Md. paid MCOs millions too much; Medicaid shift saving less than hoped, lawmakers are told


Maryland has overpaid managed health care organizations nearly $44 million since last summer to treat poor patients covered by Medicaid, state officials told lawmakers yesterday.

An independent review of Maryland's HealthChoice program, a pioneering effort to reduce Medicaid costs, found that the eight participating managed care organizations (MCOs) are getting $4.9 million a month more overall than they should.

The Segal Co., a Washington consultant that did the study, also warned lawmakers at a joint Senate hearing that the cost savings from putting 304,000 Medicaid patients into managed care would not be as great as originally promised.

State Budget Secretary Frederick W. Puddester recommended recouping the overpayment by reducing rates paid to MCOs by 7 percent, starting April 1. By withholding $4.9 million a month through 2000, he said, there would be less financial trauma to the managed care groups than by requiring a lump-sum repayment.

But some members of the Senate Budget and Taxation and Finance committees said they feared that managed care organizations may drop out of HealthChoice if forced to take reduced payments. One MCO quit last fall. "This $5 million a month is a major hit," said Sen. Thomas L. Bromwell, the Baltimore County Democrat who chairs the Finance Committee.

Segal's review concluded that the MCOs are not being overpaid as much as originally alleged. State health officials had contended last summer that the MCOs received $80 million more than they were entitled to. But Segal executives told the lawmakers that the MCOs were not really overpaid last year, because of offsetting miscalculations by the state in what it paid for treating various patients.

The overpayment for fiscal 1998 totaled just $5.6 million, out of $709 million a year spent overall on HealthChoice.

"They made two mistakes and it averaged out," observed Sen. Barbara Hoffman, the Baltimore and Baltimore County Democrat who chairs the Budget and Taxation Committee.

Segal executives said state health officials also oversold the initial cost savings to be realized from switching Medicaid patients to managed care. Instead of the projected 10 percent, the actual savings probably amounted to 4 percent.

But unless payment rates are adjusted for this year, the consultant concluded, the MCOs will be overpaid by nearly $60 million.

State health officials attempted to reduce the rates last year when they discovered their miscalculations, but after protests by MCO representatives, lawmakers ordered the payments left untouched until the independent review was completed.

"I think the MCOs can sustain this," said Health Secretary Martin Wasserman. The insurers will have a chance to speak to the committees Feb. 18.

A spokesman for five of the managed care organizations said they were pleased by the review. "It shows things aren't as bad as the department initially believed," said lawyer Michael V. Johansen.

He said the MCOs need more time to review the latest overpayment calculations. But he warned that an across-the-board rate reduction may hurt some groups more than others.

Pub Date: 2/10/99

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