Insurance company insiders knew about Iowa's Medicaid privatization plans long before public

Governor Terry Branstad didn’t run for re-election last year on a plan to let private insurance companies manage health care for some 560,000 Iowans on Medicaid. He didn’t work with key state legislators to draw up his administration’s “Medicaid Modernization” plans. The governor’s draft budget, submitted in January, projected some $51 million in savings on Medicaid for the 2016 fiscal year. But key lawmakers like the chair of the Iowa Senate Health and Human Resources Appropriations subcommittee didn’t learn that four private companies would be selected to handle almost all Medicaid services until the Iowa Department of Human Services made its request for proposals public in February.

Recent accusations of bias and conflicts of interest, as well as allegedly inaccurate scoring of insurers’ proposals, have raised many questions about how the Iowa DHS selected the four companies now negotiating contracts to manage Medicaid for one-sixth of Iowans. Reports of campaign contributions by lobbyists and political action committees representing firms that sought Iowa’s Medicaid business prompted one watchdog to decry “pay to play” politics.

Those news stories point to a conclusion that isn’t getting enough attention: various insurance companies and their paid representatives knew what was coming down the pike long before the Branstad administration disclosed its plans to privatize Medicaid.

Suggestive campaign contributions

Jason Clayworth’s front-page story for the Sunday Des Moines Register focused on campaign contributions by insurance companies that later submitted proposals to manage Medicaid in Iowa.

Lobbyists and political action committees representing the four companies whose proposals were selected earlier this month donated nearly $68,000 to those campaigns since 2010, a Des Moines Register investigation shows.  At least another $57,000 flowed in from companies that submitted bids but failed to win the contracts.

Click through for details on campaign contributions to Branstad, then Iowa House Speaker Kraig Paulsen, and Iowa Senate Majority Leader Mike Gronstal. Craig Holman of the watchdog group Public Citizen told Clayworth, “This is a classic example of pay-to-play abuse that we see throughout state and local levels.”

Branstad, meanwhile, insists his decision this year to hire private companies to manage the state’s Medicaid program had nothing to do with the $38,086 in campaign contributions he received from companies that sought the Medicaid contracts. […]

“No contributions or potential contributions were ever considered and to suggest otherwise is simply absurd,” [the governor’s spokesman Jimmy] Centers said.

I believe that neither campaign contributions nor lobbying by the governor’s office were deciding factors in the Iowa DHS decision to award contracts to Amerigroup Iowa, AmeriHealth Caritas Iowa, UnitedHealthcare Plan of the River Valley, and WellCare of Iowa. My reasoning: if Branstad had thrown his weight around, Iowa Total Care (a subsidiary of Centene) would have been a winning bidder. Not only had the company given the governor’s campaign committee $15,000, but it also had retained the LS2group lobbying firm, where Branstad’s 2010 campaign manager and later chief of staff Jeff Boeyink is a senior vice president. I would have bet dollars to donuts that Iowa Total Care/Centene would be among the four successful bidders.

Our campaign finance system allows corporate PACs and lobbyists to donate to candidates, so despite what looks like legalized corruption to Public Citizen and many others, Clayworth’s reporting does not indicate any improper action by the insurance companies.

Nevertheless, for multiple companies (some doing no business in Iowa at the time) to fund our governor’s and legislative leaders’ campaigns makes me wonder: What could those insurers stand to gain, other than a future share in Iowa’s Medicaid business?

Not that Clayworth’s piece proves insurance companies had inside information about the privatization plan. Lots of Republican governors have shifted Medicaid to managed care. Branstad has moved to increase corporate influence over many aspects of state governance. Rumors and suspicions about his intentions for Medicaid have circulated for years. Insurance companies might reasonably have spread some money around Iowa, just in case an opportunity arose.

Challenges to the Iowa DHS contract awards

The plot thickens as one looks closely at the DHS selection process for Medicaid managers.

The Branstad administration is selling Iowa’s “Medicaid Modernization Initiative” as a way for the state to save money while improving “quality” and “accountability.” But as the Des Moines Register’s editorial board observed last week,

The state has provided no evidence privatization will improve health care quality and access – likely because it cannot find any. Iowans have no assurances these private companies will be transparent or held accountable for problems.

One fact is indisputable, though: managing health care for some 560,000 Iowans will be a financial windfall for the four companies that sign contracts with the Iowa DHS. Under the new policy, an estimated $600 million of Iowa’s Medicaid spending each year will go “toward administrative expenses and profits” for private insurers. Some critics suggest the annual total diverted from spending on health services to insurance companies may reach $800 million.

Three firms that submitted unsuccessful bids for Iowa’s Medicaid’s business are not giving up their fight for a piece of that pie. For now, they are asking the DHS to reconsider its selection on the Medicaid contracts. Judging by comments from from state officials so far, including Branstad’s remarks at a press conference yesterday, the department will stand by its decision. Ultimately, the dispute over whether DHS officials scored proposals inaccurately or “poisoned the well” against one bidder may end up in court.

