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Enriched by the poor: Another example of why U.S. health ‘system’ is so expensive



Kaiser Health News

CHULA VISTA, Calif. — Norma Diaz and her husband, Joseph Garcia, have dedicated their careers to running a nonprofit health insurer that covers some of California’s neediest residents.

For three decades, they have worked for a Medicaid managed-care plan, Community Health Group, serving nearly 300,000 poor and disabled patients in San Diego County under a state contract funded entirely by taxpayers. They’ve earned above-average ratings for patient care.

And in the process, they’ve made millions of dollars.

Together, Diaz and Garcia made $1.1 million in 2016 and received more than $5 million since 2012, according to the health plan’s tax returns and company data. Diaz’s compensation as CEO exceeded the pay of several peers at bigger plans in 2016.

Garcia, married to Diaz since 1997, is an outside consultant who serves as chief operating officer. Their health plan, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

“This is not only a conflict of interest but egregious overpayments,” Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said after hearing of the payments from a reporter and reviewing the tax returns. “It’s the family-and-friends plan.”

The arrangement at this midsize California health plan raises broader questions about government oversight as states award billions of dollars in public money to private plans to cover patients on Medicaid, the federal-state insurance program for the poor.

Evidence is mounting that Medicaid’s rapid expansion under the Affordable Care Act has far outstripped the government’s ability to monitor the taxpayer money it turns over to insurers. In California, for instance, some health plans have reaped outsize profits, so large the state is now trying to claw back billions in overpayments, a recent Kaiser Health News investigation found.

Medicaid enrollment has soared to 74 million Americans, from 58 million before the ACA rollout. About 75 percent of them are assigned to plans like Community Health

Group, which receive a flat monthly fee per person to handle their medical care.

Increasingly, states have embraced managed care in hopes of controlling Medicaid costs. Insurers could see further growth as the Trump administration and Congress seek to cut federal spending on Medicaid and shift more of the fiscal burden onto states.

These managed-care contracts can be highly lucrative for the companies involved and their executives, like Diaz and Garcia. Any money left over after spending on medical care and administration is profit or “surplus,” depending on whether the plan is nonprofit.

Federal auditors have warned for years about lax oversight of Medicaid money, a task that primarily falls to states. A 2017 report found that even as managed care has grown in importance, states have fallen behind in collecting essential data from plans.

In the past year alone, government auditors and consultants criticized Illinois, Kansas and Mississippi for poor supervision of Medicaid insurers. Illinois auditors said the state didn’t properly monitor $7.1 billion paid to Medicaid plans in fiscal year 2016, leaving the program unable to determine what percentage of money went to medical care as opposed to administrative costs or profit.

An examination of Community Health Group in California points to systemic flaws in oversight.

For instance, California officials said they do not examine the companies’ public tax filings. As a social welfare nonprofit, Community Health does not pay taxes, but it is required to file returns with the federal government, known as 990s, which provide basic information about operations and finances.

In a review of Community Health’s recent returns, KHN discovered that the company falsely denied — on the 2015 and 2016 forms — that it was doing business with a family member.

In response, the insurer immediately said that was an error and it was amending the returns to reflect its relationship with Garcia. The company had disclosed the relationship in earlier years.

California’s Medicaid agency, in a statement, said insurers are allowed to set their own conflict-of-interest policies. Asked specifically about Community Health Group, it referred further questions back to the health plan.

Likewise, the state’s chief insurance regulators at the Department of Managed Health Care said in a statement that insurers are not required to submit information on executive compensation and the state does not set standards for that. They do review the pay of outside contractors.

Diaz and Garcia, sitting together at a conference table in the CEO’s office on a recent weekday, said they were proud of their long record of helping disadvantaged people. The couple insists there’s nothing wrong with mixing work and family.

Community Health Group, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

Diaz, 56, said her husband reports not to her but to a fellow executive, the associate CEO, and his consultant’s role was approved by the health plan’s board. “I don’t feel for me it’s a conflict of interest because he was here for many years long before we ever got married, so we got used to a working relationship,” she said.

