Pennsylvania’s Medicaid managed care unravels as providers flee

Pharmacies defect after cuts in drug reimbursements

While HealthChoices, Pennsylvania’s massive Medicaid managed care program, is set to expand to Pittsburgh and western Pennsylvania in just three months, the four Philadelphia health plans participating in the first phase of the program are still reeling from severe financial losses and provider defections 18 months into the program.

The most glaring problems with HealthChoices Southeast are the continuing financial losses of the plans and the resulting squeeze that at least three of them have placed on their pharmacy benefits manager (PBM), Eagle Managed Care, a subsidiary of Rite Aid Corp.

Today, four managed care plans enroll some 500,000 Medicaid recipients in the five-county area surrounding Philadelphia. The largest plan has about half the recipients: Keystone Mercy Health Plan’s current HealthChoices enrollment is about 240,000. The other plans participating in HealthChoices are Health Partners, owned by seven hospitals, with 108,000 members; Healthcare Management Alternatives (HMA), with about 65,000 members; and Oxford Health Plans, which also has about 65,000 members. However, Oxford is exiting the market.

HealthChoices is due to expand into the 10-county Pittsburgh region on Jan. 1, 1999, where three plans will compete for 290,000 members. There is no crossover between the Philadelphia and Pittsburgh plans. The southwest or Pittsburgh plans are the University of Pittsburgh Medical Center/Best Health Care; Gateway Health Plan Inc.; and Three Rivers Health Plan/Medplus. By the time these recipients are rolled in, about 60% of the state’s Medicaid beneficiaries will be in a managed care plan.

All four original plans have reported losing millions on HealthChoices business, although the true extent is masked because they do not separate Medicaid losses or profits in filings to the state Department of Insurance. However, the performance of HMA, as a Medicaid-only plan, illustrates other plans’ problems. According to state records, HMA lost $2.49 million during calendar year 1997 on revenues of $191 million, compared to a 1996 profit of $3.6 million. Its most recent filing, for the first six months of 1998, shows a profit of $577,890 on revenues of $115 million.

Health Partners, which engages almost exclusively in Medicaid business, reported a net loss of $3.6 million on revenues of $225 million in 1997, on top of a 1996 loss of nearly $4.3 million. Its second quarter 1998 filing showed a year-to-date profit of $1 million on revenues of $133 million.

Oxford reported an $11.6 million loss on revenues of $118 million in 1997, compared to a 1996 profit of $913,000. Filings for the first two quarters show a loss of $3.5 million on $70.6 million in revenues. Oxford, however, is quitting HealthChoices (and Pennsylvania) altogether. The Norwalk, Conn.-based plan announced Oct. 14 that it was selling the Pennsylvania plan for $10.4 million to Health Risk Management, which has been managing the risk for the plan since April.

Keystone Health Plan East, of which Keystone Mercy Health Plan is a subsidiary, showed a 1997 profit of $39 million on revenues of $1.6 billion. The plan’s 1996 profit was $23 million. Its year-to-date profit as of June 30, 1998, was $25.6 million. Matt Cabrey, Keystone Mercy spokesman, maintained the plan has lost money on HealthChoices since its inception, but he declined to say exactly how much. Financial officers at Keystone estimate that the four plans collectively had lost $50 million on HealthChoices business from February 1997 to July 1998, he said.

In an effort to stem the red ink, all the plans began to take a hard look at their high-cost areas, and not surprisingly, pharmaceutical costs were near the top of the list. Health Partners, for example, saw its medication costs climbing steadily and turned to Eagle because it was the only PBM that was willing to share financial risk with the plan, according to spokeswoman Debbie Tortu. Health Partners’ per member per month (PMPM) drug costs went from $22.92 in 1996, prior to the start of the mandatory program, to $40.69 PMPM by September of this year, when its contract with Eagle took effect.

The state does not regulate what the HealthChoices plans pay for medications, according to Christine Bowser, director of the bureau of managed care under the Department of Public Welfare, which runs HealthChoices. A federal judge recently threw out the state’s rates for fee-for-service Medicaid pharmaceutical payments.

Pharmacies drop out

Health Partners, Keystone, and HMA all contract with Eagle. HP and Keystone confirm that the new payment rate Eagle offered the pharmacies is equal to the average wholesale price minus 16.5%. The new rate set the pharmacy chains screaming, and all three plans have seen their pharmacy networks shrink as a result. The hardest hit was Health Partners, which lost nearly half its participating pharmacies. The number of drug stores that accept HealthChoices prescriptions from Health Partners members dropped from 969 to 533. The busiest stores stayed in, Tortu contended. She said the plan found that of the top 50 participating pharmacies in terms of volume, only one dropped out of the network.

Keystone has lost a third of its pharmacies since Eagle lowered payments to pharmacies, Mr. Cabrey acknowledged. The biggest loss was from CVS, a national chain that pulled all its stores from the three plans’ HealthChoices business. The Eckerd Corp. quickly followed suit. However, Rite Aid’s stores all stayed in HealthChoices, which prompted critics to level conflict-of-interest accusations against Eagle.

The pharmacy changes have placed a "major hardship" on HealthChoices participants, according to the Working Group on HIV/AIDS and HealthChoices, which has been documenting incidences of prescriptions being filled incorrectly, mostly at Rite Aid locations. The group also says members’ access to pharmacies has been restricted as a result of reliance on Rite Aid stores.

"There’s a difference between network adequacy on paper and adequacy in real life," said Anna Forbes, spokeswoman for the Working Group, which describes its membership as 45 hospital- and community-based service provider and advocacy organizations. She noted that some plan members are used to getting to their caregivers and pharmacies on foot because they have no other source of transportation.

Financial pressures at HealthChoices HMOs also have led to changes in hospital networks. Forbes said her members have experienced 11 changes in the hospital network since the program’s inception. "It’s really a devastating loss to lose access to your hospital," she said.

Ms. Forbes contended the hospitals that aren’t participating are based where there is a "concentration of indigent folks who have asthma, diabetes and HIV/AIDS—and they’re expensive."

Mr. Cabrey acknowledged that finances led Keystone to drop five hospitals over a three-month period that were part of the Jefferson Health System and collectively cared for about 6,000 Keystone HealthChoices members. Half of those members disenrolled, according to Mr. Cabrey. "We were unable to come to an agreement on rates," Mr. Cabrey said of the split, but he added that the plan has "nearly 60" other hospitals in its network.

Health Partners also has seen some defections very close to home. Sixteen physicians affiliated with Temple University withdrew from the program because of low payments, and Temple—a Health Partners co-owner—has complained that Medicaid payments dropped by $22 million or 8% of its budget in 1997 alone.

Contact Ms. Forbes at 215-985-4448, Ms. Bowser at 717-772-6300, Mr. Cabrey at 215-636-6660, and Ms. Tortu at 215-849-9606.