, and federal regulators assume that the states are monitoring their corporate partners for compliance.  This may be premature.

For instance, Florida required Medicaid contractors for a single behavioral health program to have an MLR of 80%.  Audits found the highest MLR at any of the eight contractors (including Amerigroup and Humana) was 66% at Humana.

Reading the whistleblower report filed by a former Wellcare employee helps to connect the dots between capitation payments, MLRs and criminal Medicaid fraud.

Sean Hellein’s False Claims Act complaint was filed against eight companies, including Wellcare, UnitedHealth, Amerigroup and Humana. It details how the companies “cooperate with each other by consciously making the same false claims” to state Medicaid offices.  Hellein told a reporter that “each uses a different technique for hiding the overcharges to make it harder for the state to catch on”.

Hellein’s complaint was also filed in Illinois, Indiana, Louisiana, New York, Georgia and Hawaii, where, according to Hellein, similar criminal Medicaid fraud schemes are being perpetrated by the named companies.  When Wellcare floated the idea of the $137 million settlement, Hellein said the actual damages were closer to $400-600 million.

Controlling Congress is going to help keep that issue under wraps as well.

Who are the victims

In 2009, seventy-two percent of people enrolled in Medicaid were there because they had special health needs due either to age or disability.  Forty-eight percent alone, more than 31 million, were children.  Just under fifteen percent (9.5 million) were on Medicaid because their disabilities are too severe to enable them to care for themselves.

The growing trend over the past year has been for states to “carve out” Medicaid coverage for their “aged, blind and disabled” (ABD) population, and put it out to bid for private contractors.  As far back as May 2009 at least forty states were considering moving their ABD populations into contracts to be auctioned off to the lowest bidders.

These are the juiciest of all the Medicaid contracts, where capitation rates can range as high as $30,000 a month for a medically fragile child.  The child’s only option is to be institutionalized in a hospital, which will likely cost the state closer to $50,000 a month.  A good percentage of that $30,000 every month goes to creating local jobs for the personal care assistants, CNAs and skilled nurses who care for the child so she can remain at home with her family.

The problem is that the child’s nursing cost $30,000 a month before the contract was turned into a profit stream.  In order for the company to maintain its standard 80%-odd MLR, it must cut the child’s services by twenty percent.

In plain English:  If a state has a Medicaid pie of $1 billion, and they turn that pie over to any one of the six companies I’ve focused on, the pie is still the same size.  It’s just that now at least seventeen percent has been subtracted to cover corporate profits.

I mentioned earlier that the six companies received $19.6 billion between July and September 2010 from state governments and CMS to cover Medicaid and Medicare policyholders.

Reporting average MLRs ranging from 80.1 % to 86.9% translates into at least $3.3 billion skimmed off the top as operating profit in that three-month period.

That $1.1 billion a month came from cutting services.  (Cutting services also means cutting local jobs, but I have not found good figures on that yet).

Anything the company may skim by reporting false expenditures is just the frosting on the cake.

Why this is tearing families apart at their core

One of the new Republican congressmen from Florida recently told NPR that “we can't focus on building the bureaucratic nanny state if we're going to pull out of this debt and deficit.”  He went on to recommend the “free market, free enterprise solutions that we can look to reform our health care system.”

Florida’s “free market, free enterprise solutions” to Medicaid are apparently riddled with criminal fraud, and have been for years.

As for the concept that we are a “nanny state”, as the parent of a child with severe disabilities I am highly incensed.

We are talking a “nanny state” where sick children, disabled children of all ages and the elderly are given the medical assistance they need to be able to live at home with their families.  Only the extreme rich could ever hope to pay for these things themselves, and the alternative is to rip people from their families and herd them into institutions.  There the government would pay even more for their upkeep, but at least we would not have a “nanny state.”

Hawaii’s ABD population was turned over to a “free enterprise” solution in February 2009.  The death rate increased 35% in the first year after UnitedHealth and Wellcare replaced our “nanny state.”

In fact, Hawaii’s Medicaid program has been under federal criminal investigation in one form or another since the fall of 2009.  The Department of Health recently admitted to Medicaid fraud in their Developmental Disability Division.  Rumor has it that Hawaii Medicaid bureaucrats actually ordained they were above federal law last year, so they wouldn’t have to keep track of complaints filed against UnitedHealth and Wellcare.

Hawaii’s former Director of the Department of Human Services, Lillian Koller, was instrumental in helping former Republican Governor Linda Lingle fashion Hawaii’s free enterprise solution to the nanny state.  She has now gone to work for South Carolina’s new Republican governor.  South Carolina recently auctioned off its Medicaid disability and children’s health contracts to Centene.

South Carolina is one of only two states (the other being Tennessee) that already had 100% of its Medicaid population enrolled in capitated payment type programs.

And so the culture of criminal Medicaid fraud spreads insidiously, with no one paying real attention.  As the House tries to vote away healthcare reform next week, we can watch as any form of control over this rampant corporate greed at any cost is legislated away.