By Lambert Strether of Corrente.

I hadn’t written on health care for awhile, but sadly, whenever I put on my yellow waders and dig in, I keep coming up with stuff that’s so nasty it’s hard to stop. This post was inspired a link that a reader from Iowa, incited by a previous post on ObamaCare’s crapification, threw over the transom (so please, readers, keep doing that). And I hear Iowa has a caucus of some sort coming up, plus Iowans like to meet and speak with their candidates personally, and the issues with Iowa’s for-profit privatization of Medicaid menagement involve a few billion and several hundred thousand lives, so it seems like this is the sort of issue that might be brought up, face-to-face, when a candidate is trapped in somebody’s living room, especially since the Feds have to give Iowa a waiver for the program to proceed. Mostly, I’m going to follow the money, instead of mere human suffering.

First, I’ll summarize Iowa’s plan to use for-profit contractors to manage Medicaid; then I’ll look at the signs of corruption in the contracting process, which as we shall see would give pause even if we were looking at Albany or (heaven forfend) Chicago, despite Iowa’s reputation for clean government; then I will show that the premises for Iowa’s privatization effort are false, since experience shows that their program will neither save money nor improve care, and there are not-for-profit alternatives available; and lastly, I’ll glance at the ideological underpinnings for these efforts (“the market state”).

Iowa’s Plan to Privatize Medicaid Management

Osceola Republican House member Joel Fry describes Iowa’s proposed plan in the Osceola Sentinel-Tribune:

On a managed care system, Iowa Medicaid Enterprise will contract with managed care organizations (MCOs) to pay for health care services. These MCOs will then contract with providers across the state to provide care to Medicaid recipients. The goal of the program is to improve quality and access, have greater accountability for outcomes and create a more predictable and sustainable Medicaid budget for the state. On Monday Aug. 17, the Department of Human Services issued a notice of intent to award contracts for the following four managed care companies: Amerigroup Iowa, AmeriHealth Caritas Iowa, UnitedHealthcare Plan of the River Valley and Wellcare of Iowa. These contracts will be finalized in September. The Medicaid program currently serves nearly 600,000 Iowans each year, which is about 22 percent of Iowa’s population. Currently, Iowa Medicaid Enterprise is the state’s second largest health care payer. The amount of $4.2 billion is spent each year on Medicaid services. The managed care program is set to begin on Jan. 1, 2016.

So, ka-ching. Billions up for grabs! Importantly, Iowa will need a Federal waiver to go through with program (that’s why the delay until January). Since the Iowa caucuses will held in February, there’s ample opportuinity to pin the candidates down on where they stand on this issue, and even bring some pressure to bear back in Washington.

Signs of Corruption in Iowa’s Privatization Effort

As NC readers know, corruption isn’t only about the quid pro quo — although in Iowa there’s “pay to play” too! — but the “self-serving use of public power for private ends.” In this case, all these self-serving uses center on the contract selection process.

Secret Decision-making. Governor Terry Branstad kept his proposal under wraps, but potential contractors knew about it before the public did:

Governor Terry Branstad didn’t run for re-election last year on a plan to let private insurance companies manage health care for some 560,000 Iowans on Medicaid. He didn’t work with key state legislators to draw up his administration’s “Medicaid Modernization” plans. … [K]ey lawmakers like the chair of the Iowa Senate Health and Human Resources Appropriations subcommittee didn’t learn that four private companies would be selected to handle almost all Medicaid services until the Iowa Department of Human Services made its request for proposals public in February. Those news stories point to a conclusion that isn’t getting enough attention: various insurance companies and their paid representatives knew what was coming down the pike long before the Branstad administration disclosed its plans to privatize Medicaid.

And one can only wonder what those insurance companies did with that information asymmetry, eh? Of course, secrecy is not corruption per se, but it certainly enables corruption by sheilding the process from public view. (A programmer would call the presence of secrecy “code smell”; the exact function one is looking at may be OK, but the it’s written with styles or structures that mean bugs elsewhere are very likely to be found. (If you regard corruption as a bug, of course)). As we shall see.

