July 6, 1998 H.M.O.'s Are Cutting Back Coverage of the Poor and Elderly ______________________________________________________________ Related Articles (New York Times) Insurers Tighten Rules and Reduce Fees for Doctors (June 28) Lobbyists Charge the Field in Managed Care Debate (June 3) In Health, Be Careful What You Wish for (June 1) ______________________________________________________________ By PETER T. KILBORN WASHINGTON -- Citing losses and cuts in government payments, the nation's biggest health maintenance organizations are quitting managed care programs for the poor and elderly. Their retreat is most pronounced in Medicaid programs. Health care analysts warn of a reversal of government progress this decade in steering the poor into the mainstream of the health care system, both to provide good care and hold down costs. And advocates for patients say they fear the retreat will mean a return to crowded "Medicaid mill" clinics delivering inferior care. Managed care organizations like Aetna U.S. Healthcare, Pacificare, Oxford Health Plans, Kaiser Permanente and Blue Cross and Blue Shield Associations have shut down some of their Medicaid services in at least 12 states, including New York, New Jersey, Florida, Massachusetts and Connecticut. The withdrawals have spread to Medicare-managed programs for the elderly, primarily in rural communities with few patients and where clinics and doctors are scarce. In May, Anthem Blue Cross and Blue Shield said it was pulling out of Medicare plans in 19 Ohio counties. Last month, Health Net, a large California HMO, said it would end its Medicare service in 10 counties. In other states, the HMOs run by the companies are reducing services to Medicare patients and charging them for care that had been fully covered. But it is Medicaid, whose costs are shared by the federal government and the states, and half of whose 32 million recipients are in managed care programs, that has been most affected. "Medicaid has gone sour" for a lot of HMOs, said Robert Hurley, an associate professor at Virginia Commonwealth University who is studying the phenomenon. In Medicaid, "the high water mark for commercial HMOs was probably last year," Hurley said, adding that the withdrawals began then and had been accelerating recently. Hundreds of HMOs continue to operate Medicaid programs, and some big ones, like Kaiser and United Healthcare, which have ended the programs in some states, remain committed to programs in others. Only Utah, with a sparse population and particularly low reimbursement rates for Medicare and Medicaid services, is losing all of its managed care programs for people in those medical plans. Catherine Halverson, vice president for Medicaid programs at United Healthcare in Minneapolis, which has pulled Medicaid operations out of Ohio and St. Louis, said that the poor are "a population we want to serve." "We're going to evaluate every opportunity to see if it's something we can participate in," she said. Some state Medicaid directors acknowledge the trend but say they can live with it. Bruce M. Bullen, the Massachusetts commissioner for medical assistance and chairman of the National Association of State Medicaid Directors, said, "We do see a number of commercial plans taking a second look at the Medicaid market." But with higher standards for service and quality, and reimbursement rates that he said were competitive, Bullen added, "we've raised the bar a bit for HMOs." Clients who have been shed are faced with finding doctors who will treat them for the Medicaid fee, getting charity care or going to emergency rooms or to other HMOs that often specializing in Medicaid clients. More and more of the new plans have been formed by public hospitals and community clinics serving the poor, in effect providing them with a safety net in medical care. The trend toward HMOs serving Medicaid patients only, consumer advocates and health care analysts warn, portends a return to the low-budget, unmanaged care that the large commercial HMOs helped remedy. "We are beginning to watch this," said Sally Richardson, director of Medicaid and State Operations at the Health Care Financing Administration, which oversees Medicaid and Medicare. "The concern is that managed care programs have sufficient alternatives for beneficiaries to have access" to good care. Most of the withdrawals from Medicaid care have come in the most populous states with large pockets of urban poverty. The Tufts Health Plan dropped out of the Massachusetts Medicaid program two weeks ago, and the state's Blue Cross and Blue Shield Association dropped out in February. Over the past year, eight organizations, including Aetna U.S. Healthcare and Prudential, have dropped Medicaid programs in New York state. Aetna, the second biggest HMO, is also closing them in Connecticut, leaving only New Jersey among states where it provides Medicaid managed care. Oxford Health Plans, which reported a $291 million overall loss last year, is withdrawing from Medicaid in New Jersey and Connecticut. In March, Kaiser Permanente, the biggest HMO, quit Medicaid care in Charlotte, N.C., and last year Humana did so in