MEDICAID/MEDICARE HMOs: Largest Plans Are Pulling Back

      The nation's largest HMOs are shutting down services to Medicare and Medicaid patients in response to shrinking government payments, the New York Times reports in its lead story today. Aetna U.S. Healthcare, PacifiCare, Oxford Health Plans, Kaiser Permanente, Blue Cross and Blue Shield and others have dropped Medicaid services in more than a dozen states including New York, New Jersey, Connecticut, Florida and Massachusetts. Medicare has felt the tremors of HMO withdrawal as well -- Anthem Blue Cross and Blue Shield pulled out of Medicare plans in 19 counties in Ohio and California-based Health Net cut services in 10 counties. But Medicaid has taken the most hits, and patient advocates worry that the cuts in services "will mean a return to crowded 'Medicaid mill' clinics delivering inferior care." The federal health plan for the poor "has gone sour" for some HMOs, said Virginia Commonwealth University professor Robert Hurley. He said last year was the "high water mark for commercial HMOs" and withdrawals have been accelerating since then.

Totaling Up The Losses
      The Times reports that "most of the withdrawals from Medicaid care have come in the most populous states with large pockets of urban poverty," which could mean "a return to the low-budget, unmanaged care that the large commercial HMOs helped remedy." The cuts in services highlight the clash between the government's need to contain costs and the health plans' desire for profit. HMOs rushed to sign up Medicaid beneficiaries in managed care plans, but when states began to slash reimbursement rates, the plans found themselves rapidly losing money. For example, Blue Cross and Blue Shield of Arizona received a three-year Medicaid contract in 1994 and enrolled 45,000 beneficiaries. "We had not been in the Medicaid market, and the decision was made to expand into it," said Richard Hannon, the health plan's senior vice president for marketing. "We considered it good to serve a broad range of Americans." But when the government offered to renew Blue Cross' contract last year, the health plan pulled out. "We got out because we found it extremely difficult to manage that patient base," Hannon said. Bruce Fried, the former director of the federal Office of Managed Care, said: "Some of the best plans have said, 'We can't do business on this basis. We're going to have to leave the system.'"

What's To Blame?
      There is more to the large-scale withdrawal than HMO inexperience with federal programs, the Times reports. Low reimbursement rates and higher quality-of-care standards have been stumbling blocks for many managed care companies. HMOs "note that increases in their government reimbursements have slowed to 2% a year, below the rate of health care inflation." Maura Bluestone, director of New York's Bronx Health Plan, said the state cut reimbursements to the plan by almost a quarter in 1995. And she said higher quality-of-care requirements mean more expensive operations. The number of HMOs serving only Medicaid patients is also climbing -- 44% of HMOs with Medicaid contracts served those patients exclusively in 1996, up from 39% in 1993. Sara Rosenbaum, director of the Center for Health Policy Research at George Washington University, said that could be good for poor patients "because they benefit from access to well-run organizations experienced in treating them." But Kaiser Commission on Medicaid and the Uninsured Executive Director Diane Rowland said the trend is ominous -- "HMOs that serve only the poor are unable to shift profits from serving healthier clients to the poor, as more diverse HMOs do" (Kilborn, 7/6).