Pay-to-Play. Here’s a listing of the bribes campaign contributions that the contractors threw around. From the Des Moines Register:

Some of Iowa’s top elected officials — most notably Gov. Terry Branstad — have accepted tens of thousands of dollars in campaign contributions from some of the companies that vied for lucrative contracts to manage Iowa’s annual $4.2 billion Medicaid program. Branstad, meanwhile, insists [of course, of course] his decision this year to hire private companies to manage the state’s Medicaid program had nothing to do with the $38,086 in campaign contributions he received from companies that sought the Medicaid contracts. Other top recipients include state Rep. Kraig Paulsen, R-Hiawatha, the outgoing House speaker, with $4,300; and state Sen. Michael Gronstal, D-Council Bluffs, the Senate majority leader, with $3,300.

Ka-ching. Note that legislators from both parties cashed in; corruption is a thoroughly bipartisan affair. Note also the fabulous return-on-investment available: A few tens-of-thousands to win a ten-billion contract!

A Flexian Infestation. As we know from computational anthropologist Janine Wedel’s work, a Flexian “is a creature peculiar to our moment in history: a mover and shaker who serves multiple, overlapping roles with smiling finesse—business consultant, think tank fellow, government adviser.” Needless to say, Flexians[1] are all about “the self-serving use of public power for private ends”; it’s questionable that they even accept such a distrinction. We’re accustomed to thinking of the Beltway as the Flexian’s native habitat, but clearly they exist at the state level, too. Here is an example of the Iowa species. Renee Schulte is a Cedar Rapids Republican who now works as a health care consultant. From the Des Moines Register:

The same month [Schulte] helped a Florida-based company land a lucrative state contract, an Iowa Department of Human Services consultant terminated her work with the state to join that company. Schulte’s consulting firm was paid almost $100,000 a year to assist DHS’s mental health division since January 2013, but terminated its contract Feb. 20, four days after Gov. Terry Branstad announced the state was seeking competitive bids to contract with private companies to manage Iowa’s Medicaid program.

And Schulte shared information with the bidders while the contractor selection process — the very fact of the process — was still secret.

[Schulte’s] role is casting doubt on the process used to select companies to manage Iowa Medicaid, with one losing vendor alleging she provided an unfair advantage to WellCare, a winning bidder, after working as a state contractor. A second losing bidder claims the ex-state representative, Renee Schulte, gave its lobbyists inside information that shows a key evaluator had made “derogatory comments’

That woudn’t pass the smell test if Cedar Rapids were putting some new curbing out to bid, so why is it OK with four billion and hundreds of thousands of lives at stake?

Questionable Legality. In fact, the entire award may not be legal, because all the stakeholders [2] officials who must, by statute, write the requirements weren’t involved:

Chairwoman: Is Iowa’s Medicaid privatization legal? The chairwoman of a state program that provides health insurance to children of poor families is questioning whether Iowa has acted legally with efforts to privatize management of the system. In an Aug. 21 email to Chuck Palmer, the director of the Iowa Department of Human Services, Hansen cited state law that says her board is responsible for developing the criteria on which any administrative contractor would be selected. In response, the DHS announced a special meeting, which was scheduled for Sept. 2. That meeting was canceled on Aug. 28 by Robert Schulueter, a DHS bureau chief. Emails obtained by the Register stated the meeting had been scheduled prematurely. DHS spokeswoman Amy Lorentzen McCoy didn’t directly answer a question about whether the agency had the legal authority to move forward with the privatization efforts for hawk-i without the board’s approval. However, she said in a written statement that the department regularly enters into contracts and makes changes for the program.

And if the award were, in fact, legal, you know what McCoy would have answered the question.

Criminal Contractors. The selected contractors are guilty of fraud:

Each of the four companies selected this week to manage Iowa’s $4.2 billion Medicaid services program has faced serious charges of fraud or mismanagement and some have resulted in hundreds of millions of dollars in fines, according to public records

(The link shows not just “charges,” but convictions and fines.) What could go wrong?

