Medicaid privatization is saving Iowa 80% less money than predicted, state report says

Iowa’s controversial shift to privately managed Medicaid will save the state 80 percent less money this fiscal year than originally predicted, a recent state estimate suggests.

Iowa now stands to save $47.1 million this fiscal year by having private companies manage the $4 billion program, according to a quarterly report prepared by staff members from the Department of Human Services.

After then-Gov. Terry Branstad ordered the shift in 2015, he predicted it would save the state $232 million in fiscal year 2018. That is the current budget year. In fiscal year 2017, which ended last June 30, the state saved nearly $119 million over what it would have spent having government administrators run the program, according to a DHS report using the same criteria used in the new estimate.

Gov. Kim Reynolds, a Republican, succeeded Branstad and supports the shift to privately run Medicaid. Her spokeswoman, Brenna Smith, said Friday that Reynolds’ new Medicaid director believes his staff miscalculated the 2018 savings estimate. He is having them review the issue, she said.

A leading critic said the drastically lower estimate of state savings for 2018 is more evidence that privatized Medicaid has been a failure. “This has become just a shell game,” said state Sen. Joe Bolkcom, an Iowa City Democrat.

Iowa’s shift to privately managed Medicaid has been intensely controversial. Branstad and other supporters contended it would lead to more efficient, effective care for the 600,000 poor or disabled Iowans whose health care is covered by the program. But vocal critics have said it has mainly led to hassles and service cuts for Medicaid members and to red tape and millions of dollars in delayed or denied payments for care providers.

Reynolds acknowledged to reporters this week that there have been problems in the transition. “We have made mistakes. The rollout was not perfect, but is the right thing to do. But we have to recognize and admit the mistakes we made and we have to look at ways to move forward,” Reynolds said Thursday.

When asked Friday about the plummeting estimates of state savings, her spokeswoman reiterated that the governor still supports the change. “The governor believes Medicaid modernization is a proactive, patient-centered approach and remains committed to improving access, quality of care and accountability for patient outcomes,” Smith wrote in an email to the Register.

Smith said the new Medicaid director, Mike Randol, “has identified several areas that were not taken into account when calculating the savings figure, and is working with his department to update the methodology to one that takes those savings factors into account.”

Department of Human Services spokesman Matt Highland said in an email to the Register on Friday that staff members are "working to develop a more comprehensive methodology to calculate managed care savings which looks at all associated costs, such as non-medical costs which include administrative costs, care coordination and quality improvement activities. Once the methodology has been finalized, the department will provide updated numbers and will use this new, comprehensive methodology moving forward."

Highland did not explain why the DHS staff members' estimate of state savings for 2018 was 60 percent lower than their estimate of savings for 2017. The two reports include almost identical descriptions of how the estimates were made.

Randol recently came to Iowa from Kansas, where he was Medicaid director during that state’s controversial shift to managed care. He describes himself as a firm believer in the efficiency of having private companies run the program, which is jointly financed by state and federal governments.

The discrepancy in the Iowa savings estimates was raised Thursday afternoon during a meeting of a state advisory committee that helps oversee Iowa’s Medicaid program. Dave Hudson, co-chairman of the Medical Assistance Advisory Council, told administrators he’d noticed on page 50 of a 70-page quarterly report that they’d included a much smaller estimate of state savings than they’d offered in previous reports. Administrators told him they couldn’t immediately explain why the savings estimate had dropped from $119 million last year to $47 million this year.

Hudson is a Windsor Heights Republican who used to be Branstad’s liaison to the Legislature. The former governor appointed him to help lead the Medicaid advisory council because Hudson has an adult son, Matthew, who is severely disabled by a brain injury and receives Medicaid.

Like many other Iowa families of people with disabilities, Hudson has expressed frustration about having to battle with private Medicaid administrators who wanted to cut payment for in-home care services.

In an interview Friday, Hudson said the plunging estimates of state savings from Medicaid privatization only deepen his doubts about the whole experiment. “If it continues to go down, then the question is, what benefit have we found from managed care?” he said. “It looks like the cost savings are evaporating.”

Hudson predicted the new savings estimate could heighten pressure on legislators to roll back parts of the shift to privately run Medicaid. But he doubts Iowa will go all the way back to having state administrators run the whole Medicaid program.

Bolkcom, the Democratic state senator, also expects the Legislature to seriously consider changes to the privatized Medicaid program. He noted that House Speaker Linda Upmeyer, a Clear Lake Republican, told reporters this week that many Republican legislators had heard constituent complaints about the situation. “It has not improved enough, fast enough, that anyone is comfortable with it,” Upmeyer said Thursday.

Bolkcom said the issue is likely to be a major factor in next fall’s elections for legislative seats and the governor’s office. Politicians from both parties will want to show they’re taking steps to improve the situation, he said.

A spokesman for Upmeyer declined to comment Friday on the falling estimates of savings from private Medicaid management.