Obama's $1 trillion handout to big business insurers

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Federal hand-outs to the health insurance industry could top $1 trillion in the next five years. Between twenty and fifty percent of that will be saved off the top as net profit.

The handouts are not loans or grants or even tax breaks. They are the product of the Administration's policy supporting auctioning off state Medicaid and federal Medicare contracts to publicly traded, for profit health insurance corporations.

Based on SEC filings for the first three months of 2011, government payments to the top ten for-profit insurers were running around $10.9 billion a month, up ten percent just in the previous six months. Depending on how much fraud is going on, between $1.9 and $5.4 billion of that gets "saved" every month towards corporate profits by the company simply refusing to spend it.

Obama's willingness to concede to cuts in entitlements will probably have little influence on these payouts reaching $1 trillion in the next five years. The White House has given off too many signals in the past six months of its willingness to give private insurers a free hand in how they spend federal funds. The Administration has even gone so far as letting one company off the hook for criminal Medicaid fraud in nine states.

Just as slavery cloaked itself in the myth of the paternalistic landowner, the public war raging today over Medicaid and Medicare is using the myth of the undeserving poor to detract attention from the obscene private profits being generated with public funds.

In reality, the people whose lives are being affected the most are our country's fourteen million children and adults (including the elderly) with disabilities. Two-thirds of the nation's total Medicaid budget is allocated to paying for medical services to keep people with disabilities at home with their families, rather than shutting them up into institutions. More and more of that money is being paid out to companies more responsible to shareholders than policyholders.

What the President has auctioned off to big insurers is control over life and death of our society's most vulnerable citizens.

The new dandies of Wall Street

Ten health insurance companies control the private Medicaid/Medicare market. Four exist completely on public funding: Amerigroup, Centene, Molina and Wellcare. The other six (Aetna, Coventry, Health Net, Humana, Unitedhealth and Wellpoint) have been replacing lost corporate group business with new Medicaid and Medicare "managed care" policies.

Unitedhealth's quarterly net earnings (three-month profit before taxes) jumped from $505 million for April - June, 2008, to over $2.1 billion in the first three months of 2011. Quarterly commercial premiums were up by only $1 billion, but Medicaid/Medicare quarterly revenues were up by over $4 billion.

At Aetna, commercial revenue is down from 79% of total quarterly premiums to 74%. Its replacement with Medicaid/Medicare government funding, however, has accompanied a 22% increase in quarterly net earnings.

Among the ten, Medicaid membership is up 19%, and the mix of Medicaid and Medicare products is up 33%, from 27.7 million to 36 million policies. Both commercial membership and quarterly commercial revenues are down.

The relationship between the number of new Medicaid enrollees and the revenue they generate for the company is not a straight one to one ratio. Humana and Coventry both reported a loss in Medicaid membership at the same time as an increase in Medicaid revenue. Wellcare had a three percent increase in Medicaid membership generating a 14% increase in Medicaid revenues, and Unitedhealth and Amerigroup both showed almost a three-to-one ratio of Medicaid revenue growth to membership change.

In order to understand why Medicaid (and Medicare) contracts are so lucrative, it is best to start with what one writer has called the insurance industry's "dirty secret."


The "Patient Loss Ratio" and why it's important to Wall Street

When state Medicaid programs are carved up and auctioned off to the lowest bidder, they include a rate schedule used to determine a monthly payment per person. The insurer is paid a set amount per month per person, depending on how healthy the person is. For really healthy people, the insurer may get only $400 a month from the government; for a medically fragile child living in a rural area, the company may be getting paid $25,000 a month by the government.

For the publicly traded health insurers winning these contracts, profit derives from the simple difference between how much the government is paying to provide services for each covered individual, and how much the company spends on that person.

In the health industry, it's called the "Medical Loss Ratio": how much is actually spent per individual as a percentage of the total premium paid for that person. Since the term seems to imply that expenses are a corporate loss, the "Patient Loss Ratio" represents how much every policyholder under Medicaid and Medicare is losing of their budget to corporate profits.

For example, a medically fragile child in a rural area who is dependent on technology to breathe and eat might have a monthly budget of $25,000 to pay for equipment and care services at home. That's what the company is paid every month, and it is less than the state would pay if the child was institutionalized. When the company is reporting an MLR of 80%, it means the so-called "managed care plan" has cut twenty percent of the child's services. For instance, the child's life may now be endangered by the loss of 200 hours of home nursing services per month, and the community has lost 1.25 full-time jobs.

