Rocky Transition: Medicaid to Private HMOs

Eight-year-old Mikeriya Ainsley of Georgia said she gets teased at school because of the way she looks and talks.

"They say I don't fit in," Ainsley said.

Ainsley was born with a brain disorder and developmental delays, which means she struggles with basic tasks such as buttoning her shirt.

All her life, Georgia's Medicaid system paid for Ainsley to receive weekly physical, occupational and speech therapy, along with several other low-income children, at a facility in Monroe, Ga.

Then last year, Georgia turned its state-run Medicaid system over to insurance companies as part of a switch to health maintenance organizations, known as HMOs. Payment for Ainsley's therapy -- and the therapy for other children at the Georgia clinic -- was denied by the new HMOs.

  • As part of its continuing series, GMA Gets Answers, "Good Morning America" takes a hard look at the insurance industry and its sometimes questionable practices. On Tuesday's program, Chris Cuomo looked at what happens when states turn over their public Medicaid systems to private HMOs.

"It's hard enough for them, you know, to make it in this world. And then a service that's supposed to be available to them [is] taken away from them just because somebody wants to make money," said Ainsley's therapist, Ellen Roberts.

Roberts blames the switch from state-run Medicaid to a managed care system for a decline in the medical benefits and services that Ainsley, and other children she treats, receives.

"It is heartbreaking because we've seen children under the old Medicaid program make tremendous progress, and we're not going to see it with these kids," she said.

Cutting Red Tape, Causing New Problems

According to data provided by the Centers for Medicare and Medicaid Services, 32 states have turned their Medicaid systems over to HMOs in hopes of cutting through red tape, providing better care to needy patients and saving taxpayers money.

But critics now say that the insurance companies tasked with running the new system and improving patient care are actually denying services to those who need them most.

"The effect on patients has been having a harder time getting access to the care they need, waiting longer for doctor's visits and in some cases, services being cut altogether," said Jerry Flanagan, the health care policy director at the Foundation for Taxpayer and Consumer Rights.

The insurance industry disputes these claims and points to independent studies that it says show that the quality of care provided to Medicaid recipients improves under managed care systems.

"Whether you look at infant mortality, low birth weight babies, immunizations," said industry spokeswoman Susan Pisano, "all of those things have been improved when Medicaid has moved to managed care systems."

Pisano represents America's Health Insurance Plans, the largest trade group for insurance companies.

Critics, like Flanagan, question whether for-profit companies can provide quality care at the same time they try to meet or exceed shareholder expectations.

"Wall Street wants to see big surpluses and big dividends," Flanagan said. "What Wall Street demands from these for-profit companies is that they retain more of the states' dollars for their own profits. And that's very good for the business of HMO health care, but it's very bad for patients who are enrolled in the programs."

Pisano disputed that characterization and said that Medicaid HMOs are "a fairly low-profit business."

Booming Business and Spending

That's not the opinion on Wall Street. Profits for HMOs servicing Medicaid contracts have soared since 2000. In fact, in the last five years, the four companies whose primary business involves providing Medicaid services to states -- Wellcare, Centene Corp., Molina Healthcare and Amerigroup Corporation -- have made more than a billion dollars in profit combined. Stock prices for these companies have also surged.

It's not just the companies that are seeing a windfall. Todd Farha, the CEO of Wellcare, has been granted or sold stock and options worth more than $100 million since his company went public in 2004.

Centene Corp. CEO, Michael Neidorff, has been granted more than $30 million in company stock. According to filings with the Securities and Exchange Commission, Centene even pays for Neidorff to use a Bombardier Challenger jet for both business and personal travel.

In a written statement provided to "Good Morning America," Centene said its board provides the jet to Neidorff "for personal security, immediate access and the need to maintain confidentiality." It also said the jet makes "the most efficient use of" Neidorff's time.

And while the Cabinet secretaries and other government employees who oversee Medicaid typically use commercial airplanes for Medicaid-related business, Centene said its board requires Neidorff to use the plane for both personal travel and company trips. According to the lease agreement signed by the company, the plane includes an onboard espresso machine and an entertainment center.

