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Utah's Medicaid overhaul has hit a snag.

The state's Office of the Inspector General is pressing to delay contract negotiations with four managed care groups that, starting in January 2013, will oversee care for 70 percent of the 252,000 Utahns on Medicaid. The experiment is intended to boost the quality of care and save taxpayers $770 million over seven years.

Whether those gains are realized rests on the strength of agreements struck with Intermountain Healthcare, University of Utah Health Sciences, Molina and IASIS, argued Inspector General Lee Wyckoff in an Aug. 2 memo to the state Department of Health.

"At this time," said Wyckoff, those agreements "lack proper controls."

The memo, obtained through a public records request, suggests putting contracts on hold until health officials:

• Perform a financial analysis of what the state expects to reap from its $600 million investment.

• Set a timeline for implementing the so-called "Accountable Care Organizations (ACOs)" and a back-up plan if goals aren't met.

• Come up with adequate measures to judge performance.

• And define "a clear mechanism" for the Inspector General to recoup misspent funds.

Wyckoff has no authority to stop the contracts, though his concerns are shared by Ron Bigelow, Executive Director of the Governor's Office of Planning and Budget. Bigelow met with health officials on Wednesday and gave them the go-ahead to release draft contracts to the managed care plans for review.

The documents are merely a starting point for five months of negotiation, said Utah Medicaid Director Michael Hales, stressing his willingness to work with Wyckoff to resolve problems. The contracts will be fine-tuned, and if endorsed by all parties, take effect Jan. 1, 2013.

Backed by health industry chieftains and unanimously approved by the Legislature, the Medicaid overhaul was pitched as a way to preserve Utah's low-income health safety net, which is set to explode in size under federal health reform.

It envisions steering Medicaid patients into ACOs, managed care networks that would be paid lump monthly sums per patient. If an ACO spends more than allotted for care and prescription drugs, it absorbs the loss. If it spends less, it gets a share of the leftovers — similar to old HMOs of the '90s.

"We're devising a system where fraud, waste and abuse is less likely to occur," said Rep. Dean Sanpei, R-Provo, explaining there will no longer be an incentive for providers to order unnecessary tests or to overcharge for their services.

One of the sponsors of legislation to create the ACOs, Sanpei is also Vice President for Strategic Planning and Development for Intermountain Healthcare. Speaking Thursday as a policy maker, and not on behalf of Intermountain, he stressed the urgency of "building a better mousetrap."

In the past, the only way to curb Medicaid spending was to pare benefits or cut provider reimbursement, Sanpei said. "We said there's got to be a better way to control costs without compromising quality and access to care."

The savings come from limiting inflation; funding for the ACO's can't grow faster than the state's budget.

To guard against ACOs going over budget and rationing care, which happened with HMOs, the Health Department the authority to fine them and withhold future funding.

But consumer advocates say quality measures in place aren't strong enough. "They're either the same measures we have now, which are meaningless, or they're left to the ACO's to develop in isolation," making it impossible to compare one ACO with another, said Judi Hilman, Executive Director of the Utah Health Policy Project.

Of special worry to the Inspector General is the risk of ACOs gaming the system.

Though paid flat, up front rates, ACOs that wind up with older, sicker patients will be paid more than those with younger, healthier patients. So, to get more money, providers need only raise the severity of patient diagnoses — the equivalent of overbilling, only there are no bills for the Inspector General to review.

"That's a valid concern," said Dunnigan. "[Wyckoff] needs to have the ability to audit the plans and recover money for the state."

For now the plan is to have the ACOs police and recover overpayments from their own providers. "Then they'll settle with us," said Hales.

An alternative would be to set up a system for the Inspector General to impose fines.

"It remains a sticking point," said Dunnigan.

Twitter: @kirstendstewart —

Speak out

At the request of consumer advocates, the Utah Department oh Health will seek public input on the managed care contracts at a forum on Sept. 5, 1:30 to 3 p.m. For more information, email