HMO contracts

The following editorial appeared in the Herald-Dispatch, Huntington, on June 30:

A recent report and a lawsuit against the state have raised a question about whether West Virginia is getting sufficient bang for the dollars paid to health maintenance organizations involved in the state’s Medicaid program.

State officials say the concerns are off base, even though it appears they are taking steps to address the very issue that has drawn criticism.

The national consulting firm Milliman this month released its annual analysis of HMOs. It examined how much revenue they take in and how much is spent on actual medical costs, or what Milliman calls their “medical loss ratios,” compared against what is kept for administrative costs and profit. Its analysis for 2014 included 37 states for which data were available, according to a report in The Charleston Gazette. HMOs are paid on the basis of so much per month for each Medicaid patient served.

Milliman’s analysis showed that the three oldest HMOs involved in West Virginia’s Medicaid program in 2014 had an average medical loss ratio of 77.1 percent, significantly lower than the national average of 86 percent reported by Milliman, and the 87.1 percent average for the Centers for Medicare and Medicaid Services’ Region 3, the Gazette reported. In fact, the HMOs had the lowest medical loss ratio for any state examined. Phil Shimer, former senior vice president of BrickStreet Mutual Insurance and former acting commissioner for the state’s Bureau for Medical Services which oversees Medicaid, told the Gazette that the analysis “clearly shows … that West Virginia’s three, now four, HMOs that they’ve contracted with is more profitable than any other state’s program.”

A lawsuit petition filed in April against the West Virginia Department of Health and Human Resources contends that higher-than-average profitability stems at least in part from the state’s failure to seek competitive bids for HMO contracts. The use of no-bid contracts, the lawsuit contends, is a violation of state law.

State officials take issue with the lawsuit, as well as use of the Milliman report. Cynthia Beane, commissioner of the Bureau for Medical Services, says comparing Medicaid operations from state to state can be like “comparing apples to oranges.” She said the Milliman report doesn’t include items such items as taxes and regulatory fees, although that contention wouldn’t explain the gap in medical loss ratios.

Despite her comments to the Gazette, it appears the state has recognized that a problem exists. Beane told the Gazette that as part of the state’s contract with HMOs for 2016, those that don’t show a medical loss ratio of at least 85 percent will have to refund the difference to the state. Beyond that, the state plans to withhold 5 percent of its payments to the HMOs if they fail to meet specified quality standards, the Gazette reported.

At this point, it may be best if state officials, including legislative auditors, take a close look at the HMO contracts and how they have been awarded to determine if state requirements for competitive bidding have been met. The Milliman report raises sufficient questions that a review is warranted.


comments powered by Disqus