Garcia, 66, served as the company’s on-staff chief operating officer for about 15 years and then switched in 2011 to the role of consultant (acting as COO), which ultimately raised his pay. He said the couple has never tried to hide their personal relationship from the state or anyone else.

“I understand from the outside someone might say ‘Oh my God. That’s a conflict.’ But it’s not. It’s irrelevant that I’m her husband,” he said. “I don’t see how it’s a misuse of public funds. The expense for a chief operating officer would be made no matter what, and my compensation is fair.”

His total compensation reached $487,386 in 2016, according to the insurer. From 2012 to 2016, the health plan paid him a total $2.3 million.

Under his consulting agreement, Garcia is paid $275 an hour and can make as much as $572,000 annually, according to documents obtained by KHN through a public records request. The health plan had requested the information be kept confidential, but the state released it.

In September, regulators at the managed-care department asked Community Health Group how Garcia’s pay was determined. The company submitted a pay range for chief operating officers that it said was drawn from industry surveys.

Community Health said it picked the maximum figure in the range, $442,863, to reflect Garcia’s “many years of experience in health plan operations.” It then increased his pay range by 30 percent because it said Garcia doesn’t receive benefits. The plan called his current salary — which in 2016 fell below the maximum allowed — “both fair and competitive.”

An agency spokesman said the state’s review of the matter is closed.

In early 2012, the insurer hired a new executive as COO, but he left the following year. Garcia stayed on as a consultant during that time at roughly $400,000 annually, then resumed his COO duties. His current consulting agreement runs through 2021.

“We don’t want to lose Joseph. He has a tremendous amount of knowledge,” said Albert Vitela, a retired San Diego police detective who is the plan’s co-founder and chairman.

As for Diaz, she has received $2.8 million in salary, benefits and other compensation over the five years ending in 2016. Her 2016 pay of $604,502 exceeded that of the CEO of the Inland Empire Health Plan in Southern California, which has four times the enrollment.

(Story continues below.)

Last year, federal auditors examined compensation for the 133 top paid executives at managed-care organizations in seven states, focused on health plans that get more than half of their revenue from Medicaid.

For 2015, the top executives earned $314,278, on average — more than double what state Medicaid directors earned, according to the report. Auditors didn’t find major differences in pay between for-profit and nonprofit Medicaid plans.

Executive compensation has risen as Community Health Group recorded hefty profits.

State officials had raised the rates paid to Medicaid plans in anticipation of the Affordable Care Act rollout in 2014, but the costs for newly insured patients weren’t as high as predicted. After the KHN investigation into insurer profits published in November, California’s Medicaid director, Jennifer Kent, vowed to recoup billions of dollars in excessive payments from insurers in coming months.

From 2014 to 2016, Community Health Group recorded profits of $344.2 million, according to state data obtained and analyzed by Kaiser Health News. Diaz said her insurer expects to return more than $100 million to the Medicaid program.

Robert Stern, a government ethics expert and former general counsel of California’s Fair Political Practices Commission, welcomed the scrutiny of Medicaid profits. But he said the business practices at Community Health Group suggest there is much more to be done.

“Taxpayer money should be spent as wisely as possible,” Stern said. “It’s not their money. It’s our money.”

CMS nominee wants to overhaul Medicaid


Seema Verma, nominated by President Trump to lead the Centers for Medicare & Medicaid Services, told her confirmation hearing at the Senate Finance Committee that she’d consider clawing back parts of a rule set during the Obama administration that overhauled Medicaid managed-care programs.
She also  said he doesn’t want to turn Medicare into a voucher program, an idea backed by Health and Human Services Secretary Tom Price, M.D., and thinks  that rural healthcare providers shouldn’t face risk in alternative-payment models.

Ms. Verma said  that one of her priorities would be re-assessing a rule issued under the Obama administration that ordered states to more vigorously oversee the adequacy of Medicaid plans’ provider networks and encouraged states to establish quality rating systems for health plans. She raised the question of whether these mandates have  overly burdened the states financially.

On Medicaid,  she said that  “the status quo is not acceptable.”

“I’m endorsing the Medicaid system being changed to make it better for the people relying on it … and whether that’s a block grant or per capita cap, there are many ways we can get there.”

