State rejects health insurers' pleas to halt plan that will shake up coverage for 1.8 million Texans

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Texas officials on Thursday rejected attempts by several major insurers for needy families to cancel a proposal that would drop them from the state Medicaid program and shake up the coverage of nearly 2 million low-income Texans.

At issue are some $116 billion in Medicaid contracts that Texas Health and Human Services officials are attempting to award by the end of the summer, a plan announced earlier this year that has drawn wide criticism because it would eliminate three major health plans run for decades by the state’s premiere nonprofit children’s hospitals.

Some 1.8 million Texans who receive Medicaid coverage from six managed care organizations across the state would lose their current health plans and be shifted to new insurers next year if the decision stands.

Medicaid STAR and CHIP programs cover the cost of routine, acute and emergency medical visits. STAR is primarily for pregnant women, low-income children and their caretakers. CHIP provides health care to low-income children whose family’s income is too high for Medicaid, which has some of the lowest income limits in the country.

Thursday’s decision is a significant step toward finalizing the plan, which would:

* Reduce the number of managed care organizations that administer the state’s Medicaid STAR and Children’s Health Insurance Program

* Give contracts to more for-profit companies in most areas of the state

* Result in a smaller number of top-rated plans administering care

* Attract new national plans to replace local managed care organizations, or MCOs, that historically served some regions

The health plans are expected to appeal the decision, which puts the future of the procurement — the term for a new contract for the MCOs that run STAR and CHIP — squarely at the discretion of Texas Health and Human Services Executive Commissioner Cecile E. Young.

“We remain disappointed that the agency continues to push forward with what was shown this week … as a short-sighted, flawed and biased process,” said Craig Smith, CEO of Corpus Christi-based Driscoll Children’s Health Plan, one of the three children’s hospital plans that would be dropped under the proposal and which would likely shut down if it’s finalized. “We appreciate the tremendous response and testimony of South Texans fighting to have their voices heard, and we will keep fighting on their behalf to serve our community.”

Young has been under mounting pressure from lawmakers, business leaders, health plans and the residents they cover to ditch it and revamp a process many describe as unfair, illegal and antiquated.

“Don't let corporate greed take away outstanding and caring care for our children,” McAllen resident Angelica Mata wrote to lawmakers earlier this week. Mata was one of about 500 people who submitted written testimony decrying the plan during a Texas House hearing.

If the protesting MCOs get their way and the contracting plan is canceled, it would be the agency’s third unsuccessful attempt to finalize new contracts for STAR and CHIP managed care organizations since they were first signed a dozen years ago.

Regardless of what Young decides, the matter will likely end up in court given the uproar, division and growing uncertainty around the legitimacy of the procurement.

No deadline for a decision

Critics say the procurement process does not adhere to state laws that, over the years, have sought to favor health plans that had invested in and been well-received by their communities, or that are tailored to unique population groups like children, and that would allow the greatest continuity of care.

They also say the entire process was tainted by the early release of some competitive bid proposal information to one of the eventual winners in the procurement, an error the state acknowledged in emails to some health plans but maintains was not illegal and did not affect the outcome. Young told lawmakers under questioning earlier this week that the agency was handling the matter internally but did not elaborate.

On Tuesday, Young and other agency officials testified before the Texas House Human Services Committee that the agency complies with state law governing contract procurements. Those include requirements that the state give a fair shake to all applicants, whether new to the state or longtime contractors, and therefore cannot give any advantage to plans like the children’s hospital-affiliated plans that have track records in the state.

Young did not address what she plans to do about the current procurement and has declined to discuss it publicly, saying she is limited to what she can say until the process is over.

In a letter to lawmakers earlier this week and obtained by The Texas Tribune, Young declined to address concerns about the latest STAR/CHIP contract proposal but said Medicaid recipients would not experience an interruption in care during any transition.

Young has no deadline for deciding whether to uphold the decision by her agency’s procurement division, cancel it and start over, or officially delay it until lawmakers can respond to it when they meet in session next year.

Medicaid managed care contracts are routinely the most expensive contracts states pay for with taxes, and Texas’ contracts are among the largest in the nation.

Among those who would be affected by the proposed procurement are a collective 700,000 families, pregnant women and children covered by Cook Children’s Health Plan in the state’s Tarrant service area, Texas Children’s Health Plan in the Harris region, and Driscoll Health Plan in South Texas, all which formed when the state’s CHIP program was created two decades ago.

Cook Children’s and Driscoll Health plans would likely both shut down if the new plan is finalized. The hospitals themselves are not in danger, they said. In an emailed statement Thursday, officials from Cook’s plan blasted the process as “flawed from the beginning” and promised to pursue “every legal option available.”

“We are confident in the strength of our case and believe we will prevail,” the statement read. “We know every child's life is sacred, and we will continue to fulfill our promise of improving the well-being of every child entrusted to our care and within our communities.”

Michael Murphy, president of the nonprofit Texas Children’s Health Plan based in Houston, said he was “deeply disappointed in the position that HHSC has taken.”

The 25-year-old plan covers some 450,000 children and pregnant women.

