Since 1996, Dr. J. Mario Molina has served as chairman and CEO of Molina Healthcare, which operates medical clinics and health plans serving Medicaid, Medicare and exchange enrollees across the country. He succeeded his father, Dr. C. David Molina, who founded the company in 1980. Under Mario Molina's leadership, the company has grown from $100 million in revenue in 1996 to $6.6 billion in 2013. He led the company through an initial public offering in 2003. He serves as a member of the board of the California Association of Health Plans and of America's Health Insurance Plans and is a trustee of Johns Hopkins Medicine. Modern Healthcare reporter Bob Herman recently spoke with Molina about how he and his family developed the company, the mission of serving Medicaid patients, his prediction on what happens if the U.S. Supreme Court strikes down premium subsidies, and Molina's M&A strategies. This is an edited transcript.
Modern Healthcare: How did you get into healthcare?
Dr. J. Mario Molina: I wanted to be like my father, who was an internist and emergency medicine doctor. When I was a little kid, he would take me sometimes when he would do house calls. After medical school, I thought I wanted to be in academics. After I did my training and came back to California for my fellowship, my dad's business was just getting off the ground. I was moonlighting with him, and the medical director passed away. He said, “I need a medical director. The job is yours if you want it.” So I had to choose between academics and the family business. I decided to go with the family business.
MH: Please describe the history of the family business.
Molina: My dad was seeing people in the emergency room who had Medicaid. When you discharge someone, you always tell them to follow up with their personal physician. The Medicaid patients would say, “We don't have one, that's why we are here in the ER. It's very hard to find doctors who will accept us.” That's why he opened his first clinics in the Long Beach area. When I finished my fellowship, he had 12 clinics. He had a capitated contract with the state to serve Medicaid patients. He was responsible for their outpatient care and he would monitor their inpatient utilization. Then we opened some clinics in Sacramento.
MH: How did Molina get into the insurance business?
Molina: The plan was to have a network of clinics south from Sacramento and north from L.A., and filling up the Central Valley. Then in the early '90s, the state said we would have to be licensed as an HMO. So we made that conversion in 1994 and won a couple of contracts with the state. That was the beginning of the health plan side of the business.
From there we went into three other states. We went to Utah as a test, because our model was successful in California, but we didn't know if it would work anywhere else. Then about the same time, a group of doctors in Michigan approached us wanting to start a Medicaid plan there. We also acquired Qual-Med's health plan in Washington, and we kept their Medicaid contract. That was how we got our start. I was the CEO when my dad passed away in 1996, and my brother John was the CFO. He has remained in that capacity ever since.
We were growing, but if we wanted to continue to grow we needed more money. Ultimately, we decided in 2003 to go public. We went from about 500,000 members to about 2.8 million now. With Puerto Rico, we will be in 12 states as a health plan. We also acquired a business from Unisys that provides information technology services to state Medicaid programs. We operate managed Medicaid information systems for five states and the U.S.Virgin Islands.
MH: Do you do business other than Medicaid?
Molina: It's mostly Medicaid. We've also got about 85,000 Medicare beneficiaries who almost all are Medicaid-Medicare dual-eligibles. We have an insurance exchange presence as well, for two reasons. Number one, people go on and off Medicaid. We thought if we were in the exchange, it would be a way for people who lost their Medicaid eligibility to stay with their health plan and their doctor. The second reason is more strategic. If at some time states do away with Medicaid and give people vouchers to purchase coverage through an exchange, we wanted to be participants in that. The exchanges are never going to be our primary business. Our primary business is taking care of low-income people served through government programs.
MH: Most providers say Medicaid doesn't pay well and nobody wants it. But you see Medicaid as an opportunity. Can you explain how Molina Healthcare has been able to grow through Medicaid?
Molina: If you are a pediatrician or obstetrician, Medicaid makes up a significant percentage of your practice. In many areas, up to 50% of the births are paid for by Medicaid and up to a third of children will at some time be on a Medicaid program. Many doctors do it because they feel that there is a certain obligation for them to help take care of poor people.
MH: What has been the ACA's impact on Molina Healthcare?
Molina: Uninsured people now qualify for Medicaid and can enroll with a health plan. You are seeing growth even in the non-expansion states because people go to the exchange and find out they qualify for Medicaid. The ACA also created demonstration contracts to serve dual-eligible beneficiaries. We've been doing Medicare for dual-eligibles for about nine years now, but it was fragmented. Now the idea is to put it all into a single contract and allow health plans to manage all the benefits and coordinate the care.
MH: What are your thoughts about the issue of the bumping up Medicaid fees to Medicare levels?
Molina: I'm not sure it was really very helpful. A lot of doctors looked at this and said that it's temporary. People hate to tell patients, “I don't want to take care of you anymore.” The fact that the regulations were delayed for a year made it even worse. That said, in many states Medicaid rates are lower than commercial or Medicare rates and that affects access. So at some point we need to make rates more equitable across the board to promote access.
MH: How would you do that?
Molina: We need to rethink the way we pay doctors. We are very driven toward paying more for procedures. We need to shift some of that money into primary care.
MH: Are you planning for the contingency that the Supreme Court strikes down the ACA premium subsidies in the King v. Burwell case?
Molina: It's going to be very difficult to tell millions of people that suddenly you are uninsured again. So regardless of what happens with this decision, we still have to figure out how we make sure that people are insured. The simple solution is for states to set up their own exchanges. Then perhaps the federal government could turn HealthCare.gov into a not-for-profit agency, and states could contract with it to provide the services. There has got to be a solution here. We can't just dump all these people back into the ranks of the uninsured.
MH: So even if the challengers win the case, you sense something will be done to keep the subsidies?
Molina: Yes. There are people who would like to undo the ACA. But if you undo the ACA, you are going to throw a lot of people back into the ranks of the uninsured. I don't think the Republicans want to get the blame for that. If the ACA blows up, it puts a lot of pressure on Republicans. I think both Republicans and Democrats would agree we don't want to go backward. We need to make sure that everybody in the country can get health insurance of some sort.
MH: Has Molina Healthcare been able to get the states to pay the company back for the ACA's health insurance tax?
Molina: We haven't been able to collect 100% yet, but we have made substantial progress. Like many things in government, it is new and the states haven't quite figured out how to do this mechanically. I think that in the second year we will make a lot more progress in working out the mechanics of how the tax should be built into the premiums. But frankly, it's kind of bizarre. The government is handing us money to take care of these patients, and then it says, “By the way, we are going to take some of that back.” It's really just taking money out of one pocket and putting it in another.
MH: Analysts say 2015 is probably going to be a big year for mergers and acquisitions, with insurers looking to get bigger in the government business. Is Molina looking to be acquired?
Molina: We will be looking to do strategic acquisitions that get us into new markets and new states. We are looking at acquisitions that help us become a little bit more vertically integrated so we can deliver better products.
MH: Aetna announced it's increasing its minimum wage for employees to $16 an hour to reduce turnover costs. Would Molina consider a move like that?
Molina: No, I don't think so. Virtually all of our revenue comes from the government. These are the taxpayers' dollars. What I always tell our employees is that we need to be prudent stewards of the public's money. Secondly, this is a very mission-driven company to provide high-quality healthcare services for low-income people who have traditionally been underserved. I think that a lot of the people who work for us are motivated by the mission. It's not about how do I make the most money, but how do I do something where I feel that I am making a contribution and making people's lives better.