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Merger of Cardinal and Eastpointe: Will [Should] It Go Through?
What if, right before your wedding day, you discover a secret about your betrothed that changes the very fabric of your relationship. For example, you find out your spouse-to-be is actually gay or a heroin addict. Not that there is anything bad about being gay or a heroin addict, but these are important facts to know and accept [or reject] about your future mate prior to the ringing of the wedding bells. The same is true with two companies that are merging to become one. The merged entity will be liable for any secrets either company is keeping. In this hypothetical, Eastpointe just found out that Cardinal has been cheating – and the wedding is set for July 1!
Cardinal Innovations and Eastpointe, two of our managed care organizations (MCO) charged with managing Medicaid behavioral health care funds plan to merge, effective July 1, 2017. Together the monstrous entity would manage Medicaid behavioral funds for 32 counties.
Last week the State Auditor published a scathing Performance Audit on Cardinal. State Auditor Beth Wood found more than $400,000 in “unreasonable” expenses, including corporate retreats at a luxury hotel in Charleston, S.C.; chartering planes to fly to Greenville, Rocky Mount and Smithfield; providing monthly detailing service for the CEO’s car; and purchasing alcohol, private and first-class airline tickets and other items with company credit cards.
Cardinal’s most significant funding is provided by Medicaid. Funding from Medicaid totaled $567 million and $587 million for state fiscal years 2015 and 2016, respectively. In other words, the State Auditor found that Cardinal is using our tax dollars – public money obtained by you and me – for entertainment, while concurrently, denying behavioral health care services and terminating providers from its catchment area. Over 30% of my salary goes to taxes. I do not accept Cardinal mismanaging my hard earned money – or anyone else’s. It is unacceptable!
“The unreasonable spending on board retreats, meetings, Christmas parties and travel goes against legislative intent for Cardinal’s operations, potentially resulting in the erosion of public trust,” the audit states.
Eastpointe, however, is not squeaky clean.
A June 2015 Performance Audit by the State Auditor found that its former chief financial officer Bob Canupp was alleged to have received kickbacks worth a combined $547,595. It was also alleged that he spent $143,041 on three agency vehicles without a documented business purpose. Canupp, chief executive Ken Jones and other employees also were determined to have used Eastpointe credit cards to make $157,565 in “questionable purchases.” There has not been an audit, thus far, on Eastpointe’s management of public funds. One can only hope that the results of the Cardinal audit spurs on Beth Wood to metaphorically lift the skirts of all the MCOs.
Given the recent audit on Cardinal, I would like to think that Eastpointe is hesitant to merge with such an entity. If a provider had mismanaged Medicaid funds like the State Auditor found that Cardinal did, without question, the authorities would be investigating the provider for Medicaid fraud, waste, and abuse. Will Eastpointe continue with the merger despite the potential liability that may arise from Cardinal’s mismanagement of funds? Remember, according to our State Auditor, “Cardinal could be required to reimburse the State for any payroll expenditures that are later disallowed because they were unauthorized.” – Post-payment review!!
Essentially, this is a question of contract.
We learned about the potential merger of Cardinal and Eastpointe back in January 2017, when Sarah Stroud, Eastpointe’s chief executive, announced in a statement that the agency plans to negotiate a binding agreement within weeks. The question is – how binding is binding?
Every contract is breakable, but there will be a penalty involved in breaching the contract, usually monetary. So – fantastic – if Eastpointe does back out of the merger, maybe our tax dollars that are earmarked for behavioral health care services for Medicaid recipients can pay the penalty for breaching the contract.
Another extremely troubling finding in Cardinal’s State Audit Report is that Cardinal is sitting on over $70 million in its savings account. The audit states that “[b]ased on Cardinal’s accumulated savings, the Department of Health and Human Services (DHHS) should consider whether Cardinal is overcompensated. For FY 2015 and 2016, Cardinal accumulated approximately $30 million and $40 million, respectively, in Medicaid savings. According to the Center for Medicaid and Medicare Services (CMS), Cardinal can use the Medicaid savings as they see fit.”
As Cardinal sees fit??!!?! These are our tax dollars. Cardinal is not Blue Cross Blue Shield. Cardinal is not a private company. Who in the world thought it a good idea to allow any MCO to use saved money (money not spent on behavioral health care services for Medicaid recipients) to use as it sees fit. It is unconscionable!