The Existing System Works, so There is No Need for Change. The Quad City Times editorializes:

Iowa Editorial: Feds should stop Medicaid privatization About 550,000 low-income Iowans rely on Medicaid health insurance. The program, administered by the state, has low administrative costs. It has held down spending by reimbursing providers modestly, reducing fraud and giving seniors alternatives to expensive nursing homes. Medicaid in Iowa spends less per person than the majority of other states, while still providing comprehensive coverage.

So why are we changing it? From what you have just read above, probably for no good reason.

Iowa’s Privatization Effort is Based on False Premises

Privatization advocates justify their systems of rental extraction on grounds of lowered cost and improved quality. Neither is true.

Privatization Does Not Improve Quality or Reduce Costs. A National Institutes of Health paper by David Himmelstein and Steffi Wollhandler (2008) discusses the general case:

Privatization in a publicly funded health care system: the U.S. experience. The United States has four decades of experience with the combination of public funding and private health care management and delivery, closely analogous to reforms recently enacted or proposed in many other nations. Extensive research, herein reviewed, shows that for-profit health institutions provide inferior care at inflated prices. The U.S. experience also demonstrates that market mechanisms nurture unscrupulous medical businesses [see above] and undermine medical institutions unable or unwilling to tailor care to profitability. The commercialization of care in the United States has driven up costs by diverting money to profits and by fueling a vast increase in management and financial bureaucracy, which now consumes 31 percent of total health spending. … The poor performance of U.S. health care is directly attributable to reliance on market mechanisms and for-profit firms, and should warn other nations from this path.

Medicaid Managed Care Is Unlikely to Improve Quality or Reduce Costs. And that’s what Iowa, for some reason, wants to do. From a Robert Wood Johnson study in 2012:

There is little evidence of national savings from Medicaid managed care, but a few states have had some success. The states that did realize cost savings were more likely to be states with relatively high reimbursement rates under fee-for-service. Medicaid managed care has had mixed success in improving access to care. There is some evidence of increased likelihood of a usual source of care and reduced emergency department visits, but pregnant women were generally no better off under managed care then in fee-for-service. Quality of care in Medicaid managed care has not been well studied, making it difficult to compare quality in fee-for-service to managed care. This is surprising given that states require performance measures for all managed care plans.

Here’s why:

Fee-for-service rates are already so low that it is hard to get additional pricediscounts.

States were using prior authorization and utilization review even before moving enrollees to managed care.

Co-payments for Medicaid beneficiaries are low, making it more difficult to incentivize care-seeking behavior.

Health plans have limited ability to change traditional delivery systems or address the social determinants of health, both of which play a large role in the fragmented care Medicaid enrollees receive.

(This process is playing out now in Florida, where is looks like the contractors lowballed the bid, and then came back with their hand out for a 14% rate hike.)

Fraud is a Given. First, do the math. United Healthcare was one of the contractors selected by Iowa:

The California Department of Insurance (DOI) Commissioner Dave Jones has issued an historic decision to impose penalties against United Healthcare of more than $173 million dollars for 900,000 violations of the insurance code from 2005 to 2008. This is the largest administrative penalty ever assessed against a California health insurer or plan.

The fine comes out to around two-hundred bucks a pop; in other words, a cost of doing business. And no executives went to jail. So does how fraud is handled under Medicaid remind you of anything? And I would dearly love to know what United Healthcare’s total and continuing take is, not just in California but across the country, but in most cases we can’t, because records are often sealed, and cases are scattered across jurisdictions, making them hard to track.

Second, your typical neo-liberal economist will, at this point, mumble something about reputational damage, but that’s obviously bogus; a $173 million fine in California didn’t prevent United Healthcare from winning a contract in Iowa.

In fact, even Iowa Governor Bransted accepts that fraud will always happen. Radio Iowa:

BRANSTED: If you look at the four companies, they’re all four very substantial companies that have had significant experience and I guess I’d challenge you to find any Medicaid provider of any magnitude that hasn’t had some issues in the past. That’s just kind of the nature of it .

