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Dome - Managing the uncertainties of health care reform

February 2011

Managing the uncertainties of health care reform

Date: February 7, 2011

Hopkins faces challenges brought by surging membership in its Medicaid managed care organization.


Patty Brown
Patty Brown has had to stay on top of the federal health care reform act and its impact on the institution, because Johns Hopkins HealthCare is the entry for thousands of new Medicaid members.

With Maryland’s decision to raise the eligibility level for the state Medicaid managed care program and federal health care reform moving millions of new members into health insurance plans, Johns Hopkins HealthCare—and by extension Johns Hopkins Medicine—finds itself at a crossroads.

We asked Patty Brown, HealthCare’s president, to talk about how this influx will affect the institution financially and in the way health care is delivered. HealthCare is the home of Priority Partners, Hopkins’ nonprofit Medicaid managed care organization; EHP, a commercial health insurance plan; and the Uniformed Services Family Health Plan for military retirees and families of active-duty personnel.

What is the effect of the state’s decision on Medicaid?

Maryland expanded its Medicaid eligibility before federal health care reform actually requires it. In July 2008, it was raised from approximately 40 percent to 116 percent of the federal poverty level for many of those who have been caring for children and others already in the program. (With federal health care reform, all states will move to 133 percent of the federal poverty level by 2014.)

However, the state didn’t anticipate the economic downturn that caused people to lose jobs and health care coverage. Consequently, Maryland very much under-projected the growth that’s actually happened since 2008. It’s been more than twice what was expected, and no one has a grasp of when it’s going to end. At one point, the state thought there would be a million new Medicaid members by 2015, and we’re already at 900,000. Every month, Priority Partners has a net increase of about 2,500 new members.

At the time the growth started, we were the state’s second largest managed care organization, far behind the for-profit Amerigroup. Since then, the for-profits have managed Medicaid growth strategically by closing panels or jurisdictions.

Those moves, combined with our own marketing growth strategies, have meant we are getting a disproportionate share of the new Medicaid business. Formerly, we had 25 percent of the market. We’re now getting 40 percent of the growth, with 27 percent of the market. The gap between us and the largest managed care organization (Amerigroup) was 50,000 members. Now it’s 5,000.

What is the financial impact of such growth on Priority Partners?

In 2009, the expanded Medicaid rolls resulted in a $20 million loss, half of which was revenue taken back by the state because of its own financial situation. We had a stable year in 2010, and we got back to a slightly profitable operation. But we just learned that we will take another $10 million hit in revenue in 2011. We’re working continuously to stay on top of this. We’re taking advantage of every opportunity to manage our costs because the pressure on health care providers is going to continue.

If you have a situation where there are more people with the right to health care insurance and insufficient money to fund them, it often means cutting rates to providers. To manage costs, we’ve got to look at the delivery system, analyze our care models, remove waste wherever we see it, and become more efficient. We’ve got to do more with less.

What are the health care needs of this new group of Priority Partners members?

They tend to be a bit healthier, but they’re also doing what you’d expect they’d do with a new insurance card: accessing a lot of outpatient health care, such as physician services and mammograms, particularly in the first six months. After that, their utilization starts to taper off to more normal patterns.

However, because the growth in new members has continued, such short-term utilization has stayed elevated and the average per-member cost rose from $152 per month to more than $162. A $10 increase may not seem like much, but it adds up to millions of dollars.

You’ve got to figure out what the data is telling you about the financial risk that you’re assuming against the capitation rate [payment per member served, rather than for service performed] and argue with the state every chance you get for appropriate reallocation of Medicaid program dollars through risk adjustments.

For example?

A relatively healthy member might have a capitation of $200 per month compared with a member who has a chronic condition and whose capitation rate is $400 per month.

So let’s say a new member has diabetes. Under the Medicaid rules, the only way to risk-adjust for that chronic condition is through claims data. Once doctors start treating that patient and appropriately coding for that care, it can take up to two years for the state to collect that data, actually figure out all of your health profile, and adjust to the proper rate.

What’s first on your agenda for 2011?

We must first address the rate cuts that were recently announced. This is a huge piece of work. But longer term, our priority is to advance physician leadership and the work of clinical integration to remove silos and coordinate resources. We need doctors leading, with doctors talking to doctors—primary docs to specialists and specialists to specialists—in alignment with the hospital and the payer, in order to figure out a way to improve patients’ care.

We have to be smarter about how we apply our resources. The question is how to reorganize ourselves and really streamline our care delivery. We have to be willing to critically look at all of that from the top to the bottom. Changing our culture and practices is going to be incremental.  You’ve got to take one step at a time, see where you’re going, and bring people along. This is no doubt a team effort, and a journey.

—Reported by Linell Smith

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