Medicaid privatization effort expands

As part of the state’s continued effort to privatize social services, the Department of Health and Human Services is negotiating with a for-profit contractor to manage the care of the sickest of the poor.

The department’s embrace of so-called disease management predates its effort to modernize the entire Medicaid system — and may or may not be rolled into that effort — but it is part of the agency’s goal of “continuing to look at the way we do business,” in the words of Commissioner John Stephen.

The idea behind disease management, an import from the world of private health insurance, is to improve care and save money by coordinating the care of those who are chronically ill — with illnesses ranging from asthma to AIDS — and steering them into preventive care to prevent trips to the emergency room.

Few would disagree with the concept. What is not known is how it works out in practice, how to measure savings and how to make sure that the incentives to get savings via managed care doesn’t translate into limiting care.

“Disease management is good,” said Steven Hitov, managing attorney of the National Health Law Program in Washington, D.C. “As long as it is not a code for cutting people and services.”

Estimates of how much the state could save from such a program varies widely, from several hundred thousand dollars with a limited pilot program to tens of millions through a mandatory program envisioned by the consultant working on the state Medicaid restructuring program.

Those more optimistic projections are what have some people worried.

“If they think they are going to get that kind of savings, they’ll be getting it on the back of people who are seriously ill by cutting back on treatment as opposed to doing what is recommended by physicians,” said Sen. Richard Green, R-Rochester, who supports the concept of disease management programs. “If there is any downgrading of treatment they will have a real battle on their hands.”

But HHS Commissioner Stephen said that the contract currently being negotiated does not call for mandatory treatments, nor does it restrict access to care.

Stephen would not give an estimate of how much he thought could be saved through a disease management program, but he said, “I fully believe in disease management. I would like to expand that to include chronic care management and care management. We are looking at all these areas.”

Enter McKesson

HHS has been considering some kind of disease management for at least several years, and it was entered as a line item in the last two budgets. Some $1.5 million was set aside in the latest two-year budget for a public health initiative concentrating on asthma and diabetes.

But last year the state put out a request for proposals for a private company to handle a much larger range of diseases for Medicaid recipients. McKesson Health Solutions, a subsidiary of McKesson Inc. — a pharmaceutical and medical supplies company — won the bid in July 2003 to manage for two years heart and long disease, asthma, diabetes and renal disease.

Changes in the department’s leadership held up putting the finishing touches on the contract for more than a year, and details won’t be released until the contract is submitted to the Executive Council.

McKesson Health Solutions has participated in Medicaid disease management in five states — more states than any other company, said spokesman Jordan Gruener. But Gruener would not give any figures on how much the company has saved states with its services.

While not specifying what the company plans for New Hampshire, in other states it has generally provided a telephone service with registered nurses, sometimes combined with nurses who conduct home visits to the patient’s home.

“It can save money if you can increase health outcomes, if you stay on top of your medicines and stay out of emergency rooms,” Gruener said.

Gruener said that McKesson Health Solutions currently employs 500, mostly registered nurses, but would not release any financial data separate from the parent company, which reported $150 million in sales last year.

While McKesson Inc.’s annual filing showed that the company was embroiled in class action lawsuits and prosecutions (the latest being last March’s indictment of its former chief financial officer for securities fraud), the problems don’t seem to have anything to do with its Health Solution division.

Indeed, McKesson Disease Management in Washington state was honored by the Disease Management Association of America with its Best Disease Management Program for Medicaid award. The firm achieved savings estimated at $2 million during its first year of operation.

But an audit conducted by the state of Florida, where McKesson also participated in a disease management program as a subcontractor, cautioned against trusting such estimates.

In Florida’s case, the department claimed that the state saved some $13.4 million over a seven-year period, far short of an anticipated $112.7 million. Even that figure is questionable, however, because the participating companies — there were six initially involved — would only get fully paid if they could document the savings, and the agency oversight of such savings was weak. (In one case a contractor sued Florida for not agreeing to pay it because of the lack of such documented savings.) In some cases, the program cost more money than it saved, the audit said.

In New Hampshire, McKesson’s compensation would be based on a per-member, per-month fee, and would be at risk for savings equal to the administrative costs of the contract. In other words, admission of lack of savings could cost the company money.

Privatizing such functions isn’t inherently a problem, say consumer advocates. The concern is whether the company involved is paid enough to achieve savings without slashing services.

