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The for-profit companies running Iowa’s Medicaid program have been complaining to state administrators that the controversial project is “drastically underfunded” and that the situation has been a “catastrophic experience,” newly released documents show.

One managed care executive wrote that Iowa’s recent offer to give the companies an extra $127.7 million in state and federal money this budget year “is not acceptable.” He added that without major changes, the privately run Medicaid program could be unsustainable. None of the three companies has agreed to accept the size of the increase in money they would receive for covering poor and disabled Iowans.

“We are extremely disappointed in the amended rate offer, as it does not address the significant rate issue identified and documented. … The department’s rate offer is not actuarially sound and is not acceptable to us,” AmeriHealth Caritas Regional Vice President Russell Gianforcaro wrote on Oct. 27 to Department of Human Services Director Charles Palmer.

The companies’ complaints were included in recent memos and emails The Des Moines Register obtained under the state’s open-records law. The three companies, Amerigroup, AmeriHealth Caritas and UnitedHealthcare, told state officials that their reimbursement rates were based on deeply flawed cost estimates provided to them before the project began.

Gov. Terry Branstad last year ordered the shift to private Medicaid management, which took effect April 1. Branstad, a Republican, predicted the private companies could allow the state to save tens of millions of dollars by helping the program’s 600,000 poor or disabled participants stay healthy. Critics are skeptical of the savings estimates, and they say the main effect of the switch has been to tangle Medicaid recipients and care providers in red tape.

Branstad told reporters Wednesday evening that he remains confident the state will save more than $110 million with private Medicaid management over what Iowa would have spent on a publicly run Medicaid program during this fiscal year, which ends June 30. He denied that the state will need to give the companies significantly more money to keep the project afloat.

"We've been working with them on a collaborative basis and we anticipated that there would be some losses as they have had in some other states," he said. "… We feel very confident that we're going to be able to sustain the savings that we anticipated when we put the budget together. And we'll continue to work with them. But I feel very confident it can be handled."

The companies have lost hundreds of millions of dollars on the project, which took effect April 1, according to reports they filed with regulators last month. Branstad has portrayed those losses as expected costs of setting up the program.

Branstad announced in October that the state would pay the managed care companies an extra $33.2 million this fiscal year to help them cover unexpected cost increases, including for prescription drugs. That additional state money would draw down an extra $94.5 million in federal money.

In his letter to Palmer, AmeriHealth's Gianforcaro suggested the proposed increases in payments to the managed care companies were insufficient, and he raised skepticism about how the amounts were figured. "We believe the rate development process is not actuarially sound and jeopardizes the sustainability of the Iowa Health Link program," he wrote, referring to the privately managed Medicaid program. "The lack of transparency and sharing of detailed data during this process is unacceptable.”

In a Nov. 10 letter to Palmer, Amerigroup’s Iowa president, Cynthia MacDonald, suggested ways the state could try to draw down more federal matching money for the managed care companies. “We respectfully suggest the department bring these solutions forward to (federal officials) as soon as possible, in light of the catastrophic experience the program is facing to date,” she wrote.

Amerigroup Letter

MacDonald also suggested for the first two years the state set up a “risk corridor” approach, under which the state would reimburse the managed-care companies if they spent more on medical care than they took in from the government. She also suggested the state should give the private companies more authority to manage the Medicaid program’s “preferred drug list,” which designates which medications are covered. She offered to have her company’s experts help state officials craft an approach that would not affect the current year’s state budget. “We look forward to working with you on a rapid resolution of this critical situation,” she wrote.

In a Nov. 18 letter to Iowa Medicaid Director Mikki Stier, a UnitedHealthcare executive also warned of financial problems. Kimberly Foltz, chief executive officer of the company’s Iowa branch, wrote to Stier that she appreciated the state’s efforts to address some of the issues, “but overall the program remains drastically underfunded.”

UnitedHealthcare Letter

Foltz wrote that experts from the Milliman firm, who were hired by the state, underestimated by 40 percent how much it would cost to cover the tens of thousands of poor Iowans who were allowed to sign up for Medicaid under the federal Affordable Care Act. The mistake “suggests there were material flaws in the rating projection,” she wrote.

Foltz wrote that one way to help make up for the shortfall would be to allow the managed care companies to negotiate down how much they pay pharmacies to fill prescriptions. She suggested her company could cut those rates by nearly 90 percent.

Amy McCoy, a spokeswoman for the Department of Human Services, said Wednesday that her agency does not expect to raise the current managed care rates beyond the offer made in October.

“DHS is committed to an actuarially sound and sustainable program with partners who are using better health management to help our members live healthier lives and curb the rising cost of the Medicaid program,” she wrote in email to the Register. “DHS will always work with our partners to explore methods of ensuring a sustainable Medicaid program, but we do not anticipate any updates to the program that will require the expenditure of additional funds this fiscal year. Bottom line, the Medicaid program is still on pace to save Iowa taxpayers $110 million while providing more services and healthier outcomes.”

During a Statehouse hearing last week, a Democratic legislator asked executives of the three companies if they planned to ask for big raises in their payments for next fiscal year. They declined to answer.

“We really just don’t discuss those things in public settings,” Cheryl Harding, who is Iowa president for AmeriHealth Caritas, told Sen. Joe Bolkcom of Iowa City.

The companies signed three-year contracts in 2015 with the state, which can renew them for up to another four years. Under those contracts, the companies are to be paid set amounts per member, depending partly on the participants’ health risks. The companies are supposed to coordinate and pay for members’ care, and keep any leftover money for administrative costs and profit.

Denise Hill, a Drake University law professor who specializes in health care issues, reviewed one of the contracts at the Register’s request. Hill noted that the contracts allow state officials to adjust payment rates to the managed care companies during the first fiscal year, as more accurate cost information becomes available. That makes sense, she said, especially in early years of the program. But over time, she said, she would expect the companies to shoulder the risk that they might have to spend more on care for Medicaid recipients than they receive from the government.

Hill said the contracts are written in a way that would make it difficult for the managed care companies to opt out unilaterally. But she said the companies could argue that the state and its actuarial firm, Milliman, did not properly estimate the costs of covering care for Iowa’s poor and disabled residents. “Conceivably, that could be a material breach of the contract,” which could allow the companies to bail out of the project, she said.

The Register asked all three companies Tuesday for comment on their leaders' dire memos to state officials, and whether the companies would seek large rate increases or would consider trying to get out of their contracts. By Wednesday evening, only UnitedHealthcare had responded on the record. “Sustainability is critical to the long-term health of the IA Health Link program and the many people it serves," a UnitedHealthcare spokeswoman wrote in an email to the Register. "We continue to work with the state of Iowa to ensure the program is appropriately funded.”

Bolkcom, the Democratic legislator, said Wednesday’s revelations were further evidence the shift to private Medicaid administration was flawed.

“The reality of managed care was even worse than we predicted. It was implemented too quickly with too many Iowans with really complicated health care needs that the MCO's apparently did not plan for,” he wrote in an email to the Register Wednesday. “Gov. Branstad's and Lt. Gov. (Kim) Reynolds’ hasty actions have put the state's finances and every health care provider, patient and taxpayer at risk.”

U.S. Rep. Dave Loebsack, citing The Des Moines Register's online story, called on federal administrators at the Centers for Medicare and Medicaid Services to rescind their permission for Iowa to have private managers run the joint federal and state Medicaid system.

“As the program has progressed, it’s become more and more clear that the privatized Medicaid program is not working," the Iowa Democrat wrote in a press release. "Thus, CMS needs to rescind the waiver it granted the state of Iowa. This plan was implemented too quickly and is grossly underfunded.”