Minimum spending requirements for Medicaid contracts are virtually non-existent. In a single case in Florida where a contract required an 80% minimum, all eight insurers were found to have fraudulently padded medical expenses by fourteen to sixty percent (in other words, the patients were losing between 34% and 80% of their budgets to profits).

Non-profit health insurers and even for-profit corporations with US Military contracts report spending ninety-five cents out of every premium dollar on actual medical costs. Nevertheless, the Administration, in an extremely generous mood, tried to set minimum spending requirements of only 80-85% for commercial and Medicare policies through the Affordable Care Act. However, states were allowed to apply for (and are receiving) "waivers" as low as 70% on the basis the local insurance industry will be inconvenienced.


What Al Capone, the drug cartels and health insurers have in common

Money breeds crime. The more excessive the potential profits, the more pervasive is the crime.  And the analogy between health insurers and the heroine trade was made two years ago.

A whistleblower complaint against Wellcare, Amerigroup, Unitedhealth, Humana and others was unsealed last summer. Sean Hellein, an executive at Wellcare, wore a wire for 18 months as part of an FBI investigation into Medicaid fraud. This is a must-read for anyone who wants to understand how pervasive criminal Medicaid fraud is within the heath insurance industry. Some of the methods revealed included:

* inflating medical costs on 161,170 claims by 218% to 299%;
* bullying terminally ill patients and the mothers of medically fragile babies into disenrolling  ("cherrypicking");
* setting up a Cayman Islands reinsurance subsidiary to overpay themselves;
* cooperation between companies in false-billing practices, to reduce the chances of getting caught; and
* tricking federal regulatory computers into doublecounting expenses.

Hellein's testimony also reveals how incompetent state regulators are at catching Medicaid fraud. From mid-2005 to the date of the document, a Florida computer error awarded an estimated $16.8 million in overpayments for one program to Wellcare, Unitedhealth, Amerigroup, Humana and two other HMOs. Another error that was capitalized on was made by actuarial firm Milliman Consultants. The Milliman report mistakenly over-priced expenses for one program by $19.4 million over two years. Aware of the error, Wellcare fraudulently used the actuarial report to apply for (and receive) a rate increase.

In late April, 2011, Wellcare reached a settlement on criminal Medicaid fraud charges with nine states and the federal government. The White House apparently supported letting Wellcare off the hook by promising never to call them gangsters for what they had done, and not to hold their past gangster activities against them in future federal contract awards.

Would Fort Knox have hired Al Capone? As the mother of one of the millions of children victimized by this fraud, it feels tantamount to the President forcing me to hire a pedophile as a babysitter.


Federal and state funds diverted from medical care for  children and adults with disabilities can mean the difference between living at home with family, or being institutionalized; it can mean the difference between living surrounded by loved ones, and a slow, lonely and miserable death.

We need to look beyond the rhetoric on Medicaid and Medicare and pay attention to how our tax money is being spent. 

I've consolidated my document collection here. 

Abercrombie betrays public trust by pandering to big business health insurers

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My first career as a social anthropologist taught me a lesson that has stayed with me for almost forty years: what people do tells you a lot more than what people tell you they do. It is the difference between perception and reality, something that can be grotesquely distorted when enough money is spent.

Governor Abercrombie's action in signing SB 1274 yesterday is a good example of how this lesson applies to real life. Governor Abercrombie was elected, simply put, for his verbiage about helping Hawaii's children and most vulnerable citizens.

Questions began to arise in the disability community when the Governor's office released an ad for respite care that frivolized its purpose.

A swipe of the pen yesterday stripped 270,000 people of their right to an external appeal when their insurance carrier denies treatment ordered by a doctor. Last week's federally published regulation removed the entire purpose of SB 1274, which was to meet a July 1 deadine. The deadline was extended to the end of the year, with the feds saying they would let states know by the end of July if their current state programs needed any tweaking.

The action says more about the Governor than his words, because the only possible reason left for him to sign the bill was plain old pandering to big health insurance companies. They are tired of wasting corporate profits on lawyers defending the indefensible: cutting medical services just to cut costs. The fact it's the companies that keep losing these appeals is why Governor Abercrombie signed SB 1274.

It is the same sort of pandering to the same ten for-profit "pure-play and multiproduct plans" going on now in New Jersey, Florida, Texas, Georgia, New York, and thirty-five or so other states.

The Commonwealth Fund recently published an issue brief "Assessing the Financial Health of Medicaid Managed Care and Quality of Patient Care They Provide."

