Analysis: State Inconsistent In Awarding Medicaid Contracts

When state analysts evaluated Moda’s bid to continue as the Medicaid manager for most of rural Eastern Oregon, they weren’t thrilled by what they saw.

They flunked its Eastern Oregon Coordinated Care Organization in three of the six ratings categories --  finance, care coordination and delivery system transformation. They also noted that Moda had pulled big profits from the government-funded Medicaid insurer to pay out as dividends to Moda’s owners: $35 million in 2016, $7.5 million in 2017 and an expected $6.5 million or more this year.

The insurer “has a pattern of paying dividends to shareholders,” analysts said in their ratings earlier this year. “Aggressive dividend distribution plan will put (the CCO) at a less solid financial situation.”

The coordinated care organization has a “very small cushion for financial protection,” they added.

Company finances clearly played a big role in the health authority’s recent contract awards, its biggest in state history. But state officials at times appeared inconsistent in their decisions, according to an analysis by The Lund Report. State officials rejected some applicants whose finances appeared to be stretched thin. But other applicants that similarly lacked financial strength were approved, partially on the unsupported theory that their parent companies might step in and bail them out with fresh capital.

In Moda’s case, the Oregon Health Authority criticized the insurer, then approved its bid in Eastern Oregon, awarding Eastern Oregon Coordinated Care Organization another five-year contract in 12 counties with 51,000 Medicaid members. That contract is worth $300 million-plus a year from the state.

One possible reason for the decision: The state had no choice. No other organization expressed interest in the territory.

Yet Moda, which is based in Portland and operates several health insurance-related businesses, still felt the sting of the evaluators: They rejected the company’s bid to expand into Medicaid territories in Lane County and the north coast. The state flunked Moda in all six categories on its Lane County application, including business administration, clinical and service delivery and community engagement,  and in four of six categories for the north coast region that spans Clatsop, Columbia and Tillamook counties. 

In both cases, Moda faced competition, giving regulators a choice. The north coast region already has an established Medicaid insurer that state analysts passed with flying colors: Columbia Pacific Coordinated Care Organization. And Lane County had two other candidates: its existing coordinated care organization, for-profit Trillium Community Health Plan, and a new applicant, Springfield-based nonprofit PacificSource, which state analysts lauded as “successful” and “well-established” as a coordinated care organization elsewhere in the state. 

Insurers had seven days to appeal the decisions, but Moda did not take that step. 

Some Win, Some Lose 

There were winners and losers in the Oregon Health Authority’s long-awaited announcement of the Medicaid contracts for the next five-year round. The stakes are big: Next year alone is worth $6 billion serving nearly 1 million people.  Depending on what races an insurer signed up for, they ended up with a prize, were put on notice to improve or got nothing. 

The health agency said it focused on picking the best-qualified applicants – even if that meant designating two coordinated care organizations for a single region, a move that sparked a discontent in the Portland metro area.

“The applicants who showed they could do the job got five-year contracts,”  said Oregon Health Authority spokesman Robb Cowie.

“Others didn’t. We didn’t apply any strategy to the final decisions beyond setting a higher threshold and more rigorous standards.”

Still, patterns are evident.

Experienced Medicaid insurers typically did better than novice organizations. The state smiled on the few applicants that had at least some hint of financial strength – typically in the form of capital reserves or a big corporate parent that might be willing to help.

The state didn’t seem to favor nonprofits over for-profits, even though there have been moves in the Oregon Legislature to phase out for-profit coordinated care organizations.

Another pattern: Often, the state didn’t have many candidates to choose from for a single region. So it had to make do with the one they considered to be the best. 

It also didn’t seem to matter much whether an applicant secured or failed to secure the endorsement of a region’s big medical providers, such as hospital or clinic chains. The state granted Trillium’s bid for the Portland-area market even though not a single hospital in the tri-county area submitted a letter of support. The state also renewed Trillium for the Lane County market, even though two of the county’s dominant health care providers, Peacehealth and Oregon Medical Group, didn’t give it letters of support. By contrast, Moda’s Lane County application was supported by PeaceHealth, Oregon Medical Group and Springfield’s McKenzie-Willamette Medical Center. But regulators rejected it nonetheless.

