MEDICAID: HMOs, Nursing Homes Leaving Program

      "Having embraced Medicaid patients in the early 1990s after long shunning them, some major health maintenance organizations are pulling out of the largest Medicaid programs," the Wall Street Journal reports. "One big reason" managed care plans are turning their backs on Medicaid is that states "have reduced the per-member monthly rates they pay HMOs by 10% to 20% or more in the past three years." The Journal notes that Aetna U.S. HealthCare "recently terminated its Medicaid HMO operations in New York and Connecticut, citing high administrative costs;" and in Ohio, United Health Care Corp. pulled out of the Medicaid program "last winter, after the state cut its rates by 19% over three years." In addition, Oxford Health Plans "is in the process of leaving the New Jersey and Connecticut programs and says it is weighing its options on whether it will remain a participant in the New York Medicaid program."

A Lost Bet?
      According to the Journal, HMOs "bet they could sharply curtail the use of high-cost emergency rooms and better manage chronic diseases by giving Medicaid patients their own primary care doctors." But managed care officials now "blame the states for forcing them to make cutbacks that, if ordered by legislators themselves, would get state politicians in hot water." Sanford C. Bernstein & Co. analyst Kenneth Abramowitz said, "States have been so concerned about saving money in the short term, that they undermined their long-term chances of cost containment. It's government stupidity at its highest level." The Journal notes that Florida reduced Medicaid HMO payments by 14% in 1995. And the New York Medicaid HMO program "has been particularly troubled," mainly because it "offers a rich benefits package that pays for many services rarely covered by commercial HMOs." Despite the rich benefits package, the New York program "cut monthly per-member rates paid to HMOs in New York City from $171.22 to an average of $121.92 per member, a reduction of 29%, according to the New York State Coalition of Prepaid Health Services Plans." The group, representing "Medicaid HMOs established by hospitals, says its members are losing an average of roughly $11 on each Medicaid member each month."

More Pointed Fingers
      Responding to HMOs' criticisms about payment cuts, state Medicaid officials charge that "big HMOs envisioned a big revenue stream from Medicaid without thinking hard enough about the costs." Bruce Bullen, the head of Massachusetts' Medicaid program and chair of the National Association of State Medicaid Directors, said, "Some for-profit HMOs 'got in but didn't understand the Medicaid line of business' and are leaving because they don't have the stomach to deal with the complex problems of caring for the poor." New York Health Commissioner Barbara DeBuono said she takes "great issue" with HMOs' criticisms that the state sees Medicaid managed care only in terms of budget savings. "'We are using HMOs to provide high-quality care instead of the dysfunctional, haphazard treatment' Medicaid patients got under the fee-for-service program," said DeBuono. She also said the state's HMO payments are not too low. Health plans "should do a better job of controlling costs or, as [DeBuono] puts it, 'get out there and start managing care.'"

Concerns About Patients
      One concern patient advocates have about the trend is the possibility that "Medicaid clients will be thrown back to so-called Medicaid mills -- small clinics that generate revenue from high patient volume -- letting care suffer and costs soar again." In addition, the Journal reports that a "two-tier system is emerging" in some cities, where an "increasing share of Medicaid patients get their care from newly formed HMOs that specialize in Medicaid patients but sometimes offer a narrower choice of doctors than the name-brand HMOs" (Langreth, 4/7).

Nursing Homes Too
      Today's Wall Street Journal also reports that a flight from Medicaid may be emerging among nursing home companies. Louisville, KY-based Vencor Inc. "has withdrawn or begun withdrawing 13 homes in nine states from Medicaid," and the company "says another 25 homes are candidates to be withdrawn because they are in cities where Vencor wants to link long-term hospitals it already owns with specialized nursing homes aimed at higher-paying patients." Vencor also says it "may eventually open 90 non-Medicaid, specialized nursing homes, many of them built from scratch, the rest transformed from existing Medicaid facilities." According to the Journal, Vencor wants to "maximize the number of non-Medicaid patients coming through its doors." The company also complains that "a growing number of successful lawsuits against nursing home owners will hold the company to ever-higher standards of care that it can't sustain under Medicaid rates." Vencor COO Michael Barr said the company is "losing money on its Medicaid patients -- a standard complaint" in the industry. "We'll go out of Medicaid in all 300 buildings if we don't start to see a little change in the Medicaid program," Barr said.

Targeting Those Who Can Pay
      The Journal calls nursing homes' decision to give up Medicaid patients a "gamble. But with big public companies racing into the nursing home industry and pursuing more aggressive pricing strategies, many other companies also are targeting the higher end of the market." Analysts say other companies may follow Vencor's "lead in jettisoning Medicaid recipients." The Journal notes that "[n]ew federal rules will help: Changes expected May 1 will allow Medicare rates to go as high as $600 a day for the most intensive level of care," according to industry observers. But "complicat[ing] the process of phasing out Medicaid patients is the fact that many start out as paying residents and only later switch to Medicaid." In addition, many facilities "rely on the government program for a good chunk of their revenue" and to keep their "census up." Nevertheless, the Journal reports that the trend "is likely to happen more." The newspaper notes that only California and Tennessee "bar mass evictions" of Medicaid patients, while "[n]early all other states leave the matter entirely up to the nursing home owner's discretion" (Moss/Adams, 4/7).