State-contracted managed care agencies providing mental health services to Medicaid recipients have accumulated hundreds of millions of dollars in excess profits the state can’t allocate for additional treatment services, a state performance audit concluded.
State Auditor Beth Wood released the report Wednesday, Jan. 23. It slams the state Department of Health and Human Services and its Division of Medical Assistance, which oversees Medicaid programs, for poor management and monitoring practices.
As a result, the state’s seven Local Management Entities/Managed Care Organizations retained $439.2 million in excess savings during the three-year audit period from 2015 to 2017. As of June 30, 2017, they had $800 million in savings.
Profit margins averaged 5.6 percent, and were as high as 22 percent. Research by the Society of Actuaries says a 2 percent benchmark is reasonable. Nationally, states average between 0.5 percent to 2.5 percent.
Without changes, DMA could continue to set payment rates based on faulty data, locking in unusually high profit margins, needlessly spending millions more dollars.
The audit report says those findings should urge state policymakers to take care as it begins to shift its entire Medicaid program to managed care. Like the LME/MCOs, the new system will pay providers a set amount of money monthly to meet a patient’s needs. That’s called capitation.
The LME/MCOs provide services to low-income Medicaid recipients with mental health, developmental disability, and substance abuse needs. The state paid them an average $2.6 billion in state and federal funds during the audit period. That is slightly less than a quarter of all annual Medicaid spending, which totaled $10.9 billion in 2016.
The LME/MCO system has been hotly debated in the General Assembly the past few years. The arguments over their large cash reserves escalated after Wood’s office released a performance audit in May 2017. It found Cardinal Innovation Healthcare Solutions, the largest LME/MCO with 850,000 clients, spent money on lavish parties, high salaries, exorbitant bonuses, high-end office space, and charter jet flights for in-state meetings, among other things.
Some lawmakers weren’t satisfied even after DHHS disbanded and reformulated Cardinal’s board of directors and management team.
The most recent audit cited significant weaknesses in DMA’s oversight of LME/MCOs. And, it noted, “this audit would not necessarily disclose all performance weaknesses or lack of compliance.”
In her response, DHHS Secretary Mandy Cohen agreed with most findings and said the department was making fixes.