Because of my blog, I receive emails almost daily from mothers and fathers of developmentally disabled or mentally handicapped children complaining about Cardinal’s denials or reductions in services. I am also told that there are not enough providers within the catchment area. One mother’s child was approved to receive 16 hours of service, but received zero services because there was no available provider. Another family was told by an MCO that the family’s limit on the amount of services was drastically lower than the actual limit. Families contact me about reduced services when the recipient’s condition has not changed. Providers contact me about MCO recoupments and low reimbursement rates.
Cardinal, and all the MCOs, should be required to use our tax dollars to ensure that enough providers are within the catchment areas to provide the medically necessary services. Increase the reimbursement rates. Increase necessary services.
According to the report, “Cardinal paid about $1.9 million in FY 2015 employee bonuses and $2.4 million in FY 2016 employee bonuses. The average bonus per employee was about $3,000 in FY 2015, and $4,000 in FY 2016. The bonuses were coded to Cardinal’s administrative portion of Medicaid funding source in both years.” Cardinal employs approximately 635 employees.
Good to know that Cardinal is thriving. Employees are overpaid and receive hefty bonuses. Executives are buying alcohol, private and first-class airline tickets and other items with company credit cards. It hosts lavish Christmas parties and retreats. It sits on a $70 million savings account. While I receive reports from families and providers that Medicaid recipients are not receiving medically necessary services, that there are not enough providers within the catchment area to render the approved services, that the reimbursement rates for the services are too low to attract quality providers, that more expensive services are denied for incorrect reasons, and that all the MCOs are recouping money from providers that should not be recouped.
If I were Eastpointe, I would run, regardless the cost.
Trump-caid: Medicaid Under the AHCA
It is still unclear whether the American Health Care Act (AHCA), or H.R. 1628, will be signed into law. On March 6, 2017, the House Energy & Commerce Committee (E&C) and Ways & Means Committee (W&M) officially released the draft bill. The latest action was on April 6, 2017, H.Res.254 — 115th Congress (2017-2018) was placed on the House calendar. The rule provides for further consideration of H.R. 1628. The rule also provides that the further amendment printed Rules Committee Report 115-88 shall be considered as adopted.
So what exactly would AHCA change in relation to Medicaid?
For over fifty (50) years, states have created and implemented Medicaid programs entirely dependent on federal contributions. Medicaid is based on federal law. Although each individual state may have slight variances in the Medicaid program, because the state Medicaid programs must follow federal law, the state Medicaid programs are surprisingly similar. An example of a slight variance is that some Medicaid services are voluntary, like personal care services (PCS); some states offer PCS paid by Medicaid and others do not.
Currently, the federal government does not cap the federal contribution. However much a state spends – no matter how exorbitant – the federal government will match (at whatever percentage allotted for that state). For example, the federal government pays 66.2% of North Carolina’s Medicaid spending. Which means, BTW, that $264,800.00 of Cardinal’s CEO’s salary is funded by the federal government. These percentages are called Federal Medical Assistance Percentages (FMAP).
All this may change under the American Health Care Act (AHCA), or H.R. 1628, as approved by the House Ways and Means, Energy and Commerce, Budget, and Rules Committees.
The AHCA proposes many changes from the Affordable Care Act (ACA) germane to Medicaid. In my humble opinion, some of the replacements are stellar; others are not. No one (sane and logical) could argue that the ACA was perfect legislation for providers, employers, or recipients. It was not. It mandated that employers pay for health care insurance for their employees, which caused the number of part-time workers to explode. The ACA mandated the states to suspend Medicaid reimbursements upon a credible allegation of fraud, which, basically, could be a disgruntled employee lying with an anonymous accusation. This provision put many providers out of business without due process (Remember New Mexico?). The ACA also put levers in place that meant younger policyholders were subsidizing older ones. Healthy, young adults were paying for older adults. The ACA reduced payments for Medicare Advantage plans, hospitals, and other providers to save money. There was also a provider shortage due to the low reimbursement rates and regulatory audits. The Affordable Care Act was anything but affordable. At least the American Health Care Act does not protest itself to be affordable.
Here are some of the most poignant “repeal and replace” items in Trump-caid:
1. Health Savings Accounts
The AHCA will encourage the use of Health Savings Accounts by increasing annual tax free contribution limits. It will also modify ACA premium tax credits for 2018-2019 to increase the amount for younger adults and to reduce the amount for older adults. In 2020, the AHCA will replace ACA income-based tax credits with flat tax credits adjusted for age. Eligibility for new tax credits phases out at income levels between $75,000 and $115,000.
