Illinois' Medicaid managed-care program is costing hospitals

Sinai Health System administrators were surprised when a Medicaid managed-care insurer refused to reimburse the hospital chain for treating a patient with two broken bones. It's not uncommon for medical claims to be denied by the private insurers administering Medicaid benefits in Illinois—especially when doctors fail to request prior authorization. But a doctor can't get approval to operate on someone two weeks before he's injured in a car accident, as Sinai CEO Karen Teitelbaum points out.

The claim, which has since been paid, is just one example of care being denied due to process and paperwork rather than medical reasons in the government-funded program for low-income patients.

Under HealthChoice Illinois, the state pays private insurers a set amount per patient rather than paying for each medical service provided. The goal is to improve people's health and control costs by ensuring all care is appropriate and high-quality. However, it has significantly increased administrative costs for some hospitals—many of which are already strapped for cash.

"Hospitals and systems are having to staff up with dozens and dozens of employees to chase down claims," says A.J. Wilhelmi, CEO of the Illinois Health & Hospital Association. "Depending on the size of the organization, some are spending hundreds of thousands of dollars—and likely millions of dollars—to address the denials and delays in payment. For smaller hospitals, this additional administrative cost isn't in their budget so they do the best they can with the staff they have."

In addition to adding staff to handle denials and ensure compliance, Sinai hired a consultant last year to review claims and identify potential patterns. With up to 65 percent of its patients on Medicaid, the North Lawndale hospital depends on appropriate and timely payments from the state's six Medicaid managed-care insurers, Teitelbaum says.

University of Illinois Hospital & Clinics has added about "100 new resources, including employees and vendor partners, to handle the administrative requirements and complexity of Medicaid managed care," CEO Mike Zenn says in an email. In addition to health plan liaisons and software systems that check claims status, the hospital has people handling authorization processing and denial management, he adds.

Nineteen-hospital system Amita Health has about 35 full-time-equivalent employees dedicated to handling Medicaid managed care-related issues, says Don Franke, senior vice president of population health and CEO of Amita Health Care Networks.

Hospitals with high billing department turnover may need to bring people in to train employees to complete claims, says Samantha Olds Frey, executive director of the Illinois Association of Medicaid Health Plans. She adds that the health plans regularly offer to help train hospital employees—either independently or through the association, which represents all the Medicaid managed-care insurers operating in the state.

Nearly 11 percent of the 825,000 nonrejected hospital claims—those not refused before processing—submitted to Medicaid managed-care insurers during the first quarter of 2018 were denied, according to a November analysis by the state Department of Healthcare & Family Services, which oversees the Medicaid program. The IHA says that number is closer to 26 percent. The discrepancy could stem from the fact that individual claims are frequently denied more than once.

Denials were often due to missing information or requirements around prior authorization, the analysis states.

Growing pains were inevitable. HealthChoice Illinois, which launched in January 2018, expanded Medicaid managed care from just 30 to all 102 counties in the state. It covers about 2 million people and cost the state about $10.7 billion during fiscal year 2018.

"When properly implemented, managed care offers Medicaid members enhanced health coordination and quality services at sustainable costs," HFS spokesman John Hoffman says in an email. "While we are seeing the promise of these goals beginning to be met, we also understand that the previous administration did not adequately develop some components of the program, which we are working to correct as promptly and effectively as possible."

At the heart of the program is coordinated care, a team-based approach in which stakeholders—including primary care doctors, specialists and insurers—work together to monitor patients and provide the most efficient and effective care.

"No matter how good health plans are, healthcare is never going to—in 2019—cost what it did in 2012," Olds Frey says. Coordinated care "is meant to bend the cost curve" by encouraging preventive care and post-hospitalization follow-ups, for example.

Though some critics have said insurers seem to be controlling costs by denying claims rather than coordinating care, sources agree solutions are near.

The Illinois Association of Medicaid Health Plans in February published a guide that standardizes claims- and billing-related policies and procedures. And it's in the process of releasing a standardized inpatient care guide. Meanwhile, the IHA is backing a handful of bills aimed at the program, some of which call for more uniform rules to prevent denials of necessary claims.

Teitelbaum says monthly meetings with health plans have helped Sinai identify denials in real time. The health system also recently provided one insurer access to its electronic medical records to streamline operations. It hopes the benefits of doing so will outweigh the additional administrative costs.

"The state's Medicaid program is costing hospitals" originally appeared in Crain's Chicago Business.