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What are the actual costs of privatizing Medicaid?

Proposed legislation to request an audit of all privatized Medicaid services is an important first step in that process

Photo by Molly Heins

The R.I. Senate has an opportunity to cast a penetrating eye on what the costs of privatizing Medicaid services in Rhode Island have been by endorsing a legislative request for an audit of these expenses.

By Richard Asinof
Posted 4/29/19
New legislation proposed to request an audit of the privatized Medicaid services in Rhode Island promises to provide, for the first time, the kind of financials to evaluate the performance of the programs, a necessary tool to understand the problems with privatization.
Will the R.I. General Assembly have the gumption to follow through and authorize an audit of privatized Medicaid services? Who will hold accountable entities accountable for their performances? Why is it that the privatization of health services is always targeted at the most vulnerable, most frail residents of Rhode Island? Why has there been so little coverage by other health care reporters in the state about the proposed legislation requesting an audit of privatized Medicaid services?
There is a certain incredulity that comes with the effort by Lifespan to sabotage the pending merger of Care New England and Partners Healthcare, an apparent act of desperation that seems to reflect the arrogance of a bully who discovers that he is no longer included in the conversation because of the poor way he has behaved in the past.
Instead of throwing shade on the merger, Lifespan might be better served by investing its time and resources in initiatives that can improve its future position in the marketplace as well as its bottom line.
Things like: creating an emergency room that exclusively serves senior patients; building affordable housing on one or more of its campuses; partnering with Clinica Esperanza to expand the successful effort to avoid unnecessary ER visits; developing a state-of-the-art, non-invasive neuromodulation clinic to treat migraines as well as rheumatoid arthritis; expanding its clinical approach to cardiology employing mindfulness techniques; and creating a research institute that seeks to prepare health systems to be prepared to treat the increasing disease threats as a result of climate change.
Instead of lashing out, Lifespan would be better served by rethinking how it approaches health care and focus on building a better business model.

PROVIDENCE – Beginning in 2013, with the launch of Rhody Health Options, there has been a concerted effort by the state to try to achieve better health outcomes and reduced costs through the privatization of Medicaid services to managed care organizations [health insurers] and private contractors.

The formula has followed a predictable script: to control ever-escalating costs in serving a vulnerable population of Rhode Island residents, state services have been outsourced to private contractors, always with the promise that the shift would achieve better outcomes and reduce the cost burdens on the state.

But, despite such optimistic promises, the results achieved to date through privatization have been negligible at best, with poorer outcomes, few if any cost savings and, in many cases, cost overruns. Further, no one has ever been held “accountable” for the mistakes and bad decision-making around privatization of Medicaid services.

All that may finally be changing, as a result of new legislation filed in the R.I. Senate on March 14, requesting that the Rhode Island state auditor general conduct or oversee a study or audit on the privatization of Rhode Island’s Medicaid programs. If approved, what such an audit will document, for the first time, is an accurate, transparent accounting of the financial consequences or privatization. A similar audit conducted by Connecticut in 2009 revealed $50 million in state Medicaid overpayments to private contractors.

A flawed initiative from the start
Rhody Health Options, the management of the dually eligible population receiving both Medicare and Medicaid, was outsourced to Neighborhood Health Plan of Rhode Island, in a sole-source contract, based upon what turned out to be a specious projection that some 3,000 residents of nursing homes would be able to return to their homes as a result of the initiative, according to published claims by Brown University researchers.

Reality intervened; the number of nursing home residents who were dually eligible that were able to return to their homes, in total, was, at best, a couple hundred over the entire length of the program. After five years of high costs and dismal failure, with tens of millions spent on administrative fees to Neighborhood Health Plan, the R.I. General Assembly finally pulled the plug in 2018, returning the services to state control.

The “problem” centered around demographics, something that the alleged management prowess of a private contractor could not cure – the state has an increasing “old old” population, residents 85 and older, and the peaking of chronic diseases afflicting them, including dementia and Alzheimer’s and Parkinson’s, made it unlikely that the frail dually eligible population would ever be able to return home once a medical determination had been made, given the need for 24/7 care.

Despite numerous and persistent complaints about the program, the R.I. Executive Office of Health and Human Services consistently ignored the criticisms and kept pushing the effort forward. [ConvergenceRI has reported on this in dozens of stories, from its very first issue.]


A similar story thread played out with the adoption of the Unified Health Infrastructure Project, or UHIP, which sought to create savings, improve efficiencies and reduce labor costs by deploying a one-size-fits-all software system built by Deloitte to determine benefit eligibility for Rhode Island’s poorest, most vulnerable residents.

