In Iowa, Audits and Lawsuits Plague Medicaid Managed Care

This is the third installment of our occasional series about developments in Medicaid managed care.

Iowa's then-Gov. Terry Branstad predicted annual savings of $232 million by 2018, improved quality and access to care, and more predictable Medicaid spending for the state. The reality has been a series of lawsuits and audits that have painted a bleak picture of insurers stinting on care, savings far less than had been promised and an audit that showed widespread dissatisfaction among Medicaid beneficiaries and healthcare providers.

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In April 2016, private, for-profit health insurers began managing the care of more than 845,000 adults and children in Iowa’s Medicaid program. The state moved from paying providers and hospitals on a fee-for-service basis to paying private health insurers on a capitated basis, leaving it to them to manage the care of Medicaid beneficiaries and how it should be paid for. Then-Gov. Terry Branstad predicted annual savings of $232 million by 2018, improved quality and access to care, and more predictable Medicaid spending for the state.

The reality has been a series of lawsuits and audits that have painted a bleak picture of insurers stinting on care, savings far less than had been promised and an audit that showed widespread dissatisfaction among Medicaid beneficiaries and healthcare providers. In addition, the state Department of Human Services, which runs the Medicaid program, has been named in at least two lawsuits charging failure to deliver care as required under federal law.

Related: Two Lawsuits Allege Iowa Medicaid Failed to Provide Adequate Mental Health Care

Staid and steady Iowa was hardly in the avant-garde when it shifted to Medicaid managed care. Roughly two-thirds of all Medicaid beneficiaries in the U.S. now receive most or all of their care through managed care organizations. But the Iowa experience shows that private, for-profit management of Medicaid is no panacea and may harm the program’s low-income adults and children and frustrate those delivering their care.

Two insurers quit

When Iowa launched its Medicaid managed care program, three insurers jumped at the chance to provide it: Amerigroup Iowa (a division of Elevance Health), Ameri-Health Caritas Iowa (a division of AmeriHealth Caritas in Newtown Square, Pennsylvania) and the UnitedHealthcare Plan of the River Valley (a division of UnitedHealthcare). But just over a year later, in November 2017, AmeriHealth Caritas Iowa quit the program, saying negotiations yielded no agreement on contract rates and terms, according to news reports.

In 2019, UnitedHealthcare also exited the program after contract negotiations stalled, reportedly because of the financial penalties imposed on the Medicaid managed care companies earlier in the year. Iowa Total Care, a division of Centene, took its place. In 2022, Amerigroup Iowa managed the care of 455,273 Iowans (including children) and Iowa Total Care, 340,234. Starting this year, a third company, Molina Healthcare of Iowa, joined Amerigroup Iowa and Iowa Total Care in the Iowa Medicaid market.

Questions about savings

The early years of Iowa’s managed Medicaid program were marked by contentious negotiations aboutpayments with the private insurers and conflicting reports about how much the program was actually saving. “Iowa’s estimated savings from Medicaid privatization keeps changing, without explanation,” said a May 2018 headline in The Des Moines Register, the state’s largest newspaper. Two years after Branstad predicted annual savings of $232 million by 2018, state health officials estimated in December 2017 that annual savings in 2018 would total less than a quarter of that amount, or $47 million. Then-Medicaid Director Mike Randol predicted in May 2018 that annual savings in fiscal 2018 would total $141 million.

But a few months later, in November 2018, then-State Auditor Mary Mosiman issued another estimate, saying savings for fiscal 2018 would be $126 million.

Amid the yo-yoing savings estimates, Kim Reynolds, the former lieutenant governor, took over for Branstad when he resigned to become the U.S. ambassador to China. Reynolds, who won election to the governorship in 2022, praised the Medicaid managed care program, saying it was providing more efficient and effective care to Medicaid members. Critics of the program disagreed, saying that privatization led to cuts in services for members and that healthcare providers were not being paid in a timely manner. An investigation by The Des Moines Register published in January 2018 supported that critical view. The newspaper’s reporting showed that since 2016, 200 Medicaid patients had said insurers unfairly denied their medical care despite their appeals to administrative law judges.

In a lawsuit filed in November 2017, two patient-advocacy groups, Disability Rights Iowa and Children’s Rights of New York City, alleged that the Department of Human Services had failed to provide adequate mental health care to children living at the Boys State Training School in Eldora, Iowa. The plaintiffs named three state officials as defendants, saying they failed to provide adequate mental health care to the boys who lived at the school, that they gave the boys dangerous psychotropic drugs without adequate oversight or informed consent and that they subjected the boys to solitary confinement and mechanical restraints as physical punishment for minor rule infractions. The lawsuit did not name any of the health insurers and was narrowly focused on the care of children in one state-run school. It did, however, raise concerns similar to those of the critics of Medicaid managed care.

Then, on Jan. 6, 2023, a third patient-advocacy organization, the National Health Law Program, and Ropes & Gray, a national law firm, filed a second complaint, alleging that even though Iowa contracts with private insurers to manage the delivery of care, the state is responsible for ensuring compliance with all Medicaid requirements.

In both lawsuits, the plaintiffs said the state must ensure that healthcare providers can deliver the full range of services that Medicaid beneficiaries need. The two lawsuits are similar in that both allege a failure to provide appropriate care to children.

After the second lawsuit was filed, State Auditor Rob Sand commented via Twitter: “In our audits of Iowa’s privatized Medicaid program, we repeatedly found numerous legal violations that increased children suffering and warned that failing to fix them could result in lawsuits that cost taxpayers money. That day, unfortunately, has come.”

Kimberly Lewis, an attorney with the National Health Law Program, says the second lawsuit suppliesdetails about serious concerns from published reports that Iowa hasn’t lived up to its obligations to provide appropriate caredating back to 2017. “And the question is always, ‘What was the state’s response to those reports? Did they respond? Did they do something about it?” she says.

A spokesperson for the Department of Health and Human Services — the agency has had a slight name change —did not respond to a request for comment.

In a report in 2020, Sand showed that the health insurers’ effect on providers’ abilities to deliver care to Medicaid members resulted in high levels of dissatisfaction. For that report, Sand invited almost 12,000 Medicaid providers to complete an online survey. The 2,592 who responded had delivered care to Medicaid members from April 1, 2016, through July 31, 2019. Of that number, 813 provided services under the previous fee-for-service model and under managed Medicaid. The word “providers” in this context refers to all individuals and organizations that delivered care to Medicaid members, including chiropractors, optometrists, physicians and hospitals; those delivering long-term and dependent care, mental health and substance abuse care; and physical, occupational and speech therapists.

Many more denials

Sand asked about services, timeliness of payments and any additional costs under the previous fee-for-service Medicaid program compared with new capitated, managed care model.Just over half (51.5%) of the respondents said managed care had a negative effect on quality of care and 54.0% said it had a negative effect on access to care, Sand reported. The survey results showed that 41.1% of respondents were dissatisfied or extremely dissatisfied with the insurers’ effect on their ability to provide care to Medicaid members, while 26.5% were satisfied or extremely satisfied.

For a second report, published in 2021, Sand’s office reviewed the number of cases involving denials of care and appeals of those denials from July 1, 2013, (three years before privatization) through Aug. 31, 2019 (three years after the program began).

The comparison showed that the percentage of cases in which an administrative law judge overturned a reduction or denial of services (thus ruling the denial illegal and requiring the services to be reinstated) increased almost tenfold. The proportion of cases in which the judge agreed with the reduction of denial of services dropped by 72%.

Joseph Burns is an independent journalist in Brewster, Massachusetts, who writes about health policy and health insurance.