What reportedly began as a Minnesota health plan’s heartfelt attempt to help the state with a record budget deficit has mushroomed into a federal investigation (or two) and prompted a congressional hearing in which its motives were attacked. The situation also landed state officials in hot water, and may lead to new federal laws establishing greater oversight of Medicaid managed care plans, including imposition of a mandatory medical loss ratio (MLR).

It all started in March 2011 when UCare, the smallest of Minnesota’s four Medicaid plans (all of them not-for-profits, as required by law), determined that its reserves were greater than needed, and its board voted to “contribute” $30 million to the state, Ghita Worcester, the company’s senior vice president of public affairs and marketing, told MAN.

UCare officials verbally informed state health administrators and sent a letter to Jim Abeler, then chair of the Minnesota House’s Health and Human Services Finance Committee, explaining that the plan’s 2010 “earnings were $30 million greater” than the state’s “targeted margin.” UCare President Nancy Feldman also laid out three factors that contributed to the higher earnings, including UCare’s own emphasis on improving efficiencies and receipt of payments from a discontinued state-funded program that generally paid higher rates than were received for Medicaid enrollees.

UCare, Feldman wrote, in the “spirit of partnership and consistent with our mission and values,” believed it was “appropriate to make a one-time contribution of $30 million to the state of Minnesota,” which would be “applied toward reducing the state’s 2012-2013 budget deficit.” The letter concluded by recommending that the state adopt a “risk corridor” strategy to prevent large variations in payments and earnings.

When Gov. Mark Dayton (D), who had taken office barely three months earlier, and UCare issued their separate but coordinated press releases, the $30 million was termed a “contribution” in both. But Dayton’s release may have sounded like a shakedown, as it said he had asked Lucinda Jesson, commissioner of Minnesota’s Department of Human Services, to “reach out to all health plans providing public health insurance and request comparable contributions, taking into consideration their earnings in 2010, past earnings on government programs, and current levels of reserves.”

Now-public emails between state officials reveal the characterization of the $30 million was purposeful. “In order to have a good chance of keeping all of this money, it must be characterized as a donation,” Jesson wrote to a colleague as they drafted the wording on the press release. “If a refund, feds clearly get half.”

While Dayton’s plea didn’t net any more contributions, the situation did grab the attention of CMS (which asked for its share of the money), health care watchdogs and state legislators from both parties. One contacted Sen. Charles Grassley (R-Iowa), a Senate Finance Committee member, and he began his own investigation into Minnesota’s Medicaid program, sending UCare, which also operates a Medicare Advantage plan, and the state a series of questions. He also broadened the issue by writing to all Medicaid directors nationwide seeking data on rate setting.

The issue came to a head in Congress April 25, when two subcommittees of the House Oversight and Government Reform Committee held a joint hearing titled “Is Government Adequately Protecting Taxpayers from Medicaid Fraud?” A day before the hearing, Minnesota officials decided to split the $30 million with CMS, but, they said, the decision was based on the state’s recent conclusion that UCare (and three other plans) had exceeded the voluntary profit cap in Minnesota of 1% of revenue. Such funds were to be shared with CMS.

UCare officials were not asked to testify, but Jesson faced accusatory and incredulous members of Congress who contended the state tried to hide the nature of the funds to retain the full amount. Rep. Michele Bachman (R-Minn.) announced at the hearing that she was planning to introduce the Medicaid Integrity Act of 2012 “in the coming weeks” to protect “Medicaid dollars and their intended recipients by requiring independent, third-party audits of managed care financial statements and state contracts.”

In his testimony, Grassley said a Medicaid “medical loss ratio should be clearly defined by CMS and consistently implemented across every state that uses managed care.”

“We haven’t seen what Congresswoman Bachman is proposing, [but] we are very open to being audited,” UCare’s Worcester told MAN. In fact, Minnesota passed just such a law in its recent legislative session, she said, adding that the plan also would comply with any MLR requirements that might be imposed.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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