“To disrupt and jeopardize the care of 450,000 of the state’s most vulnerable children and pregnant women despite Texas Children’s Health Plan’s 25-year track record of strong member preference, superior quality and its steadfast commitment to serving this population is perplexing and especially worrisome in light of the unique set of challenges they consistently encounter,” Murphy said in an emailed statement to the Tribune.

Murphy said the company would appeal the decision and “pursue all legal remedies necessary as HHS has violated the law during this process.”

“We will also leave no stone unturned in protecting and advocating for our members and the families we serve,” he said.

Meanwhile, a handful of national for-profit chains would significantly expand their foothold in those markets — in one case growing from serving just one region of Texas to seven — while the others are either diminished or forced out.

The change would force nearly half of the Medicaid STAR and CHIP enrollees in the state out of their current health plan, potentially causing changes in providers, pharmacies, and mental health services.

It would also trigger a massive effort by the state to inform all those families of the change, which would take effect late next year if the plan holds.

Mounting bipartisan pressure

The Medicaid contracts outlined in the procurement were awarded based on a process that scored plans on written questions and an oral exam, after the MCOs had proved that they could effectively serve the areas for which they had applied.

When the scores were added up, the four top-scoring plans got most of the available contracts: Aetna, United, Molina and Blue Cross Blue Shield each got seven contracts, the most allowed per MCO, and expanding their foothold in Texas.

The outcome sent shockwaves throughout the Texas health care community and led to escalating calls for a closer look, both at the entire procurement process at HHS and specifically at the STAR/CHIP procurement — which was announced in March after a 15-month evaluation process.

“There are people who are genuinely concerned about this all over Texas,” state Rep. Ana-Maria Ramos, D-Richardson, said during a House committee hearing earlier this week. “Why was that decision made? People are really up in arms.”

On Tuesday, half a dozen Tarrant County state representatives signed a letter to Young, protesting the effect the plan would have on Fort Worth-based Cook Children’s Health Plan and asking that she delay the procurement until lawmakers return to session in January.

“It appears that the recent award considerations have overlooked crucial factors such as track record, community investment, and overall value provided,” the letter reads.

The letter was circulated by state Rep. Nicole Collier, D-Fort Worth, whose district includes Cook Children’s Hospital, and signed by four Democrats and two Republicans.

The lawmakers asked Young to remove the limit on how many managed care organizations can serve in a particular region — a limit imposed by HHS at the start of the process and blamed in part for its outcome.

The letter comes on the heels of a similar plea to delay or cancel the procurement that was sent to Young two weeks ago by state Sen. Tan Parker, R-Flower Mound, and state Sen. Charles Perry, R-Lubbock, who expressed “grave concerns” about its potential to have “long-lasting effects on community health infrastructure.”

“This drastic change comes at a time when stability and continuity in health care are more critical than ever,” the letter reads.

And earlier this year, a bipartisan group of South Texas lawmakers signed a similar letter in defense of Driscoll Children’s Health Plan, which funds 75% of the women’s health specialists in the region.

HHSC tells lawmakers their hands are tied

Also on Tuesday, a bipartisan group of lawmakers grilled Young and other HHSC officers during a meeting of the Texas House Committee on Human Services, charged with examining how the state runs its Medicaid managed care contracts after the STAR/CHIP procurement began garnering criticism.

State Rep. Christian Manuel, D-Beaumont, criticized the proposal, saying that changing the Medicaid plans available in his rural district would make challenges with health care access even worse if the new company doesn’t understand the unique needs of communities where residents live an hour away from the nearest hospital and frequently wonder if they can get life-saving care, he said.

“Are they going to be able to understand the specific needs before they just come in and have people in a tizzy over what’s going to happen?” he said. “Because there are already those fears, and this is exacerbating that.”

Under questioning from House members this week, Young and Molina, the agency’s procurement director, said the agency hears the concerns but is hamstrung by state laws that require the agency to create a process that is fair and competitive to all applicants.

State law “basically requires us to put something out that is fair to everyone, which makes it very hard to give extra points for someone who is already in the space doing something, because then it’s not fair and everyone is not judged the same way. And we struggle with that,” Molina told the lawmakers. “If there is a better way to do it, if you could put it in the law, that would make it so much easier. We’re boxed into a corner using a state law that has to apply to everything.”

One way an applicant can get around that, Young told lawmakers, is by including their past performance in their written pitches and essay questions during the evaluation process. But historical performance in the market isn’t a formal consideration during the process, Young said.

“Am I missing something here?” said state Rep. Candy Noble, R-Lucas. “Why would you throw out your experience, at least in some part? And I get that we do love the opportunities that Texas affords in the free market, and I'm not against that. I just think that past experience should be at least … part of the equation.”

House Health Committee Chair Stephanie Klick, R-Fort Worth, said the laws clearly need to be updated if they’re setting up a no-win contracting situation for HHS. With over 40,000 contracts, procurement is one of the most important functions of HHSC and ensuring the integrity of the process is a top priority, officials there say.

“It seems to me that when you're looking at quality, and you have somebody in the space already and they’re performing well, they’re being put at a disadvantage, and that doesn’t seem fair,” Klick said. “We need some modernization.”

Disclosure: Aetna, United Healthcare, Molina Healthcare and Blue Cross Blue Shield of Texas have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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