While the number of Medicaid members in publicly traded plans is still lower than the number in non–publicly traded plans, the total number in publicly traded plans has been increasing. From 2004 to 2009, the total Medicaid members enrolled in publicly traded plans rose from 5.6 million (32 percent of total Medicaid population) to 9.8 million members (41 percent of the total Medicaid members).

According to figures submitted to the SEC by the ten companies included in the Commonwealth study, that figure has grown fifty-one percent to 14.8 million as of March 31, 2011. All in all, about 40 million Americans with Medicaid, Medicare or Trinet (US military) are receiving their healthcare from publicly traded companies.

The rate at which Americans are being herded unknowingly into for-profit Medicaid managed care plans is growing faster than Medicaid membership itself. The DHHS 2010 Actuarial Report predicted a 5.6 increase in Medicaid membership between 2009 and 2010. Just in the six months between September 30, 2010 and March 30, 2011, Medicaid membership in for-profit companies grew ten percent. That ten percent growth in enrollment resulted in a thirty percent growth in Medicaid revenues to the same companies.

Couple that increase with the newly emerging White House position supporting the restriction of appeals rights for everyone on Medicaid, and the Republicans won't need to life a finger to destroy and privatize Medicaid. President Obama and compliant pro-big-business governors like Neil Abercrombie are doing the job for them.

The oddest part of all is that Nero is fiddling, Rome is burning, and the major media aren't noticing. Perhaps the very loud and boisterous Republican attack on Medicare has distracted them from the guerilla warfare launched against Medicaid.

Once more, it is an issue of perception versus reality.

Please sign our petition to stop this destruction of human rights.

Hawaii Governor unaware or unconcerned of federal investigations of DHS

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Governor Abercrombie's health policy analyst Michael Ng admitted yesterday the governor is unaware of any of the ongoing federal investigations targeting DHS and its administration of Medicaid and Medicare.

One of two things has happened: either the state's Medicaid bureaucrats have hidden the information from the governor; or the governor has adopted an ostrich position of what he doesn't know about he doesn't have to do anything about.

Specific federal investigations Ng denied knowledge of included the following:

* six investigations by the Office for Civil Rights, including two opened in May;

* CMS investigation of potential Medicare fraud at DHS;

* on-going personal visits and phone calls from federal regulatory officials;

* on-going federal regulatory violations by the health plans about which DHS is doing nothing.

Documentation was provided to Ng. It will be interesting to see if that gets to the Governor's desk.

The information came out at a meeting yesterday between Ng and a group composed of lawyers, social workers, nurses, and the children with disabilities and their families who will be hardest hit if the governor does not veto SB 1274. Parents were literally pleading for their children's lives if access to the state's independent insurance division appeals process is denied them.

Abercrombie's campaign website is still up, and his campaign promises for healthcare, civil rights and human services are there. The difference between what he said and the message of his failure to veto SB 1274 is striking.

Monday is the deadline and the state still has not asked the feds if they really need to repeal H.R.S. 432E-6 in order to meet federal Affordable Care Act requirements.

The unspoken link between the Republican war on Medicare and the privatization of Medicaid

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There is a strong link between the Republican war on Medicare, and the progressive privatization of Medicaid, and that is the primary beneficiaries of each: the Wall Street darlings of the health insurance industry.

Paul Krugman's piece yesterday in The New York Times describes the Republican vision of Medicare as Vouchercare, where private health insurers are paid a set fee every month per person. It would function similarly to the capitation contracts for Medicaid that these same private health insurers are gobbling up quietly across the country.

About $30 billion in Medicare and Medicaid funding was paid to nine corporate insurance companies in the first quarter of 2011, already well on the way to topping the 2010 total of $113 billion. According to published Medical Loss Ratios, more than $5 billion of that was skimmed off the top as operating profit: the difference between what the company is paid per person per month and what they actually spend on that person. With seven of the nine reporting lowered MLRs for 2010, that quarterly figure is also on the way to besting the 2010 published total of about $19.5 billion.

Unitedhealth is the leader of the pack financially. A five percent increase in Medicaid membership generated a twenty-three percent increase in Medicaid revenues just in the past six months.

Meanwhile, criminal fraud investigations have found several of these companies - Amerigroup, Humana, Wellcare and Unitedhealth in particular - artificially inflating MLRs. Florida is asking for millions of dollars to be returned, just from investigations that are already four or five years old. Wellcare, whose Medicaid/Medicare income grew nine percent in 1Q 2011 over the previous year, submitted a settlement agreement with nine states over Medicaid fraud in late April. A few days later they scooped up a new contract with one of the nine, Georgia.

