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More Oversight Needed in State HMO Contracts

March 29, 2011 By Ben Hanson, Policy Associate

If you’re a public entity or doing business with a public entity, it’s generally accepted that a public auditor will make sure your financial records are in order. This should be especially true when private businesses are getting $3 billion in tax dollars annually. However, this hasn’t been the case for the companies providing insurance coverage for the state’s publically funded health care programs.

The HMOs providing services for programs like MinnesotaCare and Medical Assistance and smaller, more narrowly defined ones are not required to distinguish what they spend on care or services for their patients vs. overhead and administrative costs.

There are a few problems here that the governor is seeking to change.

One, previous to the Medicaid opt-in by Governor Dayton earlier this year, the state's share in medical coverage funding was $3 billion annually. There is nothing inherently wrong with that number. But costs for Minnesota's three main health coverage programs (pre-Medicaid expansion) all doubled over the last ten years without a significant increase in the number of patients covered. One can debate the reason behind this cost spike but the state, provider of said funds through taxpayer dollars, should have been looking at records detailing where the money was going. The only thing given to the state up until this point has been the over all costs.

Two, previously the claim made by HMOs was that giving detailed information about what goes into individual services and administrative costs would give away a competitive edge, allowing rival HMOs access to their operations.

For instance, UCare recently gave back $30 million in unused public funds to the state to help ease the deficit. UCare serves only low-income and special-needs Minnesotans through five private HMOs. UCare is unique in that it does not offer private, commercial insurance coverage. State Senator John Marty, the former Health and Human Services Committee chairman, wonders how UCare was able to accumulate $30 million of taxpayer funding.

A 1993 state department of human services report tried to determine the impact of HMOs on medical assistance payments, but according to a Star Tribune report at the time, it was shelved after HMO’s complained. No similar study has been conducted since.

Last Wednesday, Governor Dayton issued an executive order forcing the HMOs to provide the state with specific audits that detail how much money goes where. There will be a state website, where all of the information obtained by the HMOs will be posted.

Dayton also ordered competitive bidding for when HMO contracts expire. Previously state programs for health coverage were renewed without a bid. Dayton’s new system seeks efficiencies in medical delivery and wants payments based on outcomes.

Regardless of your political perspective, most policymakers agree that health care costs are increasing at unsustainable rates. HMOs must be part of the cost containment solution, especially considering the amount of public funding some of them receive. Years of lax auditing is unacceptable; even in the best economic times the system needs transparency.

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