On Medicare, Modern Healthcare reported that Sen. Ron Wyden (D.-Ore.), the ranking Democrat on the Finance Committee, “said that she sounded like she wanted to keep Medicare a fee-for-service system.” The CMS under the Obama administration set goals to move Medicare away from fee-for-service, which was viewed as prone to abuse and fraud even as it has been very lucrative for physicians and hospitals and encourages much medically unneeded ordering of tests and procedures to maximize providers’ income.

But Ms. Verma denied Senator Wyden’s assertion and said that she supports Medicare focusing more on quality of care instead of volume.

To read more, please hit this link.




In Minn., Medicaid managed care looking at big losses


In what might be national trend, managing care for lower-income Minnesotans has become unprofitable this year.

One insurer asserts that that low payment rates from the state this year have overcorrected the big profits of 2015.

Through the first three quarters of 2016, the  Medicaid HMO divisions at  Medica and Blue Cross and Blue Shield of Minnesota posted a combined loss of about $195 million.

The Minneapolis Star Tribune said that Medica and Blue Cross were “the big winners in terms of enrollment when the state dramatically downsized Minneapolis-based UCare’s position for 2016 as a managed care organization in the largest chunk of state public programs.”

Last year, insurers in Minnesota and other states saw lots of operating income from the Medicaid business,  aided by the flood of low-income enrollees as a result of the Affordable Care Act.

“The market greatly overcorrected, which is creating the situation where we have the losses that we do,” said Geoff Bartsh, the vice president and general manager for state public programs at Medica, told the Star Tribune. “The payments to the plans from the state are nowhere near adequate to cover the costs of the program.”

Will we see a lot of similar stuff as year-end reports come in?

To read the Star Tribune’s report, please hit this link.

Cheering for Medicaid managed care, narrow networks


Jeff Myers, CEO of  Medicaid Health Plans of America (MHPA), is pushing hard for more managed care for Medicaid patients. He asserts that it’s a smarter approach than having government  directly pay healthcare providers.

His approach is doing well: Nearly 55 million people — about 75 percent of all Medicaid enrollees — are now covered under managed care, a sharp increase in the last few years.

And he said in an interviee in The Hill:  “Even people who really support the ACA know that it needs fixing. The question is what fix. And as those fixes get considered, the way in which that fix runs up against Medicaid is terribly important, and that’s the area where we’ll really look at.”

But some insurers with experience in the Medicaid business are faring better. And that’s no coincidence, Myers says.

One advantage for Medicaid managed care is that encourages having a narrower  provider networks, which can cut costs.

“It seems to me that the exchange products that work best are ones that, rather than just open up a giant network and provide lots of services, really look at, are there services that we can open up and drive that will improve health outcomes and reduce cost?” Mr. Myers told The Hill.

“And a lot of that design is obviously built into Medicaid.”

To The Hill’s interview with Mr. Myers, please hit this link.



Texas hospital-owned insurer makes big bet on plan for indigent, disabled children



Driscoll Children’s Hospital.

Driscoll Health Plan, a subsidiary of Driscoll Children’s Hospital, in Corpus Christi, Texas, took  on a lot of risk when it contracted to run a new, value-based Medicaid managed-care plan for indigent, disabled children next year  even before the state decided what it will pay.

MedCity News noted that  insurer “also will have to sign contracts with physicians months before it knows the rates for STAR Kids, the pediatric component of the State of Texas Access Reform Plus (STAR+Plus) program that takes effect in the fall of 2016.”

“It’s a signature of faith,” said Driscoll Health Plan CEO  Mary Dale Petersen, told the online publication. “It also means that Driscoll will have to be efficient and effective at coordinating care.”

MedCity reported that Driscoll will  work  “closely with the physician community in the 24 counties — covering 25,000 square miles — of its service area in South Texas to make sure families have proper care plans and that primary-care physicians have communication with hospital emergency departments in the name of care continuity.”

Can states meet Medicaid managed-care data challenges?


This article in JAMA asks whether the states can meet the data challenges of modernizing Medicaid managed care as many new Medicaid beneficiaries continue to be enrolled in states that have not rejected the Medicaid expansion promoted by the Affordable Care Act.