The selling of Medicaid and Medicare to the private sector becomes particularly frightening in light of a recent amicus brief the Administration has submitted to the Supreme Court. Barring Medicaid beneficiaries access to the protections of federal civil rights laws can only produce an exponential growth in criminal Medicaid and Medicare fraud.

SB 1274 and the Governor's attitude towards insurance companies

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Civil Beat this morning published an interview they did with Governor Abercrombie on Friday. Abercrombie is somewhat fixated on AARP, and threatens to "roll over" them if they try to oppose his pension tax proposal next time. His biggest beef with the association is that they are just a front for insurance companies.

I responded, and since it has to do with SB 1274, I want to put my questions out to the public.

I'm floored by the incredible irony of Abercrombie's statement about AARP, that "This is when your special interest becomes a private interest at the expense of the public interest." AARP is bad because they are an insurance company, but that attitude apparently doesn't spare him from playing nicey-nice with actual insurance companies like Unitedhealth and Wellcare.

The governor is putting business with crooks ahead of the public interest. Florida is trying to recover millions in stolen Medicaid funds destined for children's programs from both companies.

But SB 1974 will accomplish nothing other than saving these two corporations potentially millions of dollars in legal fees. With no outside challenges to their medical decisions, they save the money on the services as well as the fees. When it looked like SB 1274 was going to be made retroactive, Rafael del Castillo calculated it would save Unitedhealth about $500,000 in legal fees, just for five months of case work.

The Office for Civil Rights at DHHS just opened at least its fifth investigation in Hawaii since February 2010. All five have been over Medicaid cuts in services to children with disabilities, cuts that put these children at risk of institutionalization. Two cases were closed with decisions in favor the children last summer. All of the cases involved either Evercare/Unitedhealth or Ohana/Wellcare.

Of course, the way Hawaii's contracts with Evercare and Ohana are written, they get a bigger capitation payment every month if the child is institutionalized.

Given Hawaii's role in the recent federal Medicaid fraud settlement with Wellcare, the Governor owes the public an explanation of how his office could support legislation that helps companies that hurt children. That, too, seems to exemplify "when your special interest becomes a private interest at the expense of the public interest."

Would you hire a pedophile as a babysitter? Why do we hire companies who hurt children and their families to provide them with this kind of care?

Hawaii's role in federal fraud settlement reveals possible double-dealing behind SB 1274

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On April 26, 2011, Hawaii was one of nine states signing a settlement agreement between Wellcare Health Plans and the Office of Inspector General of DHHS, Civil Divisions of the US Attorney's office, and every state where Wellcare currently does business.

According to the company's first quarter SEC filing, Wellcare gets their federal slate wiped clean in exchange for the $137 million settlement.

The United States and the Settling States agree to release us from any civil or administrative monetary claim under the False Claims Act and certain other legal theories for certain conduct that was at issue in their inquiries and the qui tam complaints. Likewise, in consideration of the obligations in the Federal Settlement Agreement and the Corporate Integrity Agreement (as described below under United States Department of Health and Human Services), OIG-HHS agrees to release and refrain from instituting, directing or maintaining any administrative action seeking to exclude us from Medicare, Medicaid and other federal health care programs.

When did anyone plan on telling the people in Hawaii that their Medicaid health insurer, the same one that benefits from segregating everyone on Medicaid into a guinea pig herd with no access to outside second opinions, is paying the state millions in exchange for not being convicted of criminal Medicaid fraud?

In practical terms, this means that Hawaii Governor Abercrombie has been negotiating silently for the past several months for Hawaii's share of a settlement deriving from accusations of criminal Medicaid fraud. SB 1274 came out of his office unexpectedly in January. At one time, Wellcare lawyers admitted to state legislators they had personally drafted a silent companion bill.

How much of a fraud settlement is Hawaii getting? An article out of Florida expects that state to receive $23 million.

While Wellcare reported their percentage rate increases in Florida and Georgia, they did not disclose the figure for Hawaii and New York premium increases.

The nine states that settled with Wellcare over criminal Medicaid fraud allegations are Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio. Wellcare currently operates Medicaid programs in all but two of those states, Connecticut and Indiana.

