Florida officials who are encouraging Medicaid recipients to enroll in managed-care plans may be undermining that effort with a new payment system.
Beginning Sept. 1, Florida will cut the average annual fees paid to 24 state-licensed Medicaid health plans by 3% as it phases in its new rate plan.
Total Medicaid spending on the managed-care health plans actually will increase 17% in 1995 to $785.2 million from $672 million in 1994, state officials said.
But because enrollment is projected to rise to 489,000 in 1995 from 407,000 in 1994, annual payments to health plans will decline 3% on a per-enrollee basis.
In response, several large investor-owned HMOs that operate Medicaid health plans said they would lay off employees and reduce projected enrollment to keep stock prices from sliding (July 3, p. 16).
Officials of Physicians Corporation of America, which operates the state's largest health plan, with 200,000 members, said the HMO would get out of the Medicaid business if rates aren't increased to profitable levels.
Florida officials said they hope Medicaid health plans will continue to enroll members at double-digit rates, as they have each year since 1991, when the state's Medicaid managed-care program began.
The goal is to place all of the state's 1.6 million Medicaid recipients in managed-care plans by July 1997, said Gary Creyton, a state Medicaid official. About 28% now are enrolled in the health plans.
"If they don't join the Medicaid HMOs, we will enroll them in Medipass (the state's primary-care managed-care program)," Creyton said. Medipass is a program that matches Medicaid recipients with primary-care physicians to reduce inappropriate emergency room visits.
Florida's hospitals also may be affected by the 3% average rate cut, said Charles Pierce, president of the Florida Hospital Association.
"As more people go into HMOs, they clearly have the clout to drive prices down," Pierce said. "Our members (hospitals) are braced for that kind of dialogue."
But Medicaid HMOs may get out of the business before asking hospitals to take less.
PCA officials in Miami estimate the new Medicaid rates will cut their revenues by 18%. As a result, the company's stock price declined late last month by 30%. PCA accounted for almost half the Medicaid health plan revenues paid out in 1994.
"The state is operating under the mistaken assumption that we are making lots of profits," said Peter Kilissanly, PCA's president and chief operating officer. "There is no incentive to keep current (Medicaid) members or sign up new members."
Kilissanly said PCA is negotiating higher rates with the state and also working to reduce administrative costs, which could include layoffs. "If that doesn't work, and (losses) hit the bottom line, we will get out of the (Medicaid) business," he said.
Under the state's new rate structure, health plans will be paid based on the region Medicaid recipients live in and their age. As before, the state will pay 95% of the average cost of patients who chose traditional fee-for-service care.
But Creyton said the state uncovered evidence that Medicaid health plans have not been signing enrollees who are costly to treat, such as infants, pregnant women and the elderly.
That's a contention Kilissanly disputes.
For example, Creyton said, infants under age 1 accounted for only 6% of enrollees in the managed-care program, compared with 13% in the entire Medicaid population.
"We were paying for the care of sicker patients than the Medicaid HMOs were treating," Creyton said. "Under this plan, they have an incentive to enroll sicker patients. The better they manage their care, the more money they will make. That was the original idea."
However, Kilissanly said, state rules make it difficult for health plans to identify potential Medicaid recipients and sign them up.
"It's hogwash that we are cream-skimming (the healthy Medicaid population)," he said.
Earlier this year, the Florida Agency for Health Care Administration released a report that revealed questionable marketing practices, high profits and million-dollar executive compensation for some Medicaid health plans (April 10, p. 28).
State insurance data show operating profit margins for all HMOs have averaged more than 10%, but Kilissanly said PCA posts a 4% to 5% total profit margin on its Medicaid business.