BOOM!Health as model for marginalized patients


By LISA GILLESPIE, for Kaiser Health News


Harm-reduction centers — where drug users and sex workers can get clean needles, syringes, free condoms and HIV-prevention information — have existed for decades.  They’ve generally operated on the outskirts of the healthcare system and pieced together shoestring budgets with the help of state and federal programs as well as private donations.

But harm-reduction centers are increasingly trying to reposition themselves as a commodity for hospitals and insurers because of their unique experience in coordinating care for high-risk and often marginalized patients.

Robert Cordero, outgoing president and chief program officer for New York City’s BOOM!Health, says this opportunity is new — and very real. A decade ago, he adds, this nonprofit, integrated health clinic, with its $12 million operating budget, would have struggled to survive. That’s changed now. State-based health reforms, coupled with new incentives put in place by the federal health law, have improved the clinic’s prospects.

Boom!Health was created two years ago when two New York-based organizations — Bronx AIDS Services and CitiWide Harm Reduction — merged to create a new healthcare delivery model that combined harm-reduction services with primary- care, preventive- and behavioral-health services. The clinic also works with an on-site pharmacy to assist patients with medication management, helps homeless patients find affordable housing, and provides  such other services as food and nutrition counseling and legal aid.

The New York Academy of Medicine recently pointed to BOOM!’s integrated approach as a possible model for other clinics around America. It involves partnerships with a local hospital, a Federally Qualified Health Center and other community-based health organizations to reach a down-on-their-luck population sometimes struggling for basic survival. The momentum for these partnerships is fueled in part by providers’ interest in forming the accountable care organizations created by the health law as well as New York state’s push for Medicaid managed care and its reforms toward a value-based, rather than a fee-for-service payment system.

I asked him whom his organization serves:

“We receive Medicaid funding through Medicaid managed care organizations from hospitals like the Bronx-Lebanon Hospital Center, and it’s all tied in with Medicaid expansion and health care reform. Community-based organizations can participate in reform by providing care coordination to people with two or more chronic conditions, many of whom have behavioral health conditions and addiction issues, or things like asthma and diabetes. The hospitals we partner with pay us a ‘per- member, per-month’ rate. Medicaid assigns … high utilizers with two or more conditions to these hospitals, and they have to show health care outcomes.

“There’s a patient I can recall that got tested for hepatitis C using rapid-testing technology by our community outreach worker. He tested positive, and was immediately connected to our in-house doctor, the pharmacy and assigned to a care coordinator to help him navigate all of that, including getting Medicaid to cover the cost of medication, which is incredibly expensive. His treatment regimen was a few months, and eventually he was cured. There are a lot of barriers, even for those who are middle class — you have to figure out the system. So for low-income people who are more marginalized, BOOM! is a great model if you’ve got a tough medical condition.”

So why don’t hospitals manage these patients themselves?

“Hospitals aren’t good at going out in to the community and finding people in shelters. Hospitals are there when you need them. Most patients assigned from Medicaid are disconnected from the medical system, so any effort is more effective than overdosing or whatever it may be.

“The highest utilizers of the Medicaid system, if you take out long-term care and people going into nursing homes, it’s people who have mental health issues and addiction. So it’s costing the system a lot of money. No one knows what to do with them, people think, ‘Just send them to treatment.’ Only 10 percent actually go to treatment.

“We either say we’re going to figure out a way to adjust their needs or wait for them in the ER, and then the system has to pay for it. We’re already comfortable and knowledgeable about the populations we serve. But you have to prove that. So we invest a lot in measuring and evaluating outcomes. If you can prove your value in an outpatient setting, you have negotiating power.”

How did the partnerships start with hospitals?

“We reached out to the hospitals, and that’s how much of the relationship building is happening. …

“And then we pitch them on subcontracting through Medicaid funding, which is how we ended up partnering with a federally qualified health center that gets a higher rate from Medicaid. And that means they have a little more to spend and more time with patients.”

What lessons can you offer to other similar organizations?

“Payment is now based more toward outcomes, which means we have to be more sophisticated with data systems and infrastructure. With Medicaid expansion, we’ve been able to get the funding to build data systems and IT systems.

