Correction to This Article
An earlier version of this article incorrectly said a UnitedHealth spokesman did not respond to a request for comment.
Some states say they're not receiving the Medicaid services they're paying for

By Alec MacGillis
Thursday, July 8, 2010; A10

MILWAUKEE -- The day after the House passed the landmark health-care bill in March, St. Louis-based insurer Centene saw its stock jump 11 percent. That was perhaps the first signal that the major changes ahead would be a boon to one subset of the health-care industry: companies that manage Medicaid for the states.

Now businesses are rushing to get a foothold in states that outsource Medicaid, knowing the law could add 16 million people to the federal-state program for the poor and the disabled. In Texas, where Medicaid rolls are expected to grow by 1.8 million people, Centene is scrambling to win additional contracts, having laid the groundwork by contributing $250,000 to state legislators' campaigns since 2008.

"We . . . believe we are extremely well-positioned to benefit in this new era," Centene chief executive Michael Neidorff told market analysts during a recent conference call.

But the experience in some states suggests pitfalls ahead. A recent report found that 2.7 million children on Medicaid in nine states, most of them states that outsource Medicaid, are not receiving required screenings and immunizations.

In Milwaukee, the two biggest provider networks in the city broke ties with Centene, and the state is overhauling its Medicaid contracts for southeast Wisconsin, dropping Centene from the mix. The complaint was that the insurer was creating profits at the expense of patient care, a charge the company denies.

"We came to the conclusion about a year ago that we were unsatisfied with the quality of care we were getting, given the amount of money we were paying," said Jason Helgerson, Wisconsin's Medicaid director.

With an expanded Medicaid absorbing at least half of those newly covered under the health-care law, Medicaid HMOs will play an outsize role in managing costs. Some studies suggest that managed Medicaid has, in certain states, slowed the increase in costs without harming care and has even improved care for some conditions. The theory is that insurers can save states money by reducing avoidable treatments -- by monitoring diabetics to keep them from needing dialysis, for example.

But managed Medicaid has also produced a steady stream of controversies. Last year, insurer WellCare agreed to pay Florida $40 million in restitution after it admitted shortchanging children on Medicaid by setting up a subsidiary to make it look like WellCare was spending more on medical care than it was.

Today, 70 percent of the 48 million Medicaid enrollees are in a managed plan. States typically pay insurers a per-person rate, and the insurers, or HMOs, negotiate rates with doctors and hospitals.

Managed care

Most economists agree that managed care is more efficient than paying doctors and hospitals separately for each treatment. But it can be hard to find the right balance in Medicaid -- enrollees are less likely to push back when needed treatments are withheld, and states are conflicted in monitoring insurers they hired to keep costs down.

Jane Perkins, legal director of the National Health Law Program, said the potential expansion of Medicaid HMOs under the new law "is not necessarily a bad thing." But, she added, "what gets bad is when they're taking their per-month, per-member payments and using it for profit, not patient care."

Although some states manage the program on their own, the majority -- among them Virginia, Maryland and the District -- contract out most of their Medicaid. And now insurers are vigorously lobbying state legislators for more outsourcing, using states' budget woes as a goad.

In Florida, where 950,000 people are expected to join Medicaid, insurers are pushing for the expansion of a managed-care pilot program despite mixed evidence about its early results. In Texas, they are pushing to expand managed care into the Rio Grande Valley, where there are 350,000 Medicaid enrollees even before the new law takes effect.

New insurers are moving into the market now dominated by giants such as WellPoint and UnitedHealth and companies specializing in Medicaid, such as Centene, Molina and Amerigroup. Centene has swelled to $4 billion in revenue, cracking the Fortune 500 last year, with more than 1 million Medicaid enrollees in nine states. Neidorff, its chief executive, earned $6 million last year.

The company attributes its success to shrewd selection of markets and a sophisticated system for managing care. It holds up as an example the care it provides to high-risk pregnant women, making sure they receive a weekly steroid injection to reduce the rate of premature births.

"Years ago, the formula was to deny care, but that's not what managed care is about now," said Centene spokeswoman Toni Simonetti. "It's about trying to provide healthier outcomes. . . . Better health outcomes are the least-costly outcome."

The company has worked hard to encourage lawmakers to expand Medicaid, spending $1.53 million on lobbying in Washington since 2007. Most of the $1 million raised by its political action committee since 2004 has gone to state-level candidates. Its corporate board includes former House speaker Richard A. Gephardt (Mo.), a Democrat who runs a Washington lobbying firm, and former U.S. health secretary Tommy G. Thompson, a Republican who pioneered Medicaid HMOs as Wisconsin governor and works for the lobbying firm Akin Gump.

For years, Centene had such steady profits in Wisconsin that in 2008, Neidorff compared it to turning on a "milking machine." But that year, Aurora Health Care, the state's biggest provider network, cut its contract with Centene after objecting to its reimbursement rates. Milwaukee's other big provider network, Wheaton Franciscan, also severed ties with Centene.

Simonetti described this as part of the "naturally occurring tensions" with providers. But Aurora President Nick Turkal pointed to a broader issue: Managed care in Wisconsin is falling far short of the ideal, with too little done to get enrollees the primary care they need and keep them out of the emergency room.

"The problem with this concept of managed care in Wisconsin is that it hasn't really been managed," he said.

The state rebid the contract for southeast Wisconsin with stricter standards on diabetes management and other care. It selected four insurers that included UnitedHealth but left out Centene, which is appealing in court.

One clinic's situation

Whatever the outcome, the shift toward Medicaid managed care may have helped create at least one casualty, a small clinic on the Near North Side of Milwaukee. The Milwaukee Immediate Care Center prides itself on providing a level of enhanced primary care that clinic administrator Perry Margoles says prevents countless emergency room visits -- offering free blood pressure screenings, taking the time with patients coming in with a single complaint to provide a more comprehensive assessment, with an EKG machine on hand if needed.

But Centene long resisted paying the extra $25 fee the clinic charges for patients not assigned to its doctors. And after the clinic closed in 2007 for flood repairs, Centene declined to renew its contract. The clinic had better relations with UnitedHealth, but the insurer dropped its urgent-care contract in 2007 and has, Margoles said, been late in paying many claims.

Simonetti declined to discuss the situation in detail, saying only that the clinic "did not meet our standards." A UnitedHealth spokesman said the company paid 99 percent of its claims nationwide within 30 days last year.

Business has fallen by half from three dozen patients a day. Margoles has shifted his three doctors to part time and cut weekly hours of operation from 125 to 55. One recent weekday, several people trickled in, including Latonya Fortson, a home health aide who is covered by Centene but still comes to the clinic even though it means paying cash -- in this case, $20 for a tuberculosis test.

"It's right here in the community," she said. "I like the service."

With the clinic in tax arrears, Margoles said he is on the verge of closing. He worries about the "collapsing health infrastructure" in the community. And he worries what expansion of managed Medicaid will mean for other states where regulators are considered less capable than the ones that he has found lacking in Wisconsin.

"The Medicaid HMOs are maximizing their profits at the expense of an underfunded system," he said. "If they're pulling this [stuff] in Wisconsin, can you imagine what's going to happen in other states?"

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