PENNSYLVANIA: Review Finds Some Medicaid Rates Too Low
A state-funded study released yesterday found "the state Department of Public Welfare paid HMOs too little money to cover the needs" of disabled and chronically ill Medicaid recipients in the Philadelphia area last year. The study was commissioned to review reimbursement rates for HealthChoices, the year-old program that placed "nearly all Medicaid recipients in Southeastern Pennsylvania into managed care." The Philadelphia Inquirer reports that the results of the study, conducted by Arthur Andersen LLP, "have been eagerly awaited, because all four HealthChoices [HMOs] lost money last year."
Not All Bad
The Andersen study found some overpayments. For example, the study found the "Welfare Department overpaid insurers by assuming a five percent inflation rate" whereas "[t]he national rate was 1.7%." The department's rates, further, were deemed "sufficient to cover most Medicaid recipients, including mothers and children." However, the study found that reimbursements were insufficient to cover the costs of disabled patients, where the department "underestimated rates by at least three percent." The study also found that the department's failure to set higher rates for the chronically ill, "except those with AIDS," had "placed a financial burden on HMOs." Finally, the report stated that "the agency had forecast that administration and profits would amount to no more than 11% of medical costs, though a more appropriate figure is 13% to 15%."
In testimony before the Pennsylvania Legislative Budget and Finance Committee, a joint state House-Senate panel, state Welfare Secretary Feather Houstoun "disputed many of the report's statements." She downplayed the significance of the 45-page report, saying that even if the state heeded its recommendations, it would only have to raise Medicaid reimbursement rates by one percent, or $8.9 million. "Welfare officials said that a one-year loss at the four HMOs did not necessarily mean Medicaid rates were too low," pointing out that HMOs in the Philadelphia area were making money just a few years ago. Houstoun told the committee that "HealthChoice HMOs have to become more efficient" (Stark, 2/12).