The Lund Report asked Trillium and Moda to comment about the contracts but both declined. 

More Steps Ahead

The process isn’t over yet. The selected insurers now go through further screening – called a readiness review – to show they have lined up comprehensive panels of health care providers; have strong community support; and have the ability to carry out the state’s ambitious goals, ranging from better behavioral and oral health care to more initiatives to address the “social determinants of health, ” which includes aspects that affect health like housing, education and employment.

Insurers need to firm up their networks of medical providers, ensuring good service for members and locking in place below-market procedure prices to ensure their financial sustainability. 

“Network adequacy will be examined as part of readiness review,” Cowie said. “Applicants must submit an updated provider network report by Aug. 1. If an applicant cannot demonstrate adequate network capacity, they will not pass readiness review.”

The state will reveal the per-member rates it will pay insurers in 2020, and insurers will then have to decide whether to sign contracts with the state.

In territories with two insurers – most notably the Portland metro area and Lane County – the state will oversee the divvying up of members among the insurers. 

A Big Winner

PacificSource, a multi-state nonprofit that includes coordinated care organizations, commercial health insurance businesses and other insurance ventures, fared well in the Oregon Medicaid sweepstakes. With a series of wins, PacificSource looks as if it could end up as a super-CCO, managing perhaps 200,000 or so Medicaid members, about a fifth of the state’s total. 

PacificSource kept its two exclusive Medicaid territories, in the Columbia Gorge and the Bend areas. Nobody else bid for them. It was named the sole Medicaid insurer in Marion and Polk counties, beating out a new nonprofit, Marion Polk Coordinated Care. It was also allowed into the Lane market alongside Trillium. 

All that came its way -- potentially more than $1 billion in annual contracts -- even though state analysts were puzzled over PacificSource’s financial condition. The analysts said it was hard to untangle just how much capital PacificSource had behind its coordinated care organizations, urging the state to ask for more information. It appeared the capital might stand at $200 million or much less, the analysts said, but they weren’t certain. 

The most recently available financial reports for the entire PacificSource group of companies put their net assets at $264 million. A PacificSource official told The Lund Report that if the state wants more financial data, the company will provide it. The official said its coordinated care organizations are “well-capitalized” but didn’t offer details.

Financial fuzziness didn’t stop state analysts from passing PacificSource in all six of the ratings categories. They wrote that as part of a larger company, the company’s  coordinated care organizations “may have access to additional parental resources,” including “further capitalization as needed.” Yet they also stressed: “risk: questionable capital funding.”

For the Marion/Polk market, with its roughly 100,000 Medicaid members, PacificSource looked a lot better to the state than the alternative, Marion Polk Coordinated Care, which sought to  replace Willamette Valley Community Health, a for-profit coordinated care organization that is being dissolved because it has done a poor job. 

State analysts said the new nonprofit was financially shaky.

“A 2 percent negative deviation in their claims expense would result in the company being insolvent within the first half of 2021,” an analyst wrote. The state flunked the new nonprofit in all six categories and rejected its application. 

State analysts also rejected the application of a current Medicaid insurer, Primary Health of Josephine County, saying the insurer risked becoming insolvent. 

Both Primary Health and Marion Polk have appealed.

Trillium Stirs Discontent

In the Medicaid decision that has drawn the most attention in recent days, the Oregon Health Authority opted to let Trillium, owned by for-profit Centene Corp. of St. Louis, Missouri, expand into the three-county Portland metro area and compete with existing provider Health Share of Oregon, a nonprofit that’s a collaboration between numerous Portland-area health providers and agencies. The decision drew objections from some entrenched forces in the metro market who are interwoven with Health Share. Another insurer isn’t needed or wanted for the 300,000-plus Medicaid recipients in the Multnomah/Washington/Clackamas region, Health Share supporters insisted.