We all know how well that turned out; it cost the state tens of millions of dollars in cost overruns, with tremendous collateral damage done to the state’s infrastructure for long-term care services, not to mention the human cost to thousands Rhode Island’s most vulnerable residents who became caught up in the snafu.

Five years after the software was first initiated, and three years after its botched launch in September of 2016, the Deloitte software system still has major glitches, glitches that Deloitte is now promising to fix under its new contract renewal, glitches that had been identified as early as 2014 by HealthSourceRI, resulting in nearly $10 million in costs to fix the glitches with manual overrides.

The UHIP boondoggle followed the same script: in an effort to control ever-escalating costs in serving Rhode Island’s most vulnerable residents, state services were outsourced to a private contractor, Deloitte, with the promise that the new technology system would achieve better outcomes and reduce labor and cost burdens on the state.

And, through out all the controversy, R.I. EOHHS kept promoting Deloitte’s flawed software system as the best answer. Still today, there is no willingness to conduct a case study of what went wrong to prevent future boondoggles. [Once again, ConvergenceRI has published dozens of in-depth reports on UHIP and what went wrong. See link below to the most recent story, “When it comes to UHIP, money talks, the needy walk.”]

Reinvention of Medicaid
In 2015, as the signature program of the first Raimondo administration, Medicaid was “reinvented,” with the promise of providing better service, better outcomes and reduced costs through the creation of what are known as “accountable entities” to manage the population health of managed Medicaid members. [In retrospect, it sounds like a fast food pizza ad.]

In 2015, the R.I. General Assembly enacted the Reinvention of Medicaid Act, but the process to create certified accountable entities has taken more than four years to finalize. Despite the fact that long-term care services under Medicaid remain the largest share of all Medicaid costs, no accountable entity has yet been created for long-term care services.

Further, none of the alleged cost-saving metrics that are part of the accountable entity program will actually be enforced until April 1, 2020, nearly five years after the law was enacted, according to state officials. There remain serious problems with interoperability between health IT systems and the managed care organizations that will apparently require additional investments. As one physician described it, accountable entities “give clusterf*** a bad name.”

The two major changes that accountable entities accomplished were: inclusion of Tufts Health Plan as a third managed care organization, in addition to UnitedHealthcare and Neighborhood Health Plan of Rhode Island; and, the addition of larger health systems, including the for-profit CharterCare, Care New England, and perhaps Coastal Medical to the mix of “certified” accountable entity providers, in addition to community health centers. [Once again, ConvergenceRI has consistently reported on accountable entities for the last four years.]

More fubar with private contractors, Medicaid services
The beat goes on, with the same sad story: efforts to privatize Medicaid services for the state’s most vulnerable residents have continued to result in terrible outcomes, exposing the apparent weaknesses in the state's ability to manage privatized contracts.

On Jan. 1, 2019, the R.I. Medicaid office continued to pursue its strategy to hire private contractors with Medical Transportation Management, the private contractor that was selected to serve as the transportation broker for travel to medical appointments for Medicaid, Temporary Assistance for Needy Families Program participants, as well as services under the Elderly Transportation Program.

The contract, which was won through what the state called the standard, competitive bidding process, authorized payments of up to $115 million over three and a half years.

The result was a malfunction junction of unmet transportation needs for many clients, some of whom were left stranded, which resulted in numerous media investigations and legislative oversight hearings.

“A transition period is to be expected, but ultimately our clients deserve reliable, safe transportation to their appointments,” said a spokesperson from the R.I Executive Office of Health and Human Services, in response to questions from ConvergenceRI.

We’re focused on ensuring MTM delivers on its contract, the spokesperson continued. “Our clients and partners have shared some concerns about their experiences over the last week, which we are taking very seriously and working closely with MTM to resolve as quickly as possible.”

Second snafu

A second snafu occurred when the privatization of the payment system for behavioral health services was awarded to Optum beginning on Jan. 1, a for-profit division of UnitedHealthcare. Behavioral health services providers were not being paid in a timely fashion, putting their operations at risk. The problem was detailed in a recent story by G. Wayne Miller in The Providence Journal, “State of Health: Red Tape Blues.” [See link to story below.]

In February, ConvergenceRI had attempted to pursue the story, making inquiries with David Levesque, the new public information at R.I. EOHHS, who had previously worked for six years at Lifespan. [It was during a time when ConvergenceRI was talking with the new communications director for Gov. Gina Raimondo, Jennifer Bogdan, to see if a one-on-one interview with the Governor could finally be arranged; it never happened.]

[At a meeting of the Task Force of Drug Overdose Prevention and Intervention, ConvergenceRI also had reached out to a legislator leader as well as a representative of a behavioral health provider about the apparent snafu. Both said they were working to resolve the issue.]

