An actuarial firm that's been caught up in questions over excessive payment rates to Medicaid HMOs in Minnesota has been awarded a new state contract.
But this time, the work of advising on rates by Milliman Inc. will be conducted by the company's office in Milwaukee, rather than its Minneapolis office.
While some reacted to the announcement Monday with surprise and even skepticism that a new actuary hadn't been hired, state officials said the new contract represents a break from the past with more than 20 new requirements, including better analysis of HMO profit margins.
"We selected easily the best qualified vendor for this project," said Scott Leitz, an assistant commissioner at the state Department of Human Services. "We're extremely confident that even though this is a branch of Milliman, they are independent from all aspects of the Milliman-Minneapolis office."
The awarding of the contract, which carries a value of up to $694,000 per year, is the latest chapter in an ongoing saga at the state Capitol about payments to HMOs that are hired to administer health benefits to people covered through the Medicaid and MinnesotaCare health insurance programs.
From 2004 to 2011, Milliman established "actuarially sound" rates for the state's public health insurance programs, according to the March audit by the Segal Co.. But managed care organizations, including the state's largest HMOs, were able to earn $161 million in excess profits over the period -- a trend that suggested payment rates to health plans were too high.
Noting how actual profits regularly exceeded targets, the auditor found: "Milliman consistently missed this assumption, causing rates to be excessive."
A spokesman for Milliman wrote in an email that the company would not have any comment.
Milliman's work for the state from 2004 to 2011 was conducted by its office in Minneapolis, said Leitz, the DHS official. By contrast, Milliman's office in Milwaukee worked with the state to set rates for 2013, he said, adding that those rates were lower than those paid to health plans in 2010.
"The two offices are independent from each other both financially and in terms of personnel," Lucinda Jesson, human services commissioner, wrote in a letter to legislators Monday.
"Milliman-Milwaukee was not involved in setting rates for the contracts in question during 2003-2011, and as their work on the 2013 contracts indicate, they have a proven record in helping guarantee the state receives good value in managing care contracting," Jesson wrote.
Republicans and DFLers have raised questions over the years about whether HMOs were allowed to earn too much money from the state public programs business. The questions have been spurred in part by David Feinwachs, a St. Paul attorney and former lobbyist for the Minnesota Hospital Association.
On Monday, Feinwachs said he was skeptical of the department's announcement, saying "there's no change here."
"What we've changed here is the mailing address," he said. "I doubt very much that the Milwaukee office takes its directions from headquarters any differently than the Minneapolis office does."
But state Sen. Michelle Benson, R-Ham Lake, said that firms such as Milliman should have professional structures that separate operations between offices in Minneapolis and Milwaukee.
"DHS is under a great deal of scrutiny," Benson said. "I hope they have done their due diligence and found a contract that serves the people of Minnesota best."
Rep. Jim Abeler, R-Anoka, said he respected Benson's view that the offices should be distinct but said he was surprised by the announcement, nonetheless.
"We were very unhappy with Milliman and what they delivered," Abeler said. "We really thought that they had been sleeping on the job."
Sen. Kathy Sheran, DFL-Mankato, said she didn't have enough information to know how distinct the two Milliman offices might be. But she commended Jesson for initiating the new contract.
"It's my belief that there's real administration going on in the governor's administration, which has been sorely lacking for a long time," Sheran said.
When the auditor's report was released in March, health plans have defended their payment rates, saying insurance companies served the state well by providing high-quality service to patients while carrying financial risk for the state. The rates also were defended by the administration of former Gov. Tim Pawlenty, a Republican who was in office during the time period.
Pawlenty's human services commissioner argued that HMO profits during the time period weren't excessive, adding that any overpayments were part of short-term incentives so that HMOs would expand into rural portions of the state.
But Jesson, who was appointed commissioner by Democratic-Farmer-Labor Gov. Mark Dayton, wrote in a March letter that the audit "raises serious questions about the failure of the previous administration to take action to address high health-plan profit margins."
From 2004 to 2011, the state directed about $15.6 billion in payments to managed care organizations, which paid the vast majority of the funds to health care providers for patient services. In the end, health plans retained an operating profit of nearly $333 million, according to the audit, for a profit margin of 2.13 percent.
The target profit margin during the period, however, was 1.1 percent, which would have worked out to nearly $172 million.
"Our review indicates the (managed care organizations) achieved on average 1.0 percent above targeted levels, or $161 million," auditors wrote. "The consistent pattern of actual profits versus targets is concerning."
The new contract with Milliman lasts for one year, with available renewals of up to five years. Five other firms bid for the state contract, according to a DHS spokesman.