Trillium appears to be struggling to line up hospitals to show it has a robust panel of contracted providers in the Portland area.

State regulators opted to let Trillium remain in the Lane County market – even though Trillium isn’t a universal darling there either. There’s been friction between Trillium and some Lane County health care providers. Many big Lane County providers endorsed Moda’s bid for the Lane market. Earlier this year, PeaceHealth, the dominant health care provider in Lane County with four hospitals and a chain of medical clinics, refused to sign a Medicaid contract with Trillium for 2020 onward. Recently, Trillium wooed PeaceHealth back into signing a 2020 contract.

In their review of Trillium’s application, state financial analysts warned that “a substantial capital infusion will be required” from Trillium over the next several years to top up its current $55 million surplus. 

Nevertheless, state analysts passed Trillium in all six categories, including finances and community engagement.

One factor in Trillium’s favor: It’s owned by Centene, a nationwide Medicaid insurer, which reported $900 million in profits on $60 billion in revenues for 2018. 

“Centene appears to have the ability to make the required capital contribution to increase total capital,” a state analyst wrote. But the state has no idea whether Centene would ever actually do that.

So far in Lane County, the state’s decision to renew Trillium and allow PacificSource into the market hasn’t prompted much public debate – even though the Lane County Board of Commissioners in the spring wrote to the state urging it to allow only one coordinated care organization for the county. A single insurer is more efficient, the county said.

PeaceHealth says it is talking with both Trillium and PacificSource.

“PeaceHealth is a major provider for the Medicaid population in Lane County and is committed to continuing to serve patients with Medicaid insurance in 2020. We are keeping an open dialogue with both coordinated care organizations,” PeaceHealth said in a statement.

Some small existing coordinated care organizations -- Yamhill County Care Organization and the Southern Oregon groups of Allcare CCO, Cascade Health Alliance and Umpqua Health Alliance -- were dinged by the state for poor applications, told to improve and awarded only one-year contracts.

Big Test On The Horizon

From the perspective of the insurers who will be in competitive markets -- PacificSource and Trillium in Lane County, and Trillium and Health Share in Multnomah/Washington/Clackamas -- a vital issue this fall will be how the state allocates members. The state pays Medicaid insurers a set sum per member, with variances based on regional average health care provider costs and on the insurance risk posed by members.

“Our priority is to ensure a seamless transition for (Medicaid) members and that the shift to new CCOs maintain continuity of care,” said Cowie, the health authority spokesman. 

“In service areas where members have a choice among multiple CCOs, our first step will be to match members to the CCOs whose networks contain their behavioral health counselor and primary care physician.” Cowie said. “If both CCOs include a member’s providers, or a member does not have a provider, OHA will randomly assign members to ensure each CCO receives a fair member allocation.” 

He said that the health authority will inform members in October and November of their CCO assignment and give them time to switch. 

Members can also change their coordinated care organization in January.

Whether competition and choice will help or hurt the health of Oregon’s low-income residents remains to be seen.

In Portland, a spokesperson for Health Share didn’t directly answer the question of whether having multiple Medicaid insurers in a single market was a plus or a minus.

“Ensuring that members and the community come first is the top priority,” she said in a statement. “Collaborating around scarce resources to ensure full coordination of health and social services for our members and community has always been a focus of ours.”

Lindsey Hopper, PacificSource’s vice president of Medicaid, said she can’t predict what share of the Lane County market PacificSource will get. As sole Lane County Medicaid insurer, Trillium currently has about 90,000 members.

Hopper said PacificSource has been working for about 12 months to prepare for entering the Lane market. “I expect that we will have a comprehensive network that includes all key providers,” she said.

“Many members are likely to be excited to have a choice about how they receive care,” she said. 

Christian Wihtol can be reached at [email protected].

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