Centene's spending extends past its executive offices.

The company has made contributions to several organizations unrelated to health care. For example, the company paid $200,000 for the naming rights to a Minor League Baseball stadium in Great Falls, Mont., and in 2004, Neidorff commissioned a sculpture of a large eagle holding a fish in its talons at the Great Falls International Airport. The sculpture was paid for by Centene.

Centene's Charitable Foundation -- which is funded directly by the company -- has also contributed money to the National Symphony Orchestra and the Kennedy Center Honors Gala in Washington over the past few years.

Centene employs approximately 100 workers at a medical claims processing facility in Great Falls, but it does not serve Medicaid recipients in either Montana or Washington, D.C..

In a written statement, Centene told "Good Morning America that "its "continued growth allows the company to support a wide variety of public institutions, nonprofits, arts and cultural organizations, health care initiatives, social service agencies and civic organizations." The company said it remains "committed to these activities and fervently believe they reflect the actions of a responsible and publicly focused company."

Industry spokeswoman Pisano said questions about the amount of money available to Medicaid HMOs and how the money is spent are "a legitimate public policy discussion." Yet she said studies demonstrate that those people receiving Medicaid through HMOs are better off under the new system and "that states are saving money" compared with when states ran Medicaid.

Critics of the system argue that was not the case in Illinois, where the federal and state governments, along with a corporate whistleblower, sued Amerigroup for fraud, and won, last year.

In the lawsuit, the government argued that between 2000 and 2004 Amerigroup received $232 million in taxes to pay for Medicaid health care benefits but spent little more than half of the money it received on patient care.

The lawsuit was filed by a former Amerigroup employee named Cleveland Tyson. Tyson's attorneys, Frederick H. Cohen and David Chizewer, told the court that Amerigroup Illinois selectively enrolled healthy patients in its HMO in order to receive payments from the state for each new enrollee. At the same time, Amerigroup allegedly avoided signing up patients who would need care.

Attorneys said one of the most damning moments in the trial came when the government played a portion of a videotaped deposition of Amerigroup's former Chief Marketing Officer Herman Wright.

On the tape, Wright told attorneys his "growth strategy was to bring in all the, all the folks out there who were 'healthies,' which were basically the majority of your population."

When asked if he focused on patients who were sick or already in the medical system, Wright replied, "Well, I'm from the health insurance industry. From day one I think one of the, if I had told anyone I was going to go out and enroll as many sick people as I could in health insurance I would be fired."

In October a jury found that Amerigroup Illinois and its parent company Amerigroup Corp. had violated the Federal False Claims act, a whistleblower law that allows an individual to sue on behalf of the government if he believes a company has defrauded the United States. The jury awarded the parties in the suit more than $300 million in damages. Amerigroup is appealing the verdict and the damage award.

Ted Olson, the former U.S. solicitor general, is representing Amerigroup on appeal. In a written statement from the company Olson said, "A few snippets of trial testimony from the Tyson case don't tell the full story, which is that Amerigroup's state partner knew about Amerigroup's marketing initiatives and approved them.

"Good Morning America" requested interviews with Amerigroup and the other major Medicaid HMOs. All declined the requests and referred reporters to America's Health Insurance Plans, the industry trade group.

In a wide-ranging interview, Pisano discussed issues such as profit caps and executive compensation.

Pisano told Chris Cuomo that she would not say whether or not HMO profits should be capped at maximum levels but did point out that some states have put limits on how much money the companies can make.

"I think that it is reasonable for states to look at what makes sense, to create a system that works for them," she said.

Pisano said rather than focusing on how much money Medicaid HMOs are making, critics should focus on the question of whether or not "people are getting better access to care."

Ellen Roberts, Mikeriya Ainsley's therapist, said in the case of her patients, the answer to Pisano's question is no. Roberts fears patients like Ainsley who are no longer getting therapy will one day burden society because they will not be able to hold a job.

"At this point, if she doesn't get the extra help," Roberts said, "she will probably just kind of give up."