Money and Medicaid: Why do companies want Iowa's managed-care business?

The answer is in the billions

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DES MOINES — Seventeen lawyers sat in a Polk County District Court room on Feb. 1. They represented the state of Iowa and five different Medicaid managed care companies — three who were awarded state contracts, one who wasn’t and one who was fighting to keep its contract.

That number actually had dwindled — in October 2015 there were more than three dozen. For the past four months, they’ve been arguing over the Medicaid managed-care procurement process and whether it was fair and unbiased.

In August the state awarded contracts to four companies — Amerigroup Iowa, AmeriHealth Caritas Iowa, UnitedHealthcare of the River Valley and WellCare of Iowa — to manage the state’s $5 billion Medicaid program.

Three companies passed over for contracts originally argued the bidding process was flawed and biased. This ultimately resulted in the state of Iowa deciding to throw out WellCare’s contract, a decision WellCare appealed before a judge on Feb. 1.

Meanwhile, Meridian Health Plan of Iowa argued on Feb. 1 that its bid should be rescored and it should be given the opportunity to take WellCare’s spot.

So why are these companies spending so much time and money on lawyers to fight over this?

Managing the health care of the country’s poor, old and disabled is a billion-dollar industry. In 2014, private insurers brought in $115 billion in Medicaid revenue, according to data compiled by health care-industry analytics company Mark Farrah Associates and analyzed by Kaiser Health News.

Major growth

The country’s move to Medicaid managed care — an idea that has been around for decades — has exploded in the past several years, experts told The Gazette. That’s because more states are deciding to transition from fee-for-service systems to managed care while states that already have made the change now are transferring their more complex populations into the managed-care pot.

More than 51 million Americans — or 70 percent of all Medicaid beneficiaries — now have a private, managed-care Medicaid health plan, according to a November 2015 PricewaterhouseCoopers report. Furthermore, the report found that in 2015, private plans added 7.8 million Medicaid recipients to their rolls, while those enrolled in a more traditional fee-for-service plan decreased by 1.4 million.

A Gazette review of Securities and Exchange Commission filings for the managed-care companies chosen to care for the state’s 560,000 Medicaid recipients starting March 1 shows that both revenues and Medicaid members have risen exponentially since 2003. Also in SEC filings:

• Amerigroup has seen a 290 percent revenue increase. Medicaid revenues have grown from $1.6 billion and 857,000 members in 2003 to $6.3 billion and 2 million members in 2011, the last year information was available. Amerigroup was purchased by Anthem in 2012.

• WellCare Health Plans has seen a 950 percent revenue increase from 2003 to 2014. Medicaid revenues have grown from $740 million and 512,000 members in 2003 to $7.7 billion and 2.3 million members in 2014.

• UnitedHealth Group has seen an 807 percent revenue increase. Medicaid revenues have grown from $2.6 billion and 1.1 million members in 2003 to $23.5 billion and 5 million members in 2014.

 

To see the full visualization, click here .

Information was not available for AmeriHealth Caritas, which is a private company and not required to file annual reports with the SEC.

A ‘tipping point’

There are two main drivers fueling the growth behind managed care, industry experts said. The first is overall Medicaid growth, thanks in part to the expansion under the Patient Protection and Affordable Care Act of 2010.

The Medicaid expansion brought about 15 million new people into the fold in the past two years, said Ari Gottlieb, author of the PricewaterhouseCoopers report. Gottlieb, who has looked at the growth of Medicaid and managed care for three years now, called the growth “phenomenal.”

More than 73 million people now rely on Medicaid to help with their health care needs, he added, which is about 16 percent more than it was three years ago.

The second factor leading state governors, including Iowa’s Terry Branstad, to move these individuals into managed-care plans is a desire to stabilize their budgets.

“Medicaid is always the No. 1 or No. 2 line item in terms of expenses” in a state’s budget, said Mark Kelly, an equity researcher for Stifel Nicolaus, a St. Louis-based investment bank. Kelly researches the health care industry, including hospitals, pharmacy benefit management companies and managed care.

That Medicaid expense, he added, is “a massive headache.”

So more states are turning to private plans to control spending. In a traditional fee-for-service plan, states reimburse physicians, hospitals and other Medicaid providers for services given to enrollees.

This makes Medicaid spending highly unpredictable from year to year, Kelly said. With managed care, states instead pay the private insurers a fee for each Medicaid recipient enrolled with their plan.

The fixed costs allow a state to be better able to budget and fund other initiatives.

So as more states opt to move in this direction, private companies are working to secure lucrative contracts. Kelly guessed that in the past 36 months, billions of dollars in state contracts were awarded across the nation.

Iowa awarded contracts to four companies in 2015; Kentucky rebid its managed-care contracts and awarded contracts to four companies; and Georgia, which had contracts with three managed-care companies, awarded an additional contract in its re-procurement process.

Now, with 40 states moving at least part of their Medicaid populations, Kelly and Gottlieb said future managed-care growth lies in insuring a state’s more complex populations.

Kelly said the majority of people in managed-care plans are low-income women and children. He added that the more complex populations — including those with disabilities, in long-term care services and dual eligible — account for most of the Medicaid spending but only have been moved to managed care in recent years.

“Those people have not really been pushed over to managed care,” he said. “But this higher acuity (complex) population has more inefficiencies and mean bigger savings.”

But these new populations bring new challenges for the insurance companies, Gottlieb said — individuals are more complicated to care for, have more doctors and prescriptions to manage, and could result in losing money.

WellCare’s fight

For Tampa, Fla.-based WellCare, the potential loss of Iowa’s contract is “an unfortunate set of circumstances,” Blair Todt, WellCare’s senior vice president, chief legal and administrative officer, said during a telephone interview Friday.

WellCare spent big money in the state — at least $11.2 million, according to court filings — and hired close to 200 people to be ready for the managed-care switch.

But the company’s contract was thrown out in mid-December after a state arbiter — who in siding with an administrative law judge — said the company failed to properly disclose in its bid a corporate integrity agreement and information regarding more than $137.5 million in fines to resolve false claims litigation.

Lawyers for the Tampa-based company argued during its appeal of the decision in district court that the information was provided after the state committee in charge of evaluating the managed-care bid applicants asked a clarifying question in regard to false claims litigation. WellCare officials said it provided detailed information about its corporate integrity agreement as well as why it had to pay “substantial” fines.

Todt said the company isn’t making any decisions about next steps until it sees the judge’s final decision, but WellCare “continues to be disappointed that none of the issues raised” have anything to do with the company’s ability to manage the health care of the state’s Medicaid population.

“Now there will only be three companies,” he said, adding if the state chooses to add a fourth, it will be to a company already deemed as not qualified.

Todt said he doesn’t believe what happened in Iowa will affect any of WellCare’s future bids for Medicaid contracts in other states. But he noted that the company will answer request-for-proposal questions differently and will do a better job of leveraging its compliance plan, which he believes is one of the strongest in the country.

A WellCare analysis shows there’s potential for $45 billion to $50 billion worth of state Medicaid procurement opportunities in the coming three years, Todt said, and the company hopes to capture some of those dollars. WellCare also plans to grow through acquisitions, its Medicare Advantage business and caring for more complex Medicaid populations.

“We will grow our footprint as much as we can,” he said.

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