Medicaid was intended as a safety net for people like Barbara Lee and Cathy Barton of North Carolina. Both are raising acutely disabled children.
“My son, Michael, is 25 years old and severely autistic and nonverbal for a large part of his life,” Lee said. “He is very rarely able to string together full sentences and requires physical assistance in even the most basic actions, such as getting dressed or eating.”
It’s a similar story for Barton. “I am a single parent of a mentally disabled 36-year-old that functions on the level of a toddler without the ability to reason,” she said.
But as Lee and Barton have discovered, a safety net is only as strong as the people holding it. For them, that’s Cardinal Innovations, the largest of seven private organizations known as local management entities (LME) or managed care organizations (MCOs) that handle around $2.8 billion in Medicaid funding per year for behavioral health services.
This setup by which MCOs, rather than government bureaucrats, distribute Medicaid funds is part of a reform effort set in motion in 2015. The MCOs get the money in a lump sum each month on a per-patient basis, shifting the risk of cost overruns from the state to providers. MCOs are allowed to keep any leftover money. And while there’s no mandate, it’s preferred the MCOs use the extra cash for new or additional care.
The problem is, not all MCOs are following this guideline.
The organizations ended 2015 with a collective $842 million in the bank. This discovery hit a raw nerve with lawmakers, especially on the heels of an announcement by Cardinal Innovations it was cutting 11 of its state-funded services to new patients.
Cardinal Innovations had already raised eyebrows with the ouster of long time CEO Pam Shipman, who was replaced by company general counsel and board member Richard Topping a year ago. Nine months later, Topping was given a raise — from $400,000 to $635,000, along with other benefits that could bring his total compensation package to almost $1.3 million.
Legislators and state officials blasted Topping at a November hearing for his salary that far outpaces his counterparts at other MCOs, while yielding similar results.
It was right about this time Cardinal Innovations patients were notified of drastic service cuts.
Barton says her son’s in-home, respite and community networking services were slashed by nearly half, just three days before taking effect.
“This gave our family no time to prepare. It has totally disrupted our lives in so many ways. Because John’s schedule has changed, his behavior problems have escalated,” said Barton, adding that she has appealed and is awaiting mediation.
“Even more infuriating is all of this is taxpayer money,” Lee said. “Mr. Topping defends his new salary by bragging that he has saved the state so much money. However, he doesn’t describe how these cuts have personally cost disabled individuals and those who care for them.”
“Really, it’s criminal,” says Christine Kirby, whose 11-year-old son Michael Milano has been on the waiting list for Medicaid services since he was three years old.
“[Cardinal Innovations] told me I should not expect Michael to have services until his late teens or early adulthood,” Kirby said. In the meantime, her son has been diagnosed with borderline IQ, autism, ADHD and sensory processing disorders and cannot function in a regular classroom.
“I call every year near his birthday to make sure he hasn’t fallen through the cracks and is still on the list,” she said.
Dr. Gerard Gianoli, a New Orleans otolaryngologist, says these families are unfortunately new victims of an old health care problem.
“MCOs are a model that has been tried before under a different name. It was called ‘capitation,'” he explained, “Basically, a third-party payer pays the doctors and hospital a given amount per patient. Any money they don’t spend on the patient, they get to keep.” he said, which leads directly to problems like Cardinal Innovations and its high-paid CEO. “The incentives are backwards. The hospitals and doctors have monetary incentive to not treat patients.”
“As they say, a rose by any other name. Or in this case, it would be better to say, ‘a skunk by any other name,’ stinks,’” he added.
North Carolina legislators were warned of this incentive problem in a 2015 report by the General Assembly’s Fiscal Research Division:
“Updates to the PMPM or capitated rates will be based on actual expenditures, the positive side of this is that the state can realize the benefit of utilization improvements beyond actuarial expectations, the downside is that the state will reclaim all gains, leaving the LME/MCO with the only option to maintain or enhance profits being further reduction in utilization or rates paid to providers.
“This last dynamic is a fundamental flaw in current health system financing,” the report continues, “which results in providers being placed in a position to have to increase the impact of lower utilization to maintain or improve profits or cost sharing to make the arrangement economically attractive beyond the initial years.”
But before rushing back to government-managed Medicaid, Gianoli says there is a better option — give Medicaid money directly to patients, instead of managers, doctors or hospitals.
For Gianoli, eliminating the health care middleman is not just an idea, but the way he has practiced medicine for more than a decade. He and his partners transitioned out of the third-party system starting in 2001, when Medicare reduced payment for a service that was lower than the institute’s cost. They simply started charging reasonable fees, and have been third-party free, and thriving, ever since.
Gianoli says Medicaid could do the same if it were treated less like insurance and more like a health savings account, giving patients control over their health care dollars. He points out that former Republican presidential candidate Ben Carson embraced the HSA approach to Medicaid and Medicare as part of his health care platform. And President-elect Donald Trump took notice during the campaign, telling ABC News, “I think it’s a very good idea and it’s an idea whose [time probably] has come.”
“If patients were actually using their own money to buy medical care, instead of relying on third-party payers, I don’t think many would buy into the MCO once they knew what it really was,” Gianoli said, adding that now is a good time to revisit the idea with Congress currently in the process of repealing Obamacare.
“This would incentivize Medicaid patients to use their medical dollars more expeditiously and would have Medicaid providers competing for those dollars. A much better incentive alignment than capitation or MCOs,” he said.
Christine Kirby, for one, would be on board with Medicaid HSAs.
“If I had an HSA funded by the state and Medicaid for my son, and I chose his services and interviewed providers, I’m 100 percent confident that I would manage the funds way better than Cardinal,” said Kirby. “And that would increase the quality of services out there if all parents had that option.”
“And I wouldn’t even need to give myself a raise to manage it all,” she said.
“I really like that idea to get the middleman out,” Barton said. “It could be a huge savings for the state.”
Lee, however, says Medicaid HSAs might be too tricky for patients like her son, who are incapable of making their own health care decisions. She would rather the MCOs be held more accountable.
“My son cannot even tell you his name all the time when you ask him, needs help bathing, getting dressed and feeding himself,” she said. “Someone needs to be overseeing their needs. In the meantime, Cardinal is reducing consumer’s budgets and cutting rates for providers. Yet, they’re paying the current CEO way too much in taxpayer dollars. Shouldn’t someone in government be telling Cardinal this is unethical and stopping them? Who will stand up for these people with disabilities?”
In response to a request for comment from Cardinal, Watchdog.org received the following statement in an email from Ashley Conger, the company’s vice president of corporate communications:
“Cardinal Innovations pioneered North Carolina’s unique specialty managed care model and for more than 11 years, has focused on improving the well-being and quality of life for NC’s most vulnerable populations, while also saving the state an average of 1.2% in capitation payments per year. Cardinal staff is paid only by Cardinal, based on the administrative fee we charge the state. We charge 8% for administrative expenses, leaving almost $0.92 of every dollar available for care for our members. Federal rules allow MCOs to charge up to 15% for administrative expenses. As a public nonprofit, savings generated from our efficient and effective operations may be invested back into additional services and supports for our members. For example, for the past two years, Cardinal Innovations has continued to provide a full array of services while state-funded mental health budgets were cut by $18 [million] and $24 [million] respectively.”