For the next month, ConvergenceRI did not hear back from Levesque, save for an email on March 20, which said: “Just know I haven’t forgotten your request.”

However, on April 22, following the publication of Miller’s story, ConvergenceRI followed up with Levesque, asking for a response to the legislation filed asking for an audit of the privatized Medicaid services. Levesque said he was unfamiliar with the legislation, so ConvergenceRI sent him a copy.

The new legislation, 2019 S 0584, filed on March 14, was introduced by state Senators Sam Bell, Donna Nesselbush, Dawn Euer, Bridget Valverde and Melissa Murray. It is titled: “Senate Resolution Respectfully Requesting the Rhode Island State Auditor General To Conduct or Oversee a Study or Audit on the Privatization of Rhode Island’s Medicaid Programs.” [The link to the legislation can be viewed below.]

Among the arguments made in the legislation include:

Rhode Island has not conducted analyses of the actual costs and benefits of contracting with private health insurance companies nor collected data sufficient to undertake such analyses;

By 2018, 60 percent of the entire Medicaid budget [about $1.7 billion] went to private health insurance companies to manage Rhode Island’s Medicaid programs;

In annual reports since 2009, the R.I. Office of the Auditor General repeatedly found that the state lacks adequate oversight of such private health insurance companies;

In 2009, Connecticut conducted an audit which found that it was overpaying private health insurance companies [United Healthcare Group, Aetna, and Community Health Network of Connecticut] nearly $50,000,000 of Medicaid funds per year.“

Connecticut is a real success story in de-privatizing Medicaid and lowering cost growth, said state Sen. Sam Bell, referring to the 2009 audit of the privatized Medicaid services. In a state that has a bunch of serious budgetary problems, Bell continued, “One place it doesn’t come from is Medicaid.” Following its audit, which found some $50 million in overpayments to private contractors, Connecticut moved back to a fully public Medicaid system, according to Bell, of the legislative sponsors the bill requesting an audit.

Here is Levesque’s response to the legislation requesting the audit or privatized Medicaid services in Rhode Island, which does not, in ConvergenceRI’s opinion, appear to address the central concerns around the need for an audit around Medicaid privatization.

“Ninety percent of Rhode Islanders on Medicaid are enrolled through managed care organizations [MCOs],” Levesque wrote in a email. “Our MCOs are a critical vehicle in the transition to accountable care in Medicaid, which is resulting in MCOs contracting with Accountable Entities – integrated provider organizations that are responsible for the total cost of care and quality outcomes of an attributed population.”

This transition, Levesque continued, was consistent with initiatives taking hold across the country that represent a movement toward increased care coordination and integration as well as value-based payment.

Levesque added: “Our MCOs have continually received the highest quality rankings for the Rhode Islanders they serve and have achieved this high performance in a cost-effective way. In fact, both long-standing MCOs have been recognized by the National Committee for Quality Assurance with ratings of 4.5 out of 5.”

Further, Levesque argued that expenditure trends compare favorably to both national Medicaid total expenditure growth and state commercial per member per month expenditure growth, with per member per month costs decreasing by 2.7 percent per year from state FY 2015 to state FY 2017.

In response to Levesque’s responses, the questions are: If there is no accountable entity targeted at Medicaid long-term care services, which result in the bulk of all state Medicaid costs, how can they be successful in managing outcomes or costs?

Why was Tufts Health Plan added as a third MCO, given that they cannot hope to reach the threshold of having 5,000 managed Medicaid patients needed to qualify as a certified accountable entity in the near future?

What is the value of adding two major health systems, for-profit CharterCare and Care New England, to the mix of accountable entities, given that their rates per member per month will be substantially higher than community health centers?

The larger question is: what has been learned by state government about the previous failures to privatize Medicaid service by outsourcing contracts, with Rhody Health Options, with UHIP, with the Reinvention of Medicaid, with Medical Transporation Management, and with Optum?

An audit of privatized Medicaid services may provide the answer, if the R.I. General Assembly is willing to take its blinders off.

An inclusive approach
As a reporter covering health care in Rhode Island, it is difficult to be persistent in asking questions, again and again. The reality is that it takes great energy and perspicacity to try to navigate the health care delivery system, when some institutional players refuse to answer questions, when they do not put you on their media lists, and when they exclude you from press briefings and releases. I file such folks in the “life’s too short” folder.

It is, in many ways, like being a patient, attempting to navigate the treacherous health care system, which is more of a labyrinth, and being willing to stand up and say no to a doctor – and hopefully not suffer dire consequences, in advocating for your own best health care.


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