Documents filed by two unsuccessful bidders highlight alleged actions by former State Representative Renee Schulte. She became a consultant for the Iowa DHS in early 2013 and terminated her contract in February, right after the department put out its request for proposals on Medicaid management. She quickly signed a contract with WellCare, one of the winning bidders. From Clayworth’s story in the Des Moines Register’s August 27 edition:

“Because Schulte likely had access to confidential DHS information, and access to DHS decisions-makers, WellCare appears to have gained an unfair advantage in the procurement,” Pamela Sedmak, president of Aetna Medicaid wrote in the company’s request for consideration.

Documents filed by Centene/Iowa Total Care contain more explosive claims involving Schulte, Ryan Foley reported for the Associated Press on August 27 (emphasis added).

St. Louis-based Centene alleges Schulte met with its lobbyists in 2013 and 2014, telling them that [DHS administrator for mental health and disability services Richard] Shults had been making negative remarks about Centene within DHS. […]

Schulte told Susan Fenton, an LS2 lobbyist working for Centene, that Shults’ negative views toward Centene were based on his prior experience working in the Kansas Medicaid program, which contracts with Centene, Fenton wrote in an affidavit.

Fenton informed Centene representative Zane Yates that Schulte “possessed information relevant to Centene’s potential involvement in Iowa’s managed Medicaid program” and Schulte would be in touch to discuss it, Yates wrote in an affidavit.

Schulte met with Centene at the LS2 office Oct. 30, 2013, disclosing that Shults “was making derogatory comments about Centene,” Yates wrote. One year later, Schulte met again at the office with Centene representatives to help them prepare for an upcoming meeting with Shults to discuss the potential shift to managed care, which Branstad hadn’t announced yet, Yates wrote.

Schulte told Clayworth earlier this month “that her role for DHS was not related to the agency’s efforts to privatize Medicaid management.” Speaking to Foley last week,

Schulte said she met with Centene representatives to discuss mental health issues, not Medicaid privatization. She said she doesn’t recall ever hearing Shults criticize Centene, or telling its lobbyists about such statements.

Far be it from me to blindly trust insurance company executives and lobbyists, but the Centene version of events makes more sense than Schulte’s.

Why would an insurance company not doing business in Iowa want to talk with a consultant about “mental health issues”? Centene profits from managing Medicaid in several states. Two people representing the company submitted sworn statements recounting meetings with Schulte about Iowa’s coming shift to managed care. Perhaps Schulte doesn’t remember hearing Shults disparage Centene or telling anyone else about it, but two people signed affidavits telling a different story. When you sign an affidavit, you are certifying “under penalty of perjury and pursuant to the laws of the state of Iowa that the preceding is true and correct.”

Even if Schulte’s consulting work for DHS wasn’t directly related to the Medicaid privatization, she must have heard some office chatter about it. From Clayworth’s August 18 report:

“I quit so I could get involved with the bid,” Schulte told the Register. “At the time I had talked with a couple of different companies, but it ended up and was WellCare that I signed a contract with.”

So Schulte admits that she had already talked with more than one company likely to bid for a Medicaid contract. If she planned to switch her consulting role once DHS announced the new policy, it would be logical for her to demonstrate her value to more than one insurer before the RFP went out.

Getting back to the main point of this post: documents filed by Iowa Total Care/Centene indicate that a DHS consultant talked with the insurance company’s representative about Medicaid privatization in 2013, more than a year before the Branstad administration rolled out the new policy. A Centene executive was preparing to meet with senior DHS official Shults in 2014, months before state lawmakers or members of the public knew what was going on with Medicaid.

Whether Centene’s meeting was an isolated case or Shults discussed the shift to managed care with other insurance company executives before February 2015, this level of corporate cronyism should shock even the most cynical Branstad administration critics.

Private insurance companies knew big change was coming for health care delivery to some 560,000 Iowans. Yet 1.1 million people who cast ballots in the 2014 gubernatorial election, many of whom rely on Medicaid to cover themselves or their loved ones, were kept in the dark.

P.S.- Assuming Centene representatives accurately paraphrased Schulte in their affidavits, I don’t blame Shults for having a strongly negative impression of the company. The Kansas experience with Medicaid privatization has been “an absolute disaster,” according to advocates for people with disabilities. A report on “lessons learned from Kansas” by Rocky Nichols of that state’s Disability Rights Center is available on the Iowa Senate Democrats’ website.

I don’t have a dog in the fight over which companies will make money off Iowans on Medicaid. The insurers awarded contracts have faced fraud and mismanagement charges in other states, and I’ve seen no evidence the other bidders would provide better services than state-run Medicaid does now.

The best possible outcome (though very unlikely) would be for federal officials in the Centers for Medicare and Medicaid Services to deny Iowa the waivers it needs to carry out this ill-advised “modernization.” The Des Moines Register’s editors explained here how members of the public can contact CMS.

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