“Too many nonprofits unfortunately are struggling to figure out a way to participate in reform because what they’re trying to do is retrofitting into the system of care without looking at how to have steady revenue coming in. You don’t have to become a hospital, but you have to become really good at what you do and show it works.”

Transformation of Medicaid managed care


Sara Rosenbaum writes in the blog of the Commonwealth Fund:

“The updated proposed Medicaid managed care federal regulation published by the Centers for Medicare and Medicaid Services on June 1 is a formal recognition of managed care’s central role in national Medicaid policy and in the lives of beneficiaries, including families with children, people with disabilities or serious health conditions, and Medicare beneficiaries who also receive Medicaid (known as dual enrollees). Indeed, the proposal represents a regulatory milestone in the life of Medicaid, an acknowledgement of the program’s evolution over the past 25 years, and an exemplar of the reforms and tradeoffs that will determine Medicaid’s transformation from a welfare program into a pillar of national health reform and a major player in the health plan market.”

The new proposed rule, she says,  “aims to foster the growth of companies that offer health plans in both Medicaid and the Affordable Care Act’s health insurance marketplaces to allow consumers to remain with an insurer even when their source of subsidy changes. Second, it aims to promote health plan innovation and improve accountability and beneficiary protections, especially as higher-need populations are moved into managed care. Finally, the rule will help ensure more rigorous federal and state oversight of a burgeoning industry.”

The proposed rule would, Ms Rosenbaum reports:

  • “Extend most of the tougher standards that apply now only to comprehensive managed care organizations to limited-service plans that previously have been subject to less rigorous requirements in areas such as network, access, and quality performance standards.
  • “Tighten current actuarial soundness requirements for states to ensure  payments to their health plans accurately reflect both what is covered under their contracts and the cost of furnishing those covered benefits to specific Medicaid beneficiary groups.
  • “Use an 85 percent medical loss ratio, which would require that insurers doing business with Medicaid programs spend 85 percent of premium revenue on medical care and quality improvement, as a means of measuring whether states and consumers are receiving good value for premiums paid.
  • “Require states to set time and travel standards  to measure the adequacy of provider networks, with a focus on primary healthcare, obstetrical care, pharmacy services, and children’s oral healthcare.
  • “Strengthen beneficiary grievance and appeals protections while simultaneously requiring plan members to exhaust their health plan appeals procedures prior to external review, as people enrolled in qualified health plans sold in the marketplace must do.
  • “Permit states to cover short-term inpatient treatment for mental illness and addiction disorders, thereby setting aside Medicaid’s traditional exclusion of federal funding for such treatments in the case of adults ages 21 to 64.
  • “Actively encourage insurance companies selling both Medicaid and marketplace health plans to advertise this fact, thereby exempting this activity from a longstanding ban on tie-in practices.
  • “Permit plans to offer additional benefits that are permissible under federal Medicaid law but not otherwise included in a state’s Medicaid plan.”


A Q&A on Medicaid managed-care parity


The bizarre Narrenturm (German for “fools’ tower”) built in 1784 in Vienna to house mentally ill people.

This Kaiser Health News article by Lisa Gillespie ( presents  a Q&A on mental-health parity under Medicaid managed care:

The Mental Health Parity and Addiction Equity Act of 2008 is viewed as a landmark step in improving patients’ access to mental- health services. The effort was bolstered in 2010 by the Affordable Care Act. The bottom line: Individual and group insurance plans that choose to offer mental-health coverage now must do so at a level equal to that of medical coverage.

But the rollout has been slow. Federal officials didn’t release final rules for employer-based plans and policies offered on the health law’s marketplaces until November 2013. And how the law will affect Medicaid managed care plans that include both medical- and mental-health benefits is still unclear. Proposed regulations for those plans are being finalized by federal officials and expected to be released sometime this year.

There’s a lot at stake. The regulations from the Centers for Medicare and Medicaid Services will also likely determine the extent to which the law applies to Medicaid managed care “carve-out” mental-health plans that are frequently paired with separate medical insurance. In addition, experts suggest the proposed rule could, like the final regs issued for marketplace plans and employer-based coverage, do away with lifetime spending caps and other limitations that aren’t equal to those applied to medical services.


