In a drive to scrutinize hospital profits and their reliance on taxpayer funds, Gov. Rick Scott’s administration is taking aim at the largest public health insurance program in the state, Medicaid, and the private companies that last year took over managing the healthcare of Florida’s 3 million poor, disabled and elderly.
The governor’s Commission on Healthcare and Hospital Funding, meeting in Miami on Thursday, is scheduled to hear from Liz Dudek, head of the state’s Agency for Health Care Administration, who has written letters expressing concern that the private health plans now administering Medicaid may be paying hospitals too much — violating state law and contributing to steep financial losses for the health maintenance organizations or HMOs contracted to manage the care.
Also on the agenda: an overview of operations, efficiency efforts and medical quality at Jackson Health System, Miami-Dade’s taxpayer-funded hospital network, and Mount Sinai Medical Center in Miami Beach, a nonprofit. Both hospital systems receive government funding, and their CEOs, Carlos Migoya of Jackson, and Steven Sonenreich of Mount Sinai, will explain how they use the funds.
Dudek wrote to the Medicaid HMOs and every hospital in the state July 17 about the agency’s “grave concerns that hospital contractual arrangements may have ballooned to unreasonable proportions,” leading the health plans to request higher payment rates from the state and potentially jeopardizing program cost savings for next year.
In the letter, Dudek asked hospitals and insurance companies to certify by Aug. 1 to the governor’s commission that their contracted pay rates are within the law’s requirements.
Florida’s switch to Medicaid managed care is expected to reduce costs for the state by paying HMOs a fixed fee for each patient while insurers assume the financial risk of providing care for less than that sum. The state pays the HMOs more if the patient is seriously ill.
Earlier this year, as the state and the health plans negotiated payments for next year, several health plans reported that the average hospital rates in some regions exceeded the statutory limit. Yet none of the plans had requested the state’s approval to pay the higher hospital rates, as required by law.
Justin Senior, Florida’s deputy secretary for Medicaid, said that when the HMOs first bid on their contracts in early 2014, they had assumed a low rate of hospital payments. The state built that assumption into its model for calculating rates.
But when the HMOs reported their actual experience, the hospital rates were higher than assumed. Senior said the plans missed “a major invitation” to renegotiate their hospital rates after signing their Medicaid contracts, which are subject to state law.
“It looked like nobody made an attempt to use that as a lever to lower the cost of hospital services,’’ he said. “That 's an issue. ... We will not build inefficient contracting into the rates.”
Working through the Florida Association of Health Plans, Medicaid HMOs have said that the state’s payment rates are unsustainable. They have reported unaudited financial losses of $542.9 million through December 2014 and another $50 million through March 2015.
Audrey Brown, president of the FAHP, did not cite hospital contracts as a major driver of losses. Instead, she attributed the losses to unforeseen costs for prescription drugs such as high-priced treatments for Hepatitis C, higher-than-expected use of medical services and changes in the state’s payment structure for certain procedures, such as births.
In addition, the state requires that health plans have robust networks of hospitals and doctors , including physician specialists, to meet the needs of Medicaid patients. That’s an advantage for some large hospitals in Florida that employ many of the physician specialists in their markets, and can leverage those specialists to extract higher payment rates from plans.
Earlier this year, the HMOs asked the state for a mid-year raise of nearly $400 million, and a 12 percent rate increase starting Sept. 1. The state denied the mid-year request, and countered with a proposed statewide average increase of 6.4 percent next year, with some plans getting more and others receiving less, depending on patient populations and the counties where the plans operate.
State healthcare officials report that early assessments of Medicaid managed care have been positive: The cost per member per month for Floridians on Medicaid has been reduced by slightly more than the 5 percent required under state law.
Senior said he is optimistic that Medicaid managed care, which began as a pilot program in 2006 under then-Gov. Jeb Bush and went statewide in August 2014, can continue to control costs.
Brown said she foresees cost increases for all Floridians with health insurance if the HMOs cannot make their Medicaid plans cover costs and produce even a modest margin, something she said was only possible with a greater increase than the state proposes.
“The ultimate consequence of rate inadequacy,” she said, “is that it will have an impact on commercial payers. There will also be an impact on the overall sustainability of the Medicaid managed care program if health plans continue to experience significant losses.”
If you go
The Commission on Healthcare and Hospital Funding is scheduled to meet at 9 a.m. Thursday at Miami Dade College Medical Campus, 950 N.W. 20th Street, Room 1175, Miami