Ohio Shuts Out Three ‘Pure Play’ Firms in New Medicaid Awards

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care. By Judy Packer Tursman, Contributing Editor April 12, 2012 Volume 18 Issue 7 When Ohio awarded $1.2 billion worth of contracts to managed care organizations April 6, the three incumbent pure-play Medicaid MCOs — Amerigroup Corp., Centene Corp. and Molina Healthcare, Inc. — were excluded. In response, Centene said it intends to file a formal protest. And securities analysts said Medicaid MCOs remain capable of strong revenue growth over the next few years, and described pure-plays as unlikely to be shut out from many state awards going forward. Of the five companies getting Ohio Medicaid contracts for coverage starting Jan. 1, 2013, two are publicly traded: UnitedHealth Group is an incumbent, while Aetna Inc. is a new entrant. Other winners are CareSource, a not-for-profit plan covering 870,000-plus members in the Buckeye State and Michigan; Meridian Health Plan of Ohio and Paramount Advantage. Meridian also is new to Ohio’s Medicaid managed care program, which now has eight plans. Statewide, Ohio has about 2.1 million Medicaid recipients, of which more than 1.5 million are enrolled in managed care plans, says Benjamin Johnson, spokesperson for the Ohio Department of Job and Family Services (ODJFS). That includes roughly 1.5 million in Ohio’s Covered Families and Children (CFC) program; 129,000 in the state’s Aged, Blind & Disabled (ABD) program; and 37,000 children with special needs. Ohio’s Medicaid managed care system now has eight regions covering the state with two or three plans per region, and there are separate contracts for the CFC and ABD populations. Under the overhaul, there will be a consolidation into three regions, and all five plans will serve the three regions and both populations under a single contract. Johnson says plans could bid on any or all of the regions, and the five winning plans applied for all three. ODJFS said in an April 6 statement that plans were “selected through a fair and open application process and an objective scoring methodology that was based on applicants’ past performance in coordinating care and providing high-quality health outcomes.” The department added that selections are “preliminary,” and plans still must meet a thorough readiness assessment. “There were three main components to the scoring: experience, care management and clinical performance,” Johnson tells MAN. He says the state’s intent was to design a program that rewards better outcomes — and to work with plans that demonstrated improved outcomes. Asked whether the state had specific concerns with unsuccessful incumbents’ work, he responded that the five winning plans “scored the highest.” Johnson says ODJFS is not aware of any protests being filed yet, but bidders have until April 16 to do so. “If a protest is filed, we can still proceed with the readiness assessments. However, we would not execute a contract until all protests have been resolved,” he tells MAN. He says that plans’ readiness reviews are scheduled to wrap up this summer. Yet Centene, whose Ohio subsidiary, Buckeye Community Health Plan, lost out on the Ohio Medicaid business, intends to appeal. “We are extremely disappointed in the state’s decision and plan to formally protest the outcome,” Jesse Hunter, Centene’s executive vice president of operations, said in an April 9 statement. “We believe there were fundamental flaws in the procurement process, and we plan to pursue all available remedies.” Centene said it now serves 159,900 members in four regions in Ohio and has about 300 local employees. The company has covered Ohio CFC enrollees since 2004 and ABD members since 2007. Steven White, Buckeye’s president and CEO, noted that Buckeye was the highest-rated Ohio Medicaid plan in the NCQA rankings for 2011-12. A ‘Big Win’ for Aetna, United Describing this as a “big win” for Aetna Better Health of Ohio and UnitedHealthcare Community Plan of Ohio, securities analyst Michael Wiederhorn of Oppenheimer & Co. said in an April 9 equity research note that Ohio is an important state because of its size and potential expansion opportunities. He said stock prices of Medicaid pure-plays “should be weak on this news, especially considering how resilient they have been recently” — but nevertheless the pure-plays already are anticipating “a significant amount of new business, and should be able to recapture this lost market share in future RFPs.” Pete Haytaian, Amerigroup’s regional CEO for the North Region, which includes Ohio, said his company is disappointed in its unsuccessful bid on covering the CFC and ABD populations starting in 2013. But Amerigroup “remains committed to our members and the state of Ohio,” he told MAN in a statement April 9. “We are currently reviewing the state’s scoring of the submissions and will evaluate our options once the analysis has been completed.” Securities analyst Carl McDonald of Citigroup Global Markets Inc. said in an April 9 note that the announcement is “most problematic” for Molina since its Ohio business is expected to generate almost $1.2 billion in revenue in 2012. “We just raised our Molina revenue projection by over $1.5 billion last week following the California [Medicare-Medicaid] dual eligible award” (see story, below), he stated, “but it’s not exactly a fair trade, since the California business will take time to become profitable, whereas Ohio generated a nice margin.” McDonald noted that Amerigroup and WellCare Health Plans, Inc., another unsuccessful bidder, had only a small presence in the state, “so the loss isn’t all that meaningful.” He said that Ohio Medicaid’s decision will cost Centene about 25 cents per share if its protest fails.