In Medicaid, Private HMOs Take a Big, and Profitable, Role

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The Wall Street Journal

In Medicaid, Private HMOs Take a Big, and Profitable, Role

Managing Care for the Poor, They Prosper by Cutting Beleaguered States' Costs
Dr. Polack Seeks an Antibiotic
By BARBARA MARTINEZ
November 15, 2006; Page A1

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Four of the biggest Medicaid HMOs -- WellCare, Centene Corp., Molina Healthcare Inc. and Amerigroup Corp. -- have seen their shares surge on the New York Stock Exchange over the past few years, although prices of the latter three have been volatile. WellCare's stock price has tripled since it began trading in July 2004, bringing the value of stock and options held by its chief executive, Todd S. Farha, to $77 million. With the growth has come criticism from some doctors and patients who accuse Medicaid HMOs of scrimping on care. Even as they restrict medical tests and use of prescription drugs, the companies spend the money they get from states on items that don't have an obvious connection to patients. Centene has funded a multimillion-dollar arts center in St. Louis and paid to put its name on stadiums in Montana and Missouri. The HMOs are also big donors to political campaigns.

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Centene Chief Executive Michael Neidorff... earned $1.85 million in salary and bonus last year and as of the end of last year held restricted stock valued at $26 million. The company also recorded $135,547 last year in compensation for Mr. Neidorff representing the value of personal trips he took on the corporate jet, a Bombardier Challenger that features an espresso machine on board, according to the lease agreement.

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Private companies "deliver a good-quality product at a reasonable price," counters Ruben Jose King-Shaw Jr., a former top federal Medicaid and Medicare official who joined WellCare's board in 2003. He notes that states often require private HMOs to achieve high rates of vaccination and other quality standards that weren't met when bureaucrats did all the work. Mr. King-Shaw, whose final annual salary in government was $142,500, has sold WellCare shares for $1.8 million. He owns shares and options valued at an additional $1.5 million. "You only do well in health care if you deliver value," he says. States began experimenting with using managed care for Medicaid patients in the early 1980s, and the idea took off in the 1990s. Now many states are moving aggressively to put more Medicaid patients in HMOs. Last month, Ohio chose the winning bidders to provide Medicaid HMO services to 120,000 of the state's aged, blind and disabled population -- a group that traditionally hasn't been placed in HMOs.

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While they spend fewer dollars on medical care, companies say they are more efficient and improve the health of patients... Some patients and doctors have a different view... Many doctors refuse to take patients in Medicaid HMOs because reimbursements are so low. (The same problem occurs in traditional Medicaid.) Noha Polack, a pediatrician in Union City, N.J., has an arrangement under which Centene pays her a fixed monthly sum per child to handle basic medical needs. Until a few months ago, that sum was $11.50 per month, equal to $138 a year -- about half of what other Medicaid insurers pay, says Dr. Polack. A child who had a few colds or scrapes during a year would quickly put her in the red. Dr. Polack threatened to drop all her Centene patients and recently got a raise -- the amount of which is confidential, she says -- but she still stopped accepting new Centene patients. The HMO is stingy about drugs that others approve with little question, says Dr. Polack, naming the antibiotic Ceftin as an example.

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This year, 20 WellCare subsidiaries each donated the legal maximum of $500 to the campaign of Republican Tom Lee, who was narrowly defeated in his bid to become chief financial officer of Florida, WellCare's biggest market. WellCare donated $34,000 to the Republican Governors Association this year and contributed $100,000 to President Bush's second inaugural festivities in 2005. "I call a governor, I usually get a call back within 24 to 48 hours," says Centene's Mr. Neidorff. States keep track of the finances of Medicaid HMOs to ensure that the HMOs are spending a sufficient part of their revenue on medical costs. However, the numbers are subject to interpretation. A review of Centene's New Jersey subsidiary in 2004, by a unit of Marsh & McLennan Cos., said hundreds of thousands of dollars that Centene counted as medical costs should have been considered administrative costs.

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