Medicaid is the largest payer of mental-health services, covering 27 percent of all mental-health spending in the United States, and 11 percent of people with Medicaid have a mental illness, according to the Department of Health and Human Services. Nationwide, 70 percent of Medicaid recipients are enrolled in managed-care plans, which are generally designed to reduce costs through improved coordination of primary care that stops unnecessary or inappropriate services. However, these plans also often have lower provider- reimbursement rates that can impact physician participation.

Emily Feinstein, the director of health law and policy at substance abuse and addiction center CASAColumbia, has been tracking the parity law’s implementation and works with states on improving mental-health and substance-abuse care. If mental-health and addiction services are not covered at the same level as medical, she says, there is the potential for more emergency room visits and acute care services that might not happen if people with Medicaid managed-care plans had access to a weekly counseling and other mental-health services.

Here’s an edited version of the Q&A with Ms. Feinstein:

Q: Why is this rule going to be so important?

A: Parity offers the promise to dramatically improve patients’ access to the full range of evidence-based mental health and addiction treatments, especially for people with more complex health problems. As chronicled by 60 Minutes in the recent segment, “Denied,” claims for intensive behavioral healthcare services are routinely denied. … The hope is that insurance companies will start to cover mental-health and addiction services for people as comprehensively as they cover care for other complex chronic diseases, like diabetes, heart disease or cancer.

Q: What’s an example of something that might change if parity was applied to Medicaid managed care?

A: A big problem right now is Medicaid excluding medications that treat opioid addiction –methadone, buprenorphine and naltrexone. Medicaid coverage for these medications is uneven and even in states that cover them, managed-care plans find ways to limit access.  For example, they say you have to fail psychotherapy first before you can get buprenorphine, or that you have to fail first on a cheaper alternative before you can get to the more expensive treatment. Or they require prior authorization, so doctors can’t prescribe the drug right there.  These policies have big consequences. If people can’t get the medication they need, they are at risk of dropping out of treatment and relapsing.  For addiction, the “fail” in fail first means relapse.  And for opioid addiction, relapse can be fatal. These kinds of policies violate the federal parity rule, unless insurance companies apply the same limitations to medical treatments, and we know they don’t.  It’s really a cost containment strategy.  If the parity rule for Medicaid addresses these issues, many more people will be able to access addiction medications, and many lives can be saved.

Q: Where – meaning in what states – might enrollees feel the most impact in terms of new regulations for Medicaid managed-care plans?

A: My sense is that there is huge variability among states.  Some states have identified mental-health and addiction treatment as a way to improve cost savings [in their Medicaid programs] and healthcare outcomes, and they’re already trying to improve access to care. Other states, which for political reasons aren’t expanding Medicaid, will have less coverage for addiction and mental health, because they’re not doing everything they can provide care in the first place.

Q: Do you anticipate there will be opposition to such an effort?

A: There is resistance of course from the insurance industry, especially from managed-care companies that contract with Medicaid, who are concerned that parity requirements will increase their costs. For providers [such as doctors and hospitals], there are concerns about whether the rule will be clear enough and will provide enough protection when insurance companies deny care, either because the services aren’t covered at all, coverage is limited or because the insurance company claims the services aren’t necessary. Some parts of parity, for example — not imposing higher co-payments or number of visit limitations on behavioral healthcare — are very clear and easy to implement. Most insurance providers are already in compliance with these requirements. The more challenging issues are “non-quantitative treatment limitations” like the process for medical necessity review [where insurers determine whether or not a service is necessary] -this is where more clarity is needed.

Q: Could access issues increase as a result of the rule? We hear a lot about shortages of mental-health providers. How does this play into that discussion?

A: Ensuring that there are enough mental-health and addiction- treatment providers to meet patient demand will be a big challenge. Federal rules already require Medicaid managed care plans to ensure there are an adequate number of providers in their network, but states are allowed to define what adequate means. The result is huge variation.  And there is little enforcement.  One reason there aren’t enough providers in Medicaid plans is that the reimbursement rates in Medicaid are very low, and providers say they can’t afford to take many Medicaid patients.

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