Iowa State Auditor report: Here’s what Iowa can expect to save from privatizing Medicaid

The Iowa State Capitol — Lauren Shotwell/Little Village

The Iowa State Auditor’s Office released a long-awaited report on how much the privatization of Medicaid in Iowa has saved the state. According to the audit, the estimate of $141 million for fiscal year 2018 the Iowa Department of Human Services (DHS) issued in May was more accurate than the two estimates issued in 2017, although the report estimates the saving will actually be closer to $126 million.

The audit was requested by state Sen. Pam Joachim, a Democrat from Dubuque, in May.

“The amount of savings predicted and reported by the Iowa Department of Human Services has continually changed,” Joachim said in a letter to Iowa State Auditor Mary Mosiman.

In January 2017, DHS estimated the cost savings for FY 2018 would be $234 million. Ten months later, DHS estimated the savings at $47 million. In May, DHS decided the correct amount was $141 million.

“Iowans deserve a better answer,” Joachim wrote in her letter. “Iowans deserve to know if their taxpayer funds are being used in the most efficient way.”

The audit did not attempt to answer whether the funds are being used efficiently, it just reviewed the methodologies DHS used to produce the various estimates of cost savings. The auditors noted that Medicaid privatization “was implemented without establishing a reliable methodology for calculating cost savings.”

Medicaid is a joint federal and state program that helps cover medical costs of people with incomes near or below the federal poverty level, as well as other costs, such as those associated with long-term nursing home care for seniors. Although the federal government is the primary funder, each state is responsible for administering the program for its citizens. Approximately 586,000 Iowans were enrolled in Medicaid in FY 2018.

Traditionally, Medicaid has been a fee-for-service program. “Under the fee-for-service method, health care providers were paid for each allowable covered service provided to a Medicaid beneficiary,” the report explains. In 2015, Gov. Terry Branstad decided to change Iowa’s Medicaid program, which has an annual budget of more than $5 billion, into a managed care program, administered by selected health care management corporations.

“Under managed care, the State pays a [per person] payment to the MCO [managed care organization] for each member enrolled in the plan,” the report said. “The MCO then pays providers for the allowable services provided to Medicaid beneficiaries.”

The idea is that companies attempting to make a profit will be more efficient at spending health care dollars. But the auditors said it isn’t possible to definitely determine how large any savings actually are, because all of the various factors that go into health care spending.

“Any Medicaid cost savings reported by [DHS] are estimates and not actual,” they wrote.

Still, they concluded the methodology DHS used in May is reasonable. The reason auditors came up with a saving figure that is roughly $15 million lower than the DHS May estimate is that they were using more recent spending data.


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Future estimates will become less reliable, the auditors cautioned.

Over time, savings estimates will become less accurate and less meaningful as the State gets further from a fee-for-service program. The estimate of what it may have cost to provide services under the fee-for-service program will become more difficult to determine because future cost trends may or may not be representative of the annual growth rates currently used to estimate future Medicaid costs.

The report also emphasized the audit did not consider the impact privatizing Medicaid has had on the health care Iowans receive: “This review does not examine the impact on quality or timeliness of services provided to Medicaid beneficiaries under the fee-for-service or managed care program.”

The impact privatization has had on Iowans who rely on Medicaid was examined in the annual report of the Iowa Office of Ombudsman. The office “serves as an independent and impartial agency to which citizens can air their grievances about government,” its site explains.

In the most recent report, which covers 2017, Ombudsman Kristie Hirschman noted that while complaints to the office overall rose by 6.7 percent compared to the prior year, complaints about MCO-administered Medicaid increased by 157 percent.

“These numbers tell a story of accurate predictions and frustration,” Hirschman wrote about the increase in Medicaid complaints.

Before managed Medicaid was implemented, my predecessor, Ruth Cooperrider, expressed concerns that Medicaid privatization would increase the number of complaints the Office of Ombudsman would receive. Based on experience, I had similarly predicted an increase in these types of complaints in our 2016 annual report. Our concerns came to fruition.

The Ombudsman report documented cases in which services to disabled people were reduced by an MCO, without providing the people needing the services a change to appeal, as well as the denial of already approved services to a senior citizen and a quadriplegic who had to move into a skilled nursing facility after in-home services were cut.

In the last case, the report stated, “At-home care had cost the state $3,735 per month, according to the man’s family; the nursing home costs a minimum of $5,550 per month, plus doctor’s visits, medications, and supplies.”

The cases cited in the report “do not begin to describe the systemic frustration voiced by our complainants,” Hirschman wrote. She added, “I have yet to be convinced that DHS is providing adequate oversight of the MCOs.”

In February, Gov. Kim Reynolds came out in favor of a bill that would have cut the amount of information DHS is required to publish about the management of Medicaid. Reynolds said that reducing the reporting requirement would allow DHS to work in “a more effective manner.” The bill surprised both Democrats and Republicans in the legislature, and died without coming to the floor of either the House or Senate for a vote.

A statewide poll conducted for the Des Moines Register in September found that only 28 percent of Iowans believed “the state should continue having private companies run” Medicaid. That represented a decline in support of 9 points from a poll conducted the previous year.

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