2. Cap on federal contributions
Beginning in 2020, the AHCA would cap federal contributions to state Medicaid programs. This will result in huge federal savings, but cause severe shortages on the state level. The federal per-enrollee caps would be based on states’ Medicaid expenditures in 2016, trended forward to 2019. A uniform, federal capped system would provide fiscal security for the federal government and shift the risk of over spending on the states.
The following categories would be exempt from the per-capita allotments (i.e. paid for outside of the per-capita caps): DSH payments, administrative payments, individuals covered under CHIP Medicaid expansion program or who receive medical assistance from an IHS facility, breast and cervical cancer patients, and partial benefit-enrollees
With the risk on the states, there is a high probability that optional Medicaid services, such as PCS, may be cut from the budget. If PCS were eliminated, more patients would enter long-term care facilities and fewer patients would be able to remain in their homes. The House bill essentially eliminates the enhanced funding levels that made possible states’ expansion of Medicaid to their poorest working-age adult residents. In all, 31 states expanded Medicaid under the ACA. While the House Bill does not prohibit Medicaid expansion; expansion will be difficult to remain funded by the states.
3. Presumptive eligibility program
The House bill would end the ACA’s special hospital presumptive eligibility program, under which hospitals can temporarily enroll patients who “appear” to be eligible and begin to get paid for their care while their full applications are pending. (What in the world does “appear to be eligible” mean. Is it similar to profiling?)
4. Home equity and eligibility
Under current law, states disregard the value of a home when determining Medicaid eligibility for an individual in need of long-term community-supported care. The bill would take away this state flexibility, capping the equity value at $500,000.
5. Disproportionate Share Hospital Payments
The AHCA would repeal the Medicaid DSH reductions set in motion by the ACA in 2018 for non-expansion States, and 2020 for expansion states.
6. Section 1115 Waivers
States with Waivers will not be penalized for having a Waiver. In other words, the expenses and payments under the Waiver will be treated in the same manner as if the state did not have a Waiver. However, if a state’s waiver contains payment limitations, the limitations in the new law, not the Waiver, apply.
Again, the future of the AHCA is uncertain. We all remain watchful. One change that I would like to see is that due process is afforded to providers prior to suspension of all funds when there is a credible allegation of fraud.
Key Medicaid Questions Post-Election
Disclosure: This is the opinion/facts from the Kaiser Family Foundation, not me. But I found this interesting. My opinion will be forthcoming.
Kaiser Family Foundation article:
Medicaid covers about 73 million people nationwide. Jointly financed by the federal and state governments, states have substantial flexibility to administer the program under existing law. Medicaid provides health insurance for low-income children and adults, financing for the safety net, and is the largest payer for long-term care services in the community and nursing homes for seniors and people with disabilities. President-elect Trump supports repeal and replacement of the Affordable Care Act (ACA) and a Medicaid block grant. The GOP plan would allow states to choose between block grant and a per capita cap financing for Medicaid. The new Administration could also make changes to Medicaid without new legislation.
1. HOW WOULD ACA REPEAL AFFECT MEDICAID?
A repeal of the ACA’s coverage expansion provisions would remove the new eligibility pathway created for adults, increase the number of uninsured and reduce the amount of federal Medicaid funds available to states. The Supreme Court’s 2012 ruling on the ACA effectively made the Medicaid expansion optional for states. As of November 2016, 32 states (including the District of Columbia) are implementing the expansion. The full implications of repeal will depend on whether the ACA is repealed in whole or in part, whether there is an alternative to the ACA put in place and what other simultaneous changes to Medicaid occur. However, examining the effects of the ACA on Medicaid provide insight into what might be at stake under a repeal.
What happened to coverage? The ACA expanded Medicaid eligibility to nearly all non-elderly adults with income at or below 138% of the federal poverty level (FPL) – about $16,396 per year for an individual in 2016. Since summer of 2013, just before implementation of the ACA expansions, through August 2016 about 16 million people have been added to Medicaid and the Children’s Health Insurance Program. While not all of this increase is due to those made newly eligible under the ACA, expansion states account for a much greater share of growth. States that expanded Medicaid have had large gains in coverage, although ACA related enrollment has tapered. From 2013 to 2016 the rate of uninsured non-elderly adults fell by 9.2% in expansion states compared to 6% in non-expansion states.