Also announced in the quarterly report,

On May 4, 2011, the Federal Court entered an order (the “Approval Order”) approving the Stipulation Agreement. As required by the Stipulation Agreement, in March 2011 the Company paid $52,500 into an escrow account for the benefit of the class. The Stipulation Agreement also provides, among other things, that the Company will make an additional cash payment to the class of $35,000 by July 31, 2011 (the “July 2011 Payment”). It also requires, among other things, that the Company issue to the class tradable unsecured subordinated notes having an aggregate face value of $112,500, with a fixed coupon of 6% and a maturity date of December 31, 2016. Additionally, the Company will be required to pay to the class an additional $25,000 if the Company experiences a change in control at a share price of $30 or more within three years of the date of the Stipulation Agreement.

Meanwhile, Wellcare's premium income in the first quarter (almost $1.5 billion, all of it federal/state Medicaid or Medicare funding) was up nine percent over the first quarter of 2010.

How much of a raise did Hawaii give Evercare and Ohana?

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Wellcare reported in their 2010 year-end SEC filing that the "Hawaii program rate increases, which we believe have improved the stability of the program, also were effective July 1, 2010."

The "also" referred to "net increases of approximately 2.5% to 3.0% in Florida effective September 1, 2010 and 1.5% to 2.0% in Georgia effective July 1, 2010."

The company directly blames its $254.3 million in litigation-related costs for 2010's net annual loss.

For the year ended December 31, 2010, the net loss was $53.4 million compared to $39.9 million of net income for the same period in 2009. Excluding investigation-related and litigation-resolution costs of $167.6 million and $86.7 million, net of tax, net income would have been $114.2 million and $126.6 million for the years ended December 31, 2010 and 2009, respectively.

Hawaii Senate Bill 1274, which is openly back by health insurance companies like Wellcare, UnitedHealthcare, HMSA and others, will help get Wellcare out from under some of those exhorbitant legal expenses.

My question is why are we allowing a state/federal contractor to divert $254,300,000 in taxpayer funds away from medical care to fighting federal allegations that the company is stealing from those same taxpayer funds?

It's taken since October 2007, but in March Florida finally issued federal indictments for Medicaid fraud against five former Wellcare employees. The investigation and indictments cover criminal fraudulent scheming and theft between 2003 and 2007.

According to the March 3, 2011 story from Associated Press in Florida, Wellcare, "which is one of the state's largest Medicaid providers, spent $2.4 million on political contributions in the 2004 and 2006 elections."

More than 95 percent of it went to Republicans, who pushed forward a nationally watched plan that funnels more state and federal Medicaid spending than ever through private companies, which profit most by providing the least care.

The fact the company still has legal expenses in the $254 million range would seem to imply other investigations are ongoing. Somewhere.

UnitedHealth testifies under oath losing money in Hawaii

David Heywood, Executive Director of UnitedHealth's Medicaid and Medicare operations in Hawaii, testified recently in federal court that the company "has been losing money."

Huh?

This is the same company whose Medicaid revenues exploded by 93% between June 2008 and September 2010, at the same time Medicaid membership only increased by 45%.

This is the same company that just reported fourth quarter 2010 profit up ten percent, and their annual profit for 2010 up 21%.

This is the same company that presumably received the state increase in capitation payments as Wellcare on July 1, 2010.

Perhaps UnitedHealth defines "losing money" differently than the rest of the world.

The federal court case in question had been narrowed down over time to the issue of whether or not UnitedHealth and Wellcare provided the elderly and people with disabilities with the same access to medical care as enjoyed by the rest of Hawaii's Medicaid program.  The two companies exclusively operate Hawaii's Medicaid program for the elderly and people with disabilities, called QExA.

The judge concluded his ruling with the comment that "plaintiffs have not established that the QExA program is in violation of any federal law."  Narrowing the focus of the case obviously had an impact on that issue, since it is well-known that UnitedHealth and Evercare, along with Hawaii's Medicaid office, have been under federal investigation for criminal fraud and violation of numerous federal laws since the fall of 2009.

How Hawaii's change from a "bureaucratic nanny state" to a Medicaid "free enterprise solution" victimized my daughter.

My eleven year old daughter's only alternative to living with me is an intensive care unit at a hospital.  Hannah has constant seizures when awake and asleep, any one of which can be life-threatening.  She can walk around but is partly blind from brain damage.  At home, she has learned her way around by the different colored walls.  In an intensive care unit at a hospital she would have to be confined in a five-sided crib (four sides plus the top) made of metal bars, so she can't get out and hurt herself.

On February 1, 2009, Hawaii changed from a "bureaucratic nanny state" to a "free enterprise solution" to Medicaid.  All forty-some thousand children and adults with disabilities, including the elderly, were forced to sign up for receiving their services from either UnitedHealth or Wellcare.  My daughter has been signed up with UnitedHealth since then.

