cover story one

Shell Game Economics

Corporate medicine wins, you lose

By David Feinwachs, MA, MHA, JD, PhD

Current legislation directs the Minnesota Department of Human Services (DHS) to restrict most Medicaid enrollees to managed care plans. The proposed legislation would amend current statutes by adding this simple, straightforward clause: “but shall provide all eligible individuals the opportunity to opt out of enrollment in managed care.”

To introduce the bill, HPA met with legislators, many of whom had no knowledge of these issues. It worked with bill authors and helped ensure these bills were heard in the appropriate committees. The goal was simply to improve the functional utility of the state’s Medicaid program. Nothing in these proposals required anyone to opt out of managed care. It merely offered a choice to those who wished to do so.

This simple, logical, equitable and long-overdue measure would give Medicaid enrollees the basic right to choose their own health care provider. The concept had bipartisan support as well as the support of both conservatives and liberals. It passed various committee hearings in both bodies and was included in the Health and Human Services omnibus bill, where it appeared destined to become law. However, that did not happen. In the final hours of the most recent legislative session the bill was killed by interests that did not want to be identified and never publicly testified against it. 

Physicians must be the voice for Medicaid patients.

A Look at the Basics

Why were Medicaid enrollees not granted the freedom to choose their doctor and why is this now more important than ever before? Minnesota has a Medicaid program with more than a million enrollees. Most of these people are forced into a managed care organization (MCO) whether they want to be there or not. There is an exception to this. Some enrollees (about 200,000) who have Medicaid coverage are not required to be in a health plan. The Department of Human Services (DHS) will pay for their health care services on a fee-for-service basis, as opposed to prepaying for care of the other 800,000 enrollees, regardless of whether or not any services are provided. Who are these individuals who have the benefit of fee-for-service? They are the high-acuity, high-needs population. How do they get to fee-for-service? Essentially it is statutory language that allows persons with disabilities to opt out of managed care. Health plans are in full support and encouragement of this option as this population generates much higher per enrollee costs.

The federal Medicaid program allows states to offer Medicaid benefits on a fee-for-service (FFS) basis, through managed care plans, or both. Under the FFS model, the state pays providers directly for each covered service received by a Medicaid beneficiary. Under managed care, the state pays a fee to a managed care plan for each person enrolled in the plan. In turn, the plan pays providers for all of the Medicaid services a beneficiary uses that are included in the plan’s contract with the state.

The majority of Medicaid enrollees, largely nondisabled children and adults under age 65, are in managed care plans. The enrollment of high-cost populations, such as people with disabilities, in managed care has been more limited than for lower-cost populations.

In general, states set provider payments under fee-for-service. It has been claimed that Medicaid fee-for-service payment rates for physician services are lower than those paid by other payers, raising concerns that low fees affect physician participation in Medicaid, and thus access to care. In the past there were concerns about this, but now most physicians are employees of large corporate entities. These entities want the Medicaid business as it allows them to control patient access to care and maximize their profits from government payments. It should be the patients’ right to seek out the providers of their choice.

In Minnesota, we allocate $350 million per quarter to prepaid medical assistance programs alone. This money is given to health plans on a per enrollee basis with zero accountability or meaningful reporting on how it is spent. Being insulated from the highest-cost patients, denying or delaying care for the rest, all with no meaningful reporting, evokes shell game economics at its best.

In support of why Medicaid enrollees should continue to be denied freedom of choice, the Minnesota Council of Health Plans recently sent a letter to the state of Minnesota’s House Ways and Means Committee. This committee could have been instrumental in providing freedom of choice. Further shell game economics were applied by addressing that this freedom would lead to increased medical costs. It bald facedly asserted that the current system required MCOs to achieve measurable and specific reductions in emergency room utilization, hospital admissions and hospital readmissions. Further incongruous statements touted MCOs’ applying significant resources to achieving these results and to lowering health care costs for the state of Minnesota. Presumably this meant MCOs did not require more money to cover for Medicaid enrollees. Going so far as to posit that if this population were no longer enrolled in managed care, these efforts would cease and result in higher health care costs. The letter vaguely referred to supportive data showing the success or lack thereof of these efforts and that it could be used to estimate cost increases due to elimination of the “containment efforts” that freedom of choice would yield. Of course, perhaps the state would save quite a lot with freedom to choose.

Naturally, increasing the number of FFS payments would increase the DHS workload. With 7,000 to 8,000 current employees and modern computer technology, however, how much of the near $1.5 billion we spend now might this save? The state actually estimated that freedom to choose would save tens of millions of dollars. The assertion that irresponsible physicians would drive up costs is, again, shell game economics. Rather than DHS taking a leadership role in helping the state save money there is hesitancy, reticence and obfuscation.

In 2019, 83% of all Medicaid beneficiaries were enrolled in some form of managed care. States allege that incorporating managed care into their Medicaid programs provides them with some control and predictability over future costs. There is no apparent data to support this assertion. Prepaid medical care has always been a controversial idea because it contains a built-in incentive to delay, deny and sequence needed care, to increase the profits of those organizations that have been prepaid to render such services. There has been debate for many years over the wisdom of managed care prepayment.