What happened to financing? The law provided for 100% federal funding of the expansion through 2016, declining gradually to 90% in 2020 and beyond. Expansion states have experienced large increases in federal dollars for Medicaid and have claimed $79 billion in federal dollars for the new expansion group from January 2014 through June 2015. Studies also show that states expanding Medicaid under the ACA have realized net fiscal gains despite Medicaid enrollment growth initially exceeding projections in many states.
What other Medicaid provisions were in the ACA? The ACA required states to implement major transformations to modernize and streamline eligibility and enrollment processes and systems. The ACA also included an array of new opportunities related to delivery system reforms for complex populations, those dually eligible for Medicare and Medicaid and new options to expand community-based long-term care services.
2. WHAT WOULD CHANGES IN THE FINANCING STRUCTURE MEAN FOR MEDICAID?
A Medicaid block grant or per capita cap policy would fundamentally change the current structure of the program. These policies are typically designed to reduce federal spending and fix rates of growth to make federal spending more predictable, but could eliminate the guarantee of coverage for all who are eligible and the guarantee to states for matching funds. States would gain additional flexibility to administer their programs but reduced federal funding could shift costs and risk to beneficiaries, states, and providers.
How would it work? Block grants or per capita caps could be structured in multiple ways. Key policy decisions would determine levels of federal financing as well as federal and state requirements around eligibility, benefits, state matching requirements, and beneficiary protections. Previous block grant proposals have determined a base year financing amount for each state and then specified a fixed rate of growth for federal spending. Under a Medicaid per capita cap, the federal government would set a limit on how much to reimburse states per enrollee. Payments to states would be based on per enrollee spending multiplied by enrollees. Spending under per capita cap proposals fluctuate based on changes in enrollment, but would not account for changes in the costs per enrollee beyond the growth limit. To achieve federal savings, the per capita growth amounts would be set below the projected rates of growth under current law.
What are the key policy questions? Key questions in designing these proposals include: what new flexibility would be granted to states, what federal requirements would remain in place, what requirements would be in place for state matching funds, what is the base year and growth rates, and how would a potential repeal of the ACA work with a block grant proposal? Given the lack of recent administrative data, setting a base year could be challenging. These financing designs could lock in historic spending patterns and variation in Medicaid spending across states, resulting in states deemed “winners” or “losers.”
What are the implications? Capping and reducing federal financing for Medicaid could have implications for beneficiaries, states, and providers including: declines in Medicaid coverage or new financial barriers to care; limited funding for children (the majority of Medicaid enrollees) as well as the elderly and those with disabilities (populations that represent the majority of Medicaid spending); reduced funding for nursing homes and community-based long-term care (Medicaid is the largest payer of these services); reductions in federal revenues to states and Medicaid revenues for safety-net providers. A block grant would not adjust to increased coverage needs during a recession. Block grants or per capita caps would not adjust to changes in health care or drug costs or emergencies. Recently Medicaid costs have increased due to high cost specialty drugs and Medicaid has been used to help combat the growing opioid crisis.
3. HOW COULD MEDICAID BE CHANGED THROUGH ADMINISTRATIVE ACTIONS?
The Administration could make changes to Medicaid without changes in legislation.
How can changes be made through guidance? A new administration can reinterpret existing laws through new regulations and new sub-regulatory guidance. While there are rules that govern how to change regulations, a new administration has more flexibility to issue or amend sub-regulatory guidance, such as state Medicaid director letters. Rules promulgated by the Obama administration could be rolled back or changed.
How can changes be made through waivers? Throughout the history of the Medicaid program, Section 1115 waivers have provided states an avenue to test and implement demonstrations that, in the view of the Health and Human Services Secretary, advance program objectives but do not meet federal program rules. Longstanding federal policy has required waivers to be budget neutral for the federal government.
What kind of waivers may be considered? Seven states are using waivers to implement the ACA Medicaid expansion, including Indiana. The Indiana waiver, implemented under then Governor Pence, includes provisions to impose: premiums on most Medicaid beneficiaries; a coverage lock-out period for individuals with incomes above the poverty level who fail to pay premiums; health savings accounts; and healthy behavior incentives. The Obama administration has not approved waivers that would require work as a condition of Medicaid eligibility. It also has denied Ohio’s waiver request to impose premiums regardless of income and exclude individuals from coverage until all arrears are paid on the basis that this would restrict or undermine coverage from existing levels. Many other states are using waivers to implement payment and delivery system reforms. The incoming administration could decide whether or not to renew existing waivers and can approve a new set of waivers to promote its own program goals.
