"Industry Analysis"

HMOs Abandon Medicaid In Several Eastern States

HMOs plead “poverty,”government cries “foul;” truth about Medicaid problems lies in-between

CEO SUMMARY: In a number of states, certain HMOs have ceased servicing Medicaid patients. This trend will grow. It is the spearpoint for a coming battle between government healthcare programs and private healthcare providers: What level of reimbursement is adequate to provide appropriate care? Who gets to set the reimbursement levels?

LABORATORIANS SHOULD PAY CLOSE attention to a trend now surfacing in eastern states. A number of HMOs, claiming high costs, are withdrawing their services from Medicaid patients.

Aetna/U.S. Healthcare recently terminated coverage for Medicare beneficiaries in Connecticut and New York. It claimed high cost was the reason. Oxford Health Plans is pulling out of New Jersey and Connecticut. United Healthcare left the Ohio Medicaid program last year, as well as a Medicaid program in Missouri. THE DARK REPORT predicts that more HMOs will follow the example of these large insurance companies.

On the surface, the issue revolves around “high costs.” But the more fundamental conflict will be attempts by the government to arbitrarily force reimbursement levels lower, while compelling HMOs and healthcare providers to continue providing services.

This should sound familiar to most clinical laboratory executives. For more than ten years, the laboratory industry has labored under arbitrary and capricious dictates from healthcare bureaucrats. On one hand, it suffered through year-to-year reductions in reimbursement levels. On the other hand, it was given increasingly onerous and convoluted guidelines for submitting reimbursement claims.

But the more fundamental conflict will be attempts by the government to arbitrarily force reimbursement levels lower, while compelling HMOs and healthcare providers to continue providing services

Because the laboratory industry represents only 4% to 5% of total healthcare expenditures, it has been a relatively impotent lobbying force when compared to physicians, hospitals and insurers. That impotence is why the laboratory industry has endured counter-productive government policies applied years ago. Similar types of enforcement and reimbursement policies are increasingly being applied to other segments of healthcare.

But this time the government will run up against tougher opponents than the clinical laboratory industry. Physicians, hospitals, and insurance companies have substantially more clout with both legislators and the public. Unlike laboratories, these health- care groups will make their complaints heard by all segments of society.

Opening Moves

An analysis of the issues causing HMOs to terminate their Medicaid programs reveals the opening moves in a battle between private providers and the government. For the most part, as HMOs cease Medicaid participation, they state that costs were higher than expected.

Government officials who administer Medicaid have a different perspective: the problem is not cost management, it is simply that HMOs don’t do a good job anticipating costs. Bruce Bullen, Medicare Director for Massachusetts and Chairman of the National Association of State Medicaid Directors, states, “HMOs got into the business, but didn’t understand the Medicare line of business.”

According to Bullen, those HMOs are leaving because they don’t have the stomach to deal with the complex problems of caring for the poor. Bullen’s rhetoric is right from the pages of history’s class warfare warriors. A closer look at the facts tells a different story.

Severe Cuts

State after state has imposed severe cuts to Medicaid reimbursement. New York’s experience is representative. First, its Medicaid program provides an ample benefits package which exceeds some private plans. It offers over-the-counter drugs like aspirin and transportation to and from a physician’s office.

Despite this generous benefits package, New York State slashed reimbursement to HMOs from $171.22 PMPM in 1994 to $129.92 PMPM in 1997. This is a 29% reduction in reimbursement! Ohio dropped its Medicaid rates by 19% from 1994 to 1997. Indiana announced a 19% reduction last fall, from $112 PMPM to $91 PMPM. The resulting outcry was loud enough that the state only cut reimbursement by 8%, to $103 PMPM.

Laboratory executives should be sympathetic to the plight of HMOs on this count: it is tough to create effective operating budgets when the government arbitrarily lowers reimbursement without an off-setting reduction in the Medicaid benefits package.

In reality, these reimbursement cutbacks are attempts by the government to control costs by fiat. Healthcare executives make exactly that charge. Referring to New York, not-for-profit Bronx Health Plan’s CEO, Maura Bluestone says the state “talks about its healthcare goals, but it really has approached this whole program as [a source of] budget savings for itself.”

Lack of Foresight

A respected financial analyst discusses the real problem–the lack of intelligent foresight and planning by government officials. “States have been so concerned about saving money in the short-term,” stated Kenneth Abramowitz of Sanford C. Bernstein & Co., “that they undermined their long term chances of cost containment. It’s government stupidity at its highest level.”

THE DARK REPORT predicted earlier that a major battle is forming between patient choice and government direction of healthcare. The fact that HMOs are beginning to refuse participation in state Medicaid programs means that the battle lines are forming. Clinical laboratories will find themselves in the midst of this conflict, but with little power to affect the outcome.

Just last Thursday, the Justice Department announced that it would take a less aggressive approach in pursuing allegations of Medicare fraud by hospitals. (Notice that the announcement did not include any mention that physicians, clinical laboratories, home healthcare agencies, and long term care facilities would get similar relief.)

This public statement is a direct result of lobbying by hospitals. Such lobbying resulted in the submission of a bill by Representative Bill McCollum of Florida. McCollum’s bill would weaken the government’s ability to use the False Claims Act against hospitals. The bill already has 70 co-sponsors in the House of Representatives.

Healthcare Financing Crisis

THE DARK REPORT predicts the rising cost of healthcare, combined with increased utilization by a growing number of senior citizens, will intensify the healthcare financing crisis. Government’s response will be to use the power of laws to arbitrarily reduce reimbursement to all classes of healthcare providers. Simultaneously, there will be laws requiring providers to offer services, or face criminal prosecution.

Obviously, at some future point, rigorous laws in these areas would put private healthcare providers in a squeeze: one set of laws reimburses their services at below cost. Another set of laws makes it illegal to refuse treatment.

THE DARK REPORT believes that such a scenario will not come to pass. The withdrawal of HMOs from Medicaid programs, should it become widespread, would precipitate a public debate before the problem became intractable.

Laboratorians should watch how this HMO/Medicaid battle unfolds. Implicit in the government’s position is the power to force healthcare providers, including laboratories, to provide services regardless of whether reimbursement is adequate or not.

As this coming battle develops, clinical laboratory executives should understand the underlying issue: will the American healthcare system be based on patient choice and free market principles, or will it be controlled and directed by the government?

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