Audit stings Illinois Gov. Rauner's Medicaid program

A new state audit raises questions about the Rauner administration's ability to keep tabs on private insurers in a Medicaid program that is estimated to cost Illinois $60 billion over the next four years.

The Illinois Department of Healthcare and Family Services failed to adequately monitor $7.11 billion that flowed to and from private insurers in Medicaid managed care, a state program that aims to save the government money, according to a report released today by the Illinois auditor general.

HFS, which runs Medicaid, could not account for all claims that private insurers paid to medical providers in the 2016 fiscal year. Nor could the department account for claims that insurers denied or how much they spent on administration and coordinating patients' care, the audit found.

Because the state hasn't been keeping tabs on administrative costs, the department hasn't reconciled $14.2 billion in payments to the insurers, also known as managed care organizations, since 2012. "Thus, HFS has not determined whether the MCOs were overpaid by the state," the audit said.

The last time Illinois did square payments with insurers was six years ago, and Illinois recovered nearly $22 million.

The stinging report outlines the pitfalls of Gov. Bruce Rauner's Medicaid managed care program before his new version began on Jan. 1. State lawmakers had called for an audit of managed care last year as Rauner pushed to further privatize the program—largely by steering a bulk of the state's 3.1 million Medicaid recipients to insurers.

The new contracts Rauner forged a few months ago with six insurers are worth an estimated $60 billion over four years in what's believed to be the state's largest procurement ever. The bid process attracted a slew of criticism from lawmakers and other public officials who wanted more transparency, especially around how insurers spend the state's money.

The auditor general analyzed the Medicaid managed care program in fiscal year 2016, when 12 insurers participated. They were largely for-profit carriers. The state spent $7.11 billion on managed care that year, about half of all Medicaid spending.

If Rauner's goal is to lower costs by outsourcing Medicaid to insurers, understanding how they spend money is key. The goal is to spend less than the state's traditional fee-for-service Medicaid program, in which Illinois pays doctors for each service they provide. That can easily rack up unnecessary bills.

In managed care, insurers not only administer medical benefits to Medicaid recipients on behalf of the state, but also focus on prevention. The idea is that if they improve people's health, that will lower medical costs and ultimately save the state money. This hope has spurred the growth of managed care nationwide, even though research is mixed about whether the effort actually saves states money.

Among the audit's other findings:

• HFS paid twice for 302 people, resulting in $590,237 in duplicate payments to private insurers.

• The state did not use data that captured how often Medicaid recipients received medical care. When setting rates for how much the department pays insurers, that's a preferred, though not required, method.

• The state doesn't know how often Medicaid recipients received medical care because HFS didn't have complete data from insurers.

• The state did not track medical services that insurers paid doctors, hospitals and other providers for, so there was no way to calculate their average payout ratio. That's key to understanding their costs.

• Insurers are required to provide the state data on claims submitted by medical providers that they deny, to ensure they're appropriate denials. But HFS couldn't provide auditors with any data. "Currently, the denial data is simply not valid nor reliable," HFS told auditors.

• The state paid insurers nearly $138 million that the carriers, in turn, used to cover federal taxes and fees.

A spokesman for the department said HFS is "monitoring actual administrative costs, have put processes in place to remove duplicate clients and recoup overpayments from previous years, will provide clear instructions to managed care plans regarding reporting of denied claims and will monitor contracts to ensure compliance."

Among the report's recommendations:

• Determine if HFS overpaid private insurers dating back to 2013 so the department may recoup those costs if necessary.

• Require insurers to submit all data related to Medicaid payments they make to providers.

• Perform on-site reviews of the insurers' financial data systems, and test the accuracy and completeness of their data.

In the audit, HFS agreed with most of the recommendations. But the department had this exception: It doesn't need to conduct onsite reviews.

"Audit stings Rauners Medicaid program" originally appeared in Crain's Chicago Business.