Legal challenges kill Floridas Medicaid bidding plan, but other states persevere with competitive approach
FL. Medicaid Managed Care
July 31, 1997
Bogged down by industry protests, Florida has scrapped plans to award Medicaid managed care contracts based on a competitive bidding process it launched last summer.
"We embarked on an ambitious plan," said Colleen David, spokeswoman for the Florida Agency for Health Care Administration in Tallahassee. "We're disappointed but still encouraged we are on a progressive track."
First, Physician Corporation of America (PCA), Florida's largest Medicaid HMO, filed an administrative appeal in August 1996, arguing that while it supported competitive bidding it had to be "absolutely sure" what the new quality requirements would be. Besides protesting the lack of "objective standards" for quality in the request-for-proposal (RFP), the HMO protested a whole host of other issues including the state’s plans to auto-assign enrollees based on the HMOs’ capacity to serve more enrollees. That appeal took until late October to settle.
Then in February, several other plans weighed in, mostly criticizing uncertainty over enrollment limits based on the state’s determination of capacity. In all, a dozen legal protests were lodged, most seeking guarantees of more enrollees. ``Each settlement sparked a new round of protests,'' said Ms. David, who added that the agency felt the protests were unfounded.
Mindful that existing contracts would expire June 30, leaving Medicaid clients without any health care, the state blinked. On May 31, officials sent out one-year contracts, which 17 health plans returned.
"The agency expended enormous resources in this process, hoping to secure expanded access, more choice, enhanced benefits, better quality and lower costs," Kate Morgan, chief of the Bureau of Managed Health Care wrote in a May 31 letter to the bidders. "Unfortunately, the agency has been embroiled in one legal battle after another as we have attempted to satisfy every potential offerer's concerns."
When Florida solicited competitive bids last summer, the agency decided it would give far more weight (80%) to quality issues than to price (20%). HMOs received bonus points for offering new health-care services, such as programs to combat teen pregnancy, drug and alcohol abuse and domestic violence.
The new one-year contracts require many quality improvements sought in the RFP, including programs for smoking cessation, child wellness, drug and alcohol abuse and domestic violence.
However, the contracts set capitation rates at 92% of fee-for-service (FFS). Under the agency’s RFP issued last summer, bids were being solicited at 87-92% of FFS.
The battle has strained relations between Medicaid plans, which are paid about $720 million annually to treat more than 400,000 clients, and regulators, who are eager to upgrade the image of Medicaid insurers.
HMOs felt shortchanged
Michael Fernandez, president of Tampa-based Physicians Health Care Plans, complained that HMOs had helped the state rescue Medicaid from a fiscal crisis in recent years only to be shortchanged under the RFP, which cut payment rates without assuring HMOs they would be able to expand. Mr. Fernandez told a Tampa business newspaper a ''drug dealer'' would receive better treatment.
Eugene Grasser, HCFA associate regional administrator in Atlanta, said Florida law seemed to tolerate more protests and appeals than other states, which made it relatively "easy to throw a monkey wrench into the works."
"It's fair to say that we thought (the RFP) was a good contract because it pushed the quality aspects," Mr. Grasser said. "We're price conscious, but we don't want to get slaughtered on a bad contract at a good price."
Competitive bidding has become mired in legal challenges in other states but most have persevered with their programs. Arizona, which has used competitive bidding to award contracts since 1982, won praise from General Accounting Office auditors in October 1995 for assigning "more points to access and quality factors than capitation rates."
Quality counts for 70% in Arizona
In June, Arizona awarded 26 contracts after receiving 47 bids. Quality factors accounted for 70% of the score, price about 30%.
"Our goal this time was to get the highest quality plans," said Stephanie Davis, assistant director of the state's Office of Managed Care. New Medicaid HMO contracts are worth about $7 billion over five years, Arizona's biggest procurement. Two unsuccessful bidders filed protests after the latest round of bidding, but the process continued, she said.
Ms. Davis said five-year contracts give HMOs "an incentive to make a commitment. Even if they don't make a profit in the first year they have time to make it up." (Florida was to have awarded 30-month contracts.)
Under a legislative mandate to cut costs by 4%, Washington state initially sought bids based 60% on cost and 40% on quality and access, said Julie Lake, division director for Medicaid Program Support.
However, in the most recent round of bidding last May, the state gave equal emphasis to quality and price. Ms. Lake said 17 bidders are competing for new three-year contracts. Medicaid managed care covers 460,000 people in Washington state at a cost of about $541 million a year.
Ms. Lake said the bid process has succeeded because state officials are "not antagonistic" with health plans. "It's always been a partnership. I know that sounds corny but it works," she said. "Each side gives a little."
New Mexico, where Medicaid costs have been growing at 20% annually, still makes quality paramount in bids. Price was worth just 200 points out of 1,000, said Julie Britty, communications director for the New Mexico Human Services Department. In addition, Medicaid clients who do not choose a health plan are assigned in greater numbers to HMOs with the highest scores.
"Though most states still have price as the number one criteria, quality is being given a lot more weight," said Matt Barry, a health insurance specialist with the Health Care Financing Administration in Baltimore. "Most states are starting from ground zero, but they are getting more sophisticated and we are encouraging it."
No more fat
HCFA official Barry said states with "more mature" HMO programs have "squeezed out the fat, so there's not much room for price" negotiations to dominate the award process.
Eight states bid Medicaid HMO contracts as of September 1996, according to the American Public Welfare Association. They were: Arizona, Colorado, Hawaii, Indiana, Missouri, New York, Texas and Virginia. Since then, at least 10 more states have introduced competitive bidding for Medicaid contracts.
—Fred Schulte
Contact Kate Morgan at (904) 922-6830, Matt Barry at (410) 786-1176, Julie Lake at (360) 586-6517.
Fred Schulte is a 1997 Alicia Paterson Foundation fellow studying the shift of Medicaid and Medicare to managed care. He can be reached at (954) 356-4591.
Legal challenges kill Floridas Medicaid bidding plan, but other states persevere with competitive approach
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