St. Louis. Pacificare, the nation's third largest HMO, has decided to drop all Medicaid services, closing programs in California, Oregon and Utah. At least three companies have left Florida, and two are in receivership. The withdrawals highlight the dashed expectations of both the companies, for attractive profits from government-financed managed care, and the government, for sharp reductions in the cost of care. Like industry, which has steered 85 percent of the work force into managed care, the states and the Clinton administration are trying to contain the cost of care, but they are driving a harder bargain. While businesses have generally frozen payments to HMOs for four years and are allowing increases of about 5 percent this year, some states have slashed payments since the mid-1990s by up to 20 percent. Before most of the cuts took effect, the HMOs rushed into managed care plans for Medicaid recipients. From less than 10 percent, or 2.7 million of 28.3 million Medicaid beneficiaries in 1991, they captured 48 percent, or 15.4 million, of the 32.1 million beneficiaries in 1997. But as the states cut reimbursement rates for Medicare, the organizations suffered growing losses. "These ambitions of enormous savings have proven to be totally unrealistic," Paul Offner, the District of Columbia's commissioner for health care finance, said of government expectations. As a result, said Bruce M. Fried, a health care lawyer in Washington and until earlier this year the director of the Clinton administration's Office of Managed Care: "Some of the best plans have said, 'We can't do business on this basis. We're going to have to leave the system."' Some health care organizations acknowledge some naivete in embarking on Medicaid managed care. "We had not been in the Medicaid market, and the decision was made to expand into it," said Richard Hannon, senior vice president for marketing at Blue Cross and Blue Shield in Phoenix. "We considered it good to serve a broad range of Americans." So in 1994, Blue Cross was awarded a three-year contract and enrolled 45,000 Medicaid recipients. Offered a new contract last year, the company balked after large losses. "We got out because we found it extremely difficult to manage that patient base," Hannon said. Richard Potter, deputy director of Arizona's Medicaid program, said: "They had a big learning curve. They bid a rate. There were others at that rate that were able to survive." Difficulties in serving Medicaid beneficiaries is not limited to inexperienced HMOs. Maura Bluestone is the director of the Bronx Health Plan in New York, which has 38,000 subscribers, 80 percent of whom are Medicaid patients. "Reimbursement is a real difficult issue," Ms. Bluestone said. New York state chopped its reimbursements to the plan by 24 percent in 1995, she said. Part of the reduction was subsequently restored. Still, before the cuts, Bronx Health Plan was receiving $200 a month to care for each enrolled adult, 21-64 years old, while it now receives $164, or 18 percent less. She said the state had also raised the quality-of-care standards it required the plans to meet, raising the cost of care. "In a way," she said, "it's a setup for failure." Mathematica Policy Research, a private organization, reports that the number of managed care organizations with Medicaid contracts climbed to 355 in 1996 from 166 in 1993. But among them, those serving Medicaid clients exclusively or primarily rose to 44 percent from 39 percent. The shift can be good for the poor, said Sara Rosenbaum, director of the Center for Health Policy Research at George Washington University here, because they benefit from access to well-run organizations experienced in treating them. But Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, sees the trend more ominously. HMOs that serve only the poor are unable to shift profits from serving healthier clients to the poor, as more diverse HMOs do, Ms. Rowland said. As a result, when reimbursement rates are cut, she said, the Medicaid-only HMOs become especially vulnerable. "There's no way to cost-shift," she said, "and that's where you start to see real skimping on care." The more recent HMO retreat from Medicare managed care services poses few such quality-of-care issues for the elderly. Dr. Robert Berenson, director of the Health Care Financing Administration's Center for Health Plans and Providers, said about 1 million elderly beneficiaries are joining managed care plans each year and that he is rapidly approving new plans to meet a growing demand. "The overall trend is for expansion," Berenson said. But in Medicare, too, the health organizations are scrutinizing the marketplace to avoid more losses. They note that increases in their government reimbursements have slowed to 2 percent a year, below the rate of health care inflation. "The cost in many markets is well north of that," said David Olson, spokesman for Foundation Health Systems in Woodland Hills, Calif., the parent of Health Net. In addition to the 10 counties Health Net is abandoning, he said, "We're closely examining our participation in several different markets." Copyright 1998 The New York Times Company