EXCLUSIVE: Skepticism over Iowa’s Medicaid math led AmeriHealth to pull out

© Copyright 2017, Des Moines Register and Tribune Co.

Iowa state officials refused to provide data used to justify Medicaid payment rates to a private management company that canceled its contract with the state this week, according to documents obtained by the Des Moines Register

The state's response prompted AmeriHealth Caritas to accuse Iowa of using inaccurate information to justify low payments and ultimately resulted in AmeriHealth ending its 18-month run as one of three private companies managing the state’s $4.2 billion program, documents show.

In a June 8 letter to then-Department of Human Services Director Chuck Palmer, AmeriHealth's market president Cheryl Harding wrote that the state's rates are "unsound" for the company's Medicaid clients.

Harding wrote that those rates "do not support a sustainable Medicaid managed-care program."

AmeriHealth says the state's inaccurate rates have resulted in the company losing tens of millions of dollars.

Shelly Chandler, director of the Iowa Association of Community Providers, a group that represents nearly 150 medical providers, said Iowa’s privatization of Medicaid in April 2016 based payments on data from 2014.

“They used outdated information,” Chandler said.

Data accuracy is vital because it plays a key part in the healthcare decisions being made for Iowa’s most vulnerable populations.

Failure to honestly reflect the cost of services also can significantly contribute to future state budget problems, both a national nonpartisan research group and a local healthcare leader said after learning about AmeriHealth's allegations against the state.

"Of course the rates are lower” than they should be, Chandler said. “They don’t accurately reflect what’s actually being spent."

AmeriHealth's exit leaves Iowa with two private companies, UnitedHealthcare and Amerigroup, managing the program starting Dec. 1.

And it means more change for roughly a third of the 600,000 poor and elderly Iowans who depend on Medicaid for health coverage.

A $53 million difference

Iowa requires the companies to spend at least 88 percent of the program’s cost on health services, leaving as much as 12 percent — $504 million — for administrative costs.

The companies are paid a per-month allotment for each Medicaid recipient they manage, based on multiple factors that include the person’s level of disability.

Correspondence between Human Services and AmeriHealth centered on the Intellectual Disability Waiver population. That’s a group of about 11,250 Iowa Medicaid recipients who are provided more expensive services such as adult daycare that enables them to remain in their homes.

AmeriHealth reported it has more than 80 percent of that population on its plan.

AmeriHealth hired Wakely, a national actuarial consulting firm headquartered in Atlanta, to compare the 2015 data Human Services used to set payment rates with the company’s actual costs in 2016.

Wakley concluded AmeriHealth’s costs exceeded rate-setting assumptions by as much as 31 percent compared with the state’s data that used actuarial calculations set by Milliman, an international actuarial firm.

The difference between the rates paid by the state and the costs were as much as $1,065 more per member each month.

That led to more than $53 million in shortfalls for AmeriHealth in the nine months in 2016 the company operated in Iowa, Wakley concluded.

Both AmeriHealth and Iowa Human Services officials questioned the other’s rates calculations in correspondence dated April 13 to June 8 of 2017.

On May 30, Mikki Stier — who was the Medicaid director then and now is the department’s deputy director — declined six requests from AmeriHealth for data, saying information related to program costs would violate proprietary data.

Those requests generally sought aggregate data that would compare Medicaid’s total program costs in 2016 with the costs of the Medicaid recipients who were assigned to AmeriHealth.

The aggregate nature of AmeriHealth's request made the information it sought unidentifiable and it should not be considered proprietary, Harding wrote in the June 7 letter.

“Iowa DHS’ refusal to produce the requested materials is fundamentally unfair and is making it impossible for (AmeriHealth) to understand the bases of the ranges the agency seeks to impose, and understanding that is necessary before any further amendment can be signed,” Harding wrote.

By June 29, AmeriHealth’s warnings became more intense, noting its concerns that Iowa wasn't using accurate data to develop rates.

The company outlined a request for a 15 percent "capitation rate" increase, a $75 million reimbursement for 2016 and an agreement to develop a fairer process for rates set in future years.

AmeriHealth “cannot sustain another lengthy delay by the state,” Harding wrote June 29. “We have diligently and in good faith attempted to work with the state to reach an agreement prior to the end of the current rate period, despite the state’s significant and repeated delays in addressing the fundamental problems under the contract.”

Human Services spokesman Matt Highland expressed confidence in the state's rate process, saying the rates are based on the most recent available data and noting that Milliman, the actuarial company that assisted the state, provides similar services for more than a dozen other states.

"Milliman has extensive experience in developing capitation rates with more than 20 years of experience," Highland said.

AmeriHealth declined the Register's request for an interview, instead issuing a one-sentence statement through spokesman Joshua Brett: "After months of discussions, we could not agree with the state of Iowa on future contract rates and terms."

Medicaid math, a perennial problem

The newly released documents mark at least the second instance where significant doubts have been raised about Iowa’s Medicaid math and the feasibility of its effort to shift the program's management to private companies.

The first instance was in 2015 when Jean Slaybaugh, a Human Services fiscal manager, testified in court that the department was unable to produce data, lists or reports used to compute their more than $100 million annual saving estimates behind privatization.

Since that time, the three companies hired to manage the program have said they have lost hundreds of millions of dollars managing Iowa’s Medicaid program.

The losses prompted state leaders in March to agree to a plan for Iowa and the federal government to shoulder $235 million of the losses. That plan was rejected by the federal government, which instead allowed the state to adjust prior rates to help make up the shortfall.

UnitedHealthcare and Amerigroup were granted 3.3 percent increases in the per-month/per member amounts they are paid to manage Iowa’s Medicaid program starting with the fiscal year that began July 1, DHS officials announced this week.

The new rates will cost an estimated $182.8 million more each year than the initial rates set when the program began in April 2016. Of that amount, $147 million will be paid by the federal government.

Iowa Medicaid will cost an estimated $4.3 billion in the fiscal year that began July 1, according to state projections.

Human Services said the total cost of the rate increase — compared with first-year rates adjusted to help ease the companies’ losses — is $140.4 million to both federal and state governments.

All but five states — Alaska, Connecticut, Maine, Montana and South Dakota — now use private companies to manage at least a portion of their Medicaid programs.

The federal Centers for Medicare and Medicaid Services — known as CMS — is charged with approving rates the states pay the managed care companies.

The approvals include actuary certification to ensure the rates meet appropriate requirements.

But "actuarial soundness" is an elusive concept because estimates are based on constantly changing factors that include patients’ use of health care and changes to laws and costs, according to officials from the American Action Forum, a non-profit organization in Washington, D.C.

While overly generous rates would waste taxpayer money, rates that are too low present “substantial adverse consequences” that can lead to reduced care and companies that cancel their state contracts, the American Action Forum wrote in a 2012 brief about the issue.

The two companies left to manage Iowa’s Medicaid likely will encounter budgetary hurdles if AmeriHealth is correct that the rates are set too low, said Robert Book, the AAF consultant who wrote about Medicaid rates.

“It would be difficult for a company to make a decision about whether to accept a contract if they don’t have enough information about the population they want to cover,” Book said.