“The unavoidable issue with all these privatized contracts is that you have to assume they are doing this to make money,” said Hitov of the National Health Law Program. “Whatever profits they make is money that is not going to services for recipients.”

A red flag?

The McKesson contract is only one of a “series of initiatives the department is moving forward with in its effort to more aggressively manage chronic conditions,” said Steve Norton, director of finance at HHS.

Other initiatives include a nurse phone to discourage emergency room services, a managed care program for mental illness, as well as identifying chronic conditions earlier and a program to deal with those who have more than one disease.

Minutes of a recent Medicaid Modernization Advisory Committee meeting show that Norton sees disease management as part of a larger managed care initiative, which also includes utilization review, or pre-certification and prior authorization for services. The state is considering contracting with a more traditional managed care company in the southern part of the state, while using a more flexible strategy in the North Country.

As part of the state’s ongoing review of other disease management opportunities it asked Maximus Inc. — the consulting company hired to come up with a restructuring plan — to review the state’s efforts on disease management, a report that was released to New Hampshire Legal Assistance as part of a Right to Know request.

Maximus recommended that the state go beyond the McKesson contract to institute mandatory primary-care case management that would expand to AIDS and hemophilia. And rather than handling this piecemeal, the firm recommended that one company handle all case management efforts as part of a “Primary Care Case Management” program, including a preferred drug list, much like that used by an HMO or a PPO.

“We therefore recommend that the care management firm be given full case management authority for the cases they manage,” the report said.

Unlike Florida, where a quarter of the possible Medicaid recipients participate in the disease management program, in New Hampshire, recipients wouldn’t have a choice.

“Mandatory participation will significantly improve care management outcomes and potential savings to the state,” said the report.

But mandatory participation could be illegal if it includes disabled recipients who also receive Medicare, said Hitov. And most of those with chronic conditions are either elderly or disabled, he said.

In addition, Maximus recommends as part of the restructuring effort that the state exempt itself from federal requirements concerning the “amount, duration and scope” of services. This kind of language raises a red flag to Medicaid advocates.

“They are trying to get around their legal obligations and exclude a lot of services that have been covered up to now,” said Jonathan Baird, an attorney for New Hampshire Legal Assistance. “That’s a disturbing thing.”

Such a comprehensive mandatory program should cut costs by a “conservative” 5 percent and would yield the state $10 million in savings, predicts Maximus. If true, that conservative estimate would yield more annual savings than Washington and Florida combined, and they are both large states with significant Medicaid populations.

Still a mystery

Whether the state adopts the Maximus proposal remains to be seen. Thus far, Maximus’ consulting services have not resulted in any savings to the state, said Stephen.

Last year, the state granted Maximus a no-bid contract that would give the company a 15 percent share — up to $3 million — of any federal revenue the company would be able to bring in. Despite “expending numerous staff resources,” Maximus hasn’t produced anything that would provide them any money, “and I don’t believe that we are going to be able to get the revenues they expected, though it has been helpful to hear from outside experts,” Stephen said.

Despite that failure, the state — without bidding — chose to pay Maximus a flat $200,000 in a contract approved in a June 23 vote of the Executive Council. Maximus is subcontracting most of that work out to Sellers Feinberg, a Pennsylvania firm that is part of TRIAD Strategies, a lobbying firm that focuses on health-related issues, with offices in Harrisburg and Washington, D.C.

Principal Martin Sellers was contacted for this article, but did not return phone calls. A year ago, David Feinberg became Pennsylvania’s deputy secretary for medical assistance programs.

The firms were supposed to prepare a draft 1115 waiver — which, if approved, would allow the state to waive aspects of Medicaid law and regulations and restructure the program in New Hampshire — by as early as Aug. 20. Stephen said that the plan probably won’t be ready for public scrutiny until September.

The Legislature attached a provision last session that required that any major revamping of Medicaid should go before the Legislative Fiscal Committee for approval, but exactly what will be considered significant enough to go in front of that committee remains to be seen.

Currently, said Stephen, the disease management program doesn’t need to go in front of the committee.

“This does not need a waiver,” Stephen said. “We are just looking at managing some of the population in a different way.”

That might be true, said Baird, but if the state plans to exempt itself from federal requirements to provide full benefits to recipients, “that is a major restructuring of the entire program. If they go ahead without consulting the fiscal committee, that completely is against the spirit of the new law.”

The problems, Baird said, is we “don’t know. Everything is so vague. There is all this planning and documentation that the public doesn’t get to see.”