“That’s just kind of the nature of it.” The mind reels. To be fair, Bransted is right; it’ s not just the four contractors Iowa selected that are corrupt; it’s all of them! The Des Moines Register:

each of the four companies selected to manage Iowa’s Medicaid program has faced serious sanctions or lawsuits. This is no coincidence. Almost all of the 11 companies that submitted bids for the managed care contract also faced similar sanctions and/or lawsuits.

So, TINA. We have no alternative but to enter into business relations with fraudsters to deliver services to citizens.

Profit-making Entities Have No Secret Sauce. Here’s an example of a successful Medicaid management system in North Carolina run by doctors, which ( ka-ching naturally) the state legislator is trying to replace with one run by health insurance companies. From the Laurinburg Exchange:

A state audit released last month found that Community Care of North Carolina, whose network serves Scotland County, saved North Carolina Medicaid nearly $400 million per year over the past two years. Community Care of North Carolina is a managed primary care program that oversees the delivery of healthcare services to 1.4 million people covered by Medicaid. According to the CCNC, this was a direct result of the program’s emphasis on primary care services being managed through a medical home, and access to specialty care is coordinated through the primary care physician.

And from the Fayetteville Observer:

The audit measured results achieved by Community Care of North Carolina from 2003 through 2012. The physician-led program has won national acclaim for its effectiveness in running the health-insurance program for the poor and disabled. According to the audit, Community Care succeeded in managing medical conditions and keeping patients out of the hospital. That resulted in savings of about $78 per user per quarter, which adds up to saving state and federal taxpayers something approaching half a billion dollars a year.

But that doesn’t mean the legisators won’t try to kill it:

Most lawmakers would likely agree that we’re talking real money there, yet the drive for privatization still has its hooks in the Senate, our legislative branch most driven by ideologues.

So let’s look at the ideology.

The Market State and Privatization Efforts

Even leaving aside ka-ching the material incentives — which, again and amazingly, amount to thousands of dollars with billions in play — there seems to a world-view (“that’s just kind of the nature of it”) in operation, shared by all players and both parties, about what the state should (and should not) do, that prevents alternatives from being considered or even named. In the past, I have dubbed this world-view, this ideology, as “the market state”:

[I]t’s not “privatization.” Or it is, but it’s also something larger: A change in the constitutional order… 1. Nation-state: The role of the state is to provide services for its citizens. [For example, through single payer]. 2. Market state: The role of the state is to determine which provider shall collect rents for delivering a service to consumers. [As we have just seen in Iowa.]

I believe that the transition — the change in the constitutional order — from “nation-state” to “market state” began with the neo-liberal ascendancy in the mid-70s and is now in full flower (and, one hopes, ready to rot and die. Forty years is a long time in politics).

We can see how pervasive the ideology of the market state is when we look at the solutions to Iowa’s problems proposed even by people of good faith:

“This is a classic example of government contractors buying contracts from the state of Iowa,” [Craig Holman of Public Citizen] said. “When you allow companies to essentially buy these contracts through campaign contributions, the contracts are being awarded based on money and not on the ability of these companies to fulfill the contract or offer the best deal.”

So, even Public Citizen’s solution is simply to fix — somehow — the process of determining service providers. Heaven forfend that the providers be non-profit (as in North Carolina) or even that the State deliver services directly (which seems odd, given that profit-making entities have no secret sauces, and the State can be put under democratic control).

Conclusion

Again, why Iowa? Because I hope the Iowa caucuses will provide citizens with opportunities to raise these issues with candidates, and hopefully make a fuss in Washington. And while we’re at it, why not single payer? Why not cut out the Flexians, and the rental extraction, and the corruption altogether?

NOTES

[1] Roy Poses, whose post appears today, uses the revolving door metaphor. I think Wedel’s “flex net” approach is far more powerful.

[2] “Stakeholders” is a horrible word because it falsely equates regulators (the state) with the putatively reguiated (industry, or rather, business). Watch out for it.

I’m leaving comments open so readers can share comments on Medicaid in their own states.