Pittsburgh Business Times - March 5, 2007

Two Pittsburgh-area insurers are bracing for multimillion-dollar losses following the state Department of Public Welfare's unexpected decision to terminate their contracts in favor of a state-administered fee-for-service health care program for some 71,000 poor people, mostly in Central and Western Pennsylvania.

Gateway Health Plan and Unison Health Plan of Pennsylvania were notified of the cancellation in a Feb. 21 letter. The state's long-term contract with the companies ends June 30. UPMC Health Plan was also notified that its contract would be terminated, but the company says the loss -- 5,000 members -- would have little impact because it had already been losing money on the line of business.

All three companies provided capitated care, meaning they received a flat monthly rate for managing the health care of Medicaid recipients, regardless of actual cost. Starting July 1, the state will bring oversight of the health coverage in-house with a managed fee-for-service program called ACCESS Plus, which eliminates Gateway, Unison and UPMC Health Plan from participation.

"It's an astonishing move," said Michael Blackwood, president and CEO of Gateway, which stands to lose $80 million in revenue from the decision. "We're being hammered as a company. It's a policy disaster, as far as I'm concerned."

An independent study done in 2005 concluded that Pennsylvania had saved $2.7 billion over the previous five years through the capitated approach to providing health care for its Medicaid population, Blackwood said. What's more, the plan has received high marks from members and independent quality rating agencies.

Downtown-based Gateway will lose 24,000 members, or 10 percent of its total membership, mostly in Altoona, Johnstown and Erie, Blackwood said. People with Medicaid health care coverage in Allegheny and the 10 surrounding counties are covered by HealthChoices, an option that allows people to choose from among three plans, including Gateway and Unison.

No layoffs are planned at Gateway, which employs 470 people, Blackwood said, but the state's decision is still too new to gauge the full impact it will have on the company. The DPW has begun implementing the shift called for in the state budget, even though it has not yet gone before legislators for approval.

"The Legislature has no idea the DPW is choosing to do this prior to the new fiscal year," Blackwood said, "and without any serious discussions or hearings or anything else."

'IT's SHOCKING'

Still bigger losses are predicted at Monroeville-based Unison, where the end of the state contract means 40,000 fewer members or 20 percent of the total members covered under its plans, according to company president Jennifer Kessler.

"It's shocking," said Kessler, who said the state's decision will cost the company $100 million in revenue. "It's step one in the state going backward 20 or 30 years.

"We will fight this to the very end because we know the value we can provide."

Blackwood and Kessler say they will take their appeal directly to legislators, who may not be fully aware of the consequences of the change.

Unison expects none of its 1,000 people will be laid off as a result of the contract termination, Kessler said. In recent years, Unison has diversified, including offering a Medicare Advantage product, which will help soften the impact. The state's decision will also accelerate the company's search for business outside Pennsylvania, she said.

An independent study done for the DPW found that the state-run program costs 9.5 percent less to operate than capitated programs like the ones offered by Gateway and Unison, resulting in potential annual

savings of $23 million from the shift without compromising quality of care, according to Mike Nordone, deputy secretary in the DPW's office of medical assistance.

"We've done an analysis: ACCESS Plus is more cost effective and the care is comparable," Nordone said. "We're trying to get the best value for the health care dollar."

There are some 290,000 people enrolled in the state-run program, compared with around 71,000 people in the capitated option, a number that has been falling over the past 18 months from more than 100,000 members, Nordone said.

UPMC Health Plan only provides coverage for 5,000 Medicaid recipients, after reducing its participation in the past year, according to John Lovelace, vice president, medical assistance programs. UPMC had been losing money by providing the coverage, Lovelace said, so the impact of the contract cancellation would be minimal.

'ELIMINATING CHOICE'

Michael Rosenstein, coordinator of the Coalition of Medical Assistance Managed Care Organizations, a Harrisburg-based advocacy group, called the DPW move "a comprehensive attack on a system that's working."

"They're moving from a managed care system to a relatively untested fee-for-service program, which studies have shown is more expensive in the long run," he said.

Ross Township-based Automated Health Systems, which already contracts with the state to help run its ACCESS Plus program, stands to gain from the shift to managed fee-for-service. The company's focus is administering large-scale public health programs for state and local government, and its current contracts total around $70 million. Company officials were not immediately available for comment.

Ross Township-based Automated Health Systems, which already contracts with the state to help run its ACCESS Plus program, stands to gain from the shift to managed fee-for-service. The company's focus is administering large-scale public health programs for state and local government, and its current contracts total around $70 million. Company officials were not immediately available for comment.

The shift will also mean that hospitals, doctors and other health care providers could see revenue cuts of 10 percent to 25 percent starting July 1 because the state's fee-for-service program reimburses at a lower rate than is paid by the managed care organizations, Kessler said. But it may be several months before providers become aware of the change.

The contract cancellation also means that doctors will have fewer choices in the health care plans they participate in for their Medicaid patients, according to Dr. Joseph Sheridan, Unison's medical director.

"Doctors could also choose which program they would participate in," he said. "The state is eliminating a choice for all those people."

Nationwide, 40 percent of the people on Medicaid receive capitated care, according to David Rousseau, an analyst in the Washington D.C. office of the Kaiser Family Foundation, a research group. The predominate platform of care is some form of managed care, like the ACCESS Plus program. Which approach is most cost effective hinges on a host of factors, including provider network and access to health care, which varies state to state, Rousseau said.