According to a recent report from the U.S. Department of Health and Human Services Office of Inspector General (OIG), “Three factors raise concerns that some people enrolled in Medicaid managed care may not be receiving all medically necessary health care services intended to be covered: (1) the high number and rates of denied prior authorization requests, (2) the limited oversight of prior authorization denials in most states, and (3) the limited access to external medical reviews.”

If this isn’t disturbing enough, who, according to the OIG, is most disadvantaged by these strategies? People of color. Thus it is imperative to understand what happened to the freedom-to-choose bill and to make sure patient choice is restored in the next legislative session.

The assertion that irresponsible physicians would drive up costs is, again, shell game economics

Restricting Access

Who came in at the very last moment before the bill was signed and demanded that the right to opt out of managed care must be deleted? It was Hennepin County Medical Center and its health plan, Hennepin Health. They claimed that if given the ability to choose fee-for-service, many of their patients would do so and HCMC and Hennepin Health would suffer undue financial hardship. They cited potential lost revenue from a highly controversial federal drug discount program called 340B. This revenue accrues from serving Medicaid beneficiaries.

Though far from its original intention, the 340B program can generate substantial profits by providing participants the opportunity to buy deeply discounted drugs, which are then reimbursed by Medicare and private insurers at full cost. In some cases this can lead to 100% profit margins with no obligation to use 340B savings to directly help patients or lower the cost of care for them. Today, patients for whom 340B was intended to help are often paradoxically harmed by the program, cut off from timely and high-quality care by the lack of provider choice. This has been particularly acute for cancer patients who face quotas, wait lists and significantly higher costs. In another example of shell game economics and lack of payer reimbursement transparency, 340B prices are not publicly available. The program allows covered entities to acquire eligible drugs at a 20% to 50% discount. Participating hospitals are not required to use their 340B revenues in any particular way.

This in no way suggests any Minnesota entity is taking improper advantage of anything in the 340B program. The issue is simply that no matter which corporate entity profits from 340B, or exactly how, such profit isn’t worth the sacrifice of one single patient’s being deprived of the right to choose his or her own health care provider. If managed care organizations are doing a great job, which they claim that they are, then why are they worried their patients will immediately flee if given the chance. Also, if patients migrate to fee-for-service, any 340B discount isn’t lost; it just goes to the Minnesota Department of Human Services. Is that worth depriving the Medicaid population of their most essential choice?

In efforts to pass the bill next year, Hennepin County Medical Center and Hennepin Health were presented the opportunity to withdraw their opposition and be exempted from its patients’ having the freedom to chose. This offer was met with concerns of potential perceived inequities leading to potentially further and even worse, lost revenue. The bill was withdrawn with a key legislator telling proponents that the issue was too complex, required further study and perhaps some years down the road the problem might be addressed. Was Hennepin County, whose mission is serving the most needy and the least likely ever to be considered as an advocate for profits over patients, acting alone or was it an under-informed participant in shell game economics directed by other managed care organizations who oppose patient choice and their potential loss of revenue? It really doesn’t matter.

Moving Forward

Supporters of the proposal have no intention of allowing this obfuscation to go unchallenged. They will be back in 2024. Assisted by investigative journalism, physician advocacy and perhaps other organizations, it is hoped that legislators and members of the public will be made aware of 340B and other “red herring” issues.

Minnesota physicians must be involved in this and related issues. Physicians are being blamed for the ever-increasing cost of health care. Physicians, of course, are not to blame. It’s misguided legislation and shell game policy, designed to over-bill, under serve and manipulate revenue at the expense of patients and the reputations of physicians who care for them that are to blame. The costs projected for the freedom-to-choose bill estimated the state could easily save tens of millions of dollars, if not more. Managed care organization claims of the benefits of their “care coordination” are unquantifiable.

These claims seem to imply that incompetent and unskillful physicians will continue their over utilization of health care services and continue to escalate the cost of care. Compare that notion to the findings of the OIG. Which do you think is more probable? Something is very wrong here. Our health care programs seem to have as their primary focus maximization of institutional, corporate and agency profit. There is a complete lack of transparency and accountability, which lends itself to scapegoating physicians and others who must defend their patients as well as their professional integrity. It is apparently easy for those who focus on maximizing profit over positive health care outcomes to convince policy makers to restrict patient choice. This past legislative session has demonstrated that yet again.

To restore the right for patients to choose their own physician, physicians will need to take a leadership role. They must inform themselves about issues such as 340B, contact legislators, demand action and advocate for patient rights. At the core of this issue is addressing racial disparities, providing meaningful choice for patients and exposing the myth that physicians care more about reimbursement than patient access to quality care. Physicians must be the voice for Medicaid patients. Payers want the public to accept that the corporate practice of medicine is the basis for our health care system, and that physicians cannot and will not interfere. They are wrong, and physicians must lead in making this point. If not, then the corporate practice of medicine will further subsume the physician practice of medicine. It is time to demand fair treatment for patients and demonstrate that it is physicians and not corporate or governmental interests that practice medicine. Equally important, physicians must demonstrate that it is the “corporate” practice of medicine that is the real cost driver.

Dave Feinwachs, MA, MHA, JD, PhD, joined the Minnesota Hospital Association (MHA) in 1981 and served as its general counsel and director of advocacy until 2010.