Medicaid's managed care costs too high

Legislative audit » Lack of oversight costing state as much as $19 million
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Utah's Medicaid program isn't providing enough oversight of its managed care plans, a problem that is costing the state as much as $19 million, according to a Legislative audit released Tuesday.

Milliman Incorporated, a consulting firm hired to help with the audit, found $6 million to $12 million that could be saved if two providers -- Molina Healthcare Utah and Select Access -- matched the rates of the lowest-cost provider, Healthy U.

The audit also found the jointly-run state and federal program overpaid for emergency room care in fiscal year 2009 by $7 million. And it suggests possible routes to more savings, such as reducing ER visits.

Medicaid's managed care plans contract with health care providers and medical facilities to treat recipients at reduced costs. In order for them to work, however, "there must be strong oversight and proper incentives," which Utah hasn't had for the last seven years, the audit said.

The problem began in 2002, when the state stopped paying the plans a per-member, per-month fee. That system meant the plans could lose money if patients' use of health services and costs exceeded their fees.

The managed care companies asked for an 8 percent increase in premiums, which the state, in a recession, couldn't afford. Molina and Healthy U agreed to continue serving Medicaid patients, but only if they were reimbursed the full cost of medical claims plus an administrative fee.

The audit recommends Medicaid return to the flat fees, which give plans an incentive to control costs. Medicaid switched to that payment model for Molina in September.

"We do not think the cost-plus contracts have been optimal," state Medicaid director Michael Hales told the Legislative Audit Subcommittee Tuesday. "We do, however, think they are better than the alternative fee-for-service (model)."

The audit said Medicaid should encourage more managed care plans to enter the state and expanded them in rural areas.

In 2009, auditors also found, Medicaid inadvertently paid 98 percent of all billed ER charges. For non-emergency care, however, ERs should have been paid 40 percent for urban claims and 65 percent for rural claims. Medicaid is recovering those overpayments and has fixed the faulty system for fiscal year 2010.

The program should also find ways to redirect patients to primary care doctors or urgent care facilities for non-emergency care, the audit said.

The average urban ER claim for providing non-emergency care is $589, while a doctor or urgent care visit averages $126 -- a $463 difference, according to an analysis by the Bureau of Coverage and Reimbursement.

Utah, the audit notes, is one of 20 states using a federal grant to contact Medicaid patients who have gone to an ER for non-emergency care. Preliminary results show they are 82 percent less likely to do so again after hearing about alternatives.

The state should consider screening ER patients and sending those with less serious health problems to on-site urgent care centers or other less costly facilities, the audit added.

By the numbers

» In fiscal year 2009, Medicaid's total enrollment approached 180,000, for a total cost of $1.7 billion.

» Utah's two managed care plans, Molina Healthcare Utah and Healthy U, served 69,000 enrollees in four urban counties at a cost of $218.4 million. A third plan, Select Access, operates slightly differently and is not considered typical managed care.

» The program's managed care expenditures for Molina and Healthy U have increased about $39 million, or 22 percent, over the last five years.

What's next?

The Health and Human Services Appropriations Subcommittee will discuss the audit today.