Here is how the "free enterprise solution" has managed Hannah's care.  I am excerpting below from a complaint I filed with federal Medicaid regulators at CMS who have been investigating Hawaii's Medicaid program since the fall of 2009.

The dates in blue represent the commencement of the problem.  You'll see that some issues have dragged on for months with no notice of action (NOA) from Evercare as required by Federal law.  This would also apply to providers since they should be receiving NOAs for decreases (cuts) in services/Durable Medical Equipment/Medications.  This is not occurring.  NOAs provide the rights of the client and provider to appeal a decision, it also sets forth the decision for the denial.  For monitoring purposes by the State and reports to CMS, this insures that trends (denials/NOA) are reviewed to insure that denials are justified (not just denied and not paid for by the insurance company).  It also assists in detecting fraud by insurance companies (i.e. reporting services were provided when they were not for monthly capitation payments).  If Evercare denies with no NOA it is not reported to the State of Hawaii and therefore there is no oversight of the Health Plan.

The most recent case with Dr. Fink [Hawaii state Medicaid Administrator] is an example of lack of adequate oversight. Instead of investigating the issue of not being provided an NOA, Fink's letter just regurgitated what was stated by Evercare.  Under the 1115 waiver approval of the QExA health plans, following this process was key to insure that the rights of the most fragile/vulnerable population (aged, blind, and disabled) were not violated when these health plans took over FFS.  If this is happening to my daughter and there is approximately 41,628 enrolled with the QExA health plans, how many other clients’ rights have been violated by decisions by health plans with no NOAs. This leads to how many clients have been harmed or injured by these on-going violations.


12/09/10
Denial on 12/08/10 of prescription for urgent medical supplies.  No NOA issued.  Resolved 12/10/10.

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.

Hawaii DD Division apparently admits to defrauding federal government and state taxpayers

According to a November 16 letter from the Hawaii Department of Health's Developmental Disabilities Division, the program has apparently been caught by federal authorities defrauding Medicaid.  The DD division established new reporting guidelines that went into effect on December 1, and the letter emphatically tells recipients to comply with ongoing federal and state audits.

The news was quietly inserted into a letter that went out to DD waiver participants and providers with a headline of "documentation requirements" that was a bit misleading.

The Fray letter states "as a result of the recent Payment Error Rate Measurement audit conducted by CMS, the Med-QUEST Division is implementing new documentation requirements for PAB services."

Last April I reported that CMS was unable to deny rumors that Hawaii's Payment Error Rate Measurement could be as high as fifty percent (it's legally supposed to be between three and five percent).  

(paraphrased from then)  What would a 50% Medicaid payment error rate mean?  It could mean that half of all Medicaid claims are paid twice:  once by either Evercare or Ohana through their capitation payments, and the second time by Medicaid's fee for service program.

Here is how it might happen:

1.  ACS, as the fiscal agent for Hawaii's fee-for-service Medicaid program, charges a fee for every claim they submit.

2.  Hawaii receives matching funds from the federal government to pay these fees for ACS's services, just as they do for the state's aged and disabled program operated by Evercare and Ohana.

3.  ACS could be billing the state for claims incurred by patients served by Evercare and Ohana.

4.  ACS would then be receiving federal (and state) funds for claims that are the responsibility of Evercare and Ohana and which are included in the calculations for the monthly per person payments (capitation payment) they receive.  Evercare (UnitedHealth) and Ohana (Wellcare) are retaining their full capitation payments, hence the double payments.

What that means for Hawaii is that suddenly our Medicaid budget could be half of what it should be.  For example, since the state's total Medicaid budget for FY2010 is about $1.4 billion, then suddenly the state might have only $700 million to spend.

Out of that comes the fifteen-to-twenty percent net operating profit UnitedHealth and Wellcare skim off the top of their state capitation fee payments.  That's at least another $92,000,000. 

So from the original annual budget of about $1.4 billion,  only about $608 million is left to spend on actual services for Hawaii's Medicaid population.

When services are cut, the Medicaid profits aren't cut, and the capitation fees not only are not reduced, at least here in Hawaii they've been increased several times by means of "contract amendments".    The Medicaid company cries poor and that it is a victim of rising medical costs, to justify increases in the capitation fees paid by the states.

This is why Hawaii's Medicaid waiver program for our aged and disabled population experienced a thirty-six percent increase in the death rate of participants within its first year of operation.