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Some states say they're not receiving the Medicaid services they're paying for

Perry Margoles owns the Milwaukee Immediate Care Center, a small clinic that provides care that prevents emergency room visits.
Perry Margoles owns the Milwaukee Immediate Care Center, a small clinic that provides care that prevents emergency room visits. (Katie Derksen For The Washington Post)
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By Alec MacGillis
Thursday, July 8, 2010

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.

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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.


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