Updated: 02/23/2012 11:00 AM
Created: 07/22/2011 4:01 PM KSTP.com
By: Scott Theisen
Minnesota's new two-year budget contains some tough medicine for nonprofit health plans that manage subsidized care for more than 500,000 poor patients.
The health and welfare spending bill signed into law earlier this week by Gov. Mark Dayton cuts or delays $435 million in payments to HMOs, which together have state contracts worth about $3 billion this year. The HMO cuts account for more than two-fifths of the spending reductions for health and welfare programs. The reductions were part of a budget deal that ended a 20-day government shutdown, the nation's longest in at least a decade.
The pinch comes a few months after the Democratic governor put the plans on notice that his administration planned to extract savings through competitive bidding, stepped-up public scrutiny of their state contracts and an agreement to give back some of their profits of this year. During budget negotiations, Dayton's focus on the health plans lined up with a GOP desire to rein in health and welfare spending as the state faced a $5 billion budget gap.
"Last year or the year before, they would have stonewalled all of this. This time, they knew they had to change," GOP Rep. Jim Abeler, who heads the House health and human services spending panel, said Friday.
Human Services Commissioner Lucinda Jesson, one of Dayton's top advisers, said Dayton and Republicans both wanted to get a grip on rising medical costs.
Jesson said during the budget negotiations, her department received competitive bids from health plans for next year's state contracts in the Twin Cities area, and used the information to help determine the size of the cuts. The new budget reduces projected spending on health plans by $277 million, while delaying another $135 million into the next budget cycle and holding back $23 million unless HMOs meet aggressive goals to reduce emergency room visits, hospitalizations and hospital readmissions by patients.
"We were not just blindly cutting rates - we were doing it knowing what the industry could bear," Jesson said.
Jesson and Abeler both said they expect the state cuts to force plans to better manage patient care, including coordinating between various health care providers who treat the same person and coordinating medical care with social services.
Health plans still are working out how to handle the financial hit.
Eileen Smith, spokeswoman for the Minnesota Council of Health Plans, said the plans will need cooperation across the entire health care system in order to reduce real costs instead of shifting the burden to privately insured patients.
"Just reducing a premium or capping a premium or cutting what you're going to pay doesn't reduce the cost of health care," Smith said. "It reduces the state's cost, but health insurance is expensive because health care is expensive."
Jesson said the new budget doesn't just cut costs, but also aims to reshape the health care system to make it work better.
She added that Minnesota HMOs have profited more in recent years from state contracts than from private business.
"They shouldn't be making the amounts of money they have on the public programs," Jesson said. "I don't think they will end up shifting costs. I think they can absorb these cuts without shifting costs."
One of the affected plans is UCare, which earlier this year returned $30 million to the state from its reserves, prompting Dayton to press other plans to do the same. Instead, they agreed to cap profits from this year's state contracts at 1 percent.
Ghita Worcester, senior vice president at UCare, said the budget cuts are substantial and will not be easy to manage. In particular, the goals for reducing hospital visits might be more than health plans can deliver.
"Minnesota isn't high nationally in the utilization of those services, so getting the kind of reduction that this language calls for will really take a lot," Worcester said, adding that the goals are "probably almost outside what I'd be comfortable to say what's possible."
(Copyright 2011 by The Associated Press. All Rights Reserved.)