Medicaid Health Plans Under the Microscope - Amerigroup Sued by District of Columbia

Implications: Amerigroup is but one example of the increased scrutiny being paid to Medicaid Health Plans following the FBI raid of Wellcare last year. Expect this to continue and have some volatility on Medicaid health plan performance. Some of this scrutiny may uncover material issues, or impact contracting and rates on a go forward basis.

Analysis: Following the Wellcare raid last year, States began paying more attention to Medicaid Health Plans, their operations, financial reporting and performance. 

Amerigroup is dropping out of the DC contract as the District looks into what it believes are a misclassification of administrative expenses into medical costs.  This complaint was filed in Federal Court. Years ago some health plans were alleged to have placed the costs of medical management such as reviews by nurses or other health services activities into the medical costs bucket, thereby inflating their Medical Loss Ratios, making it appear that they provided more medical care than they actually did. This may be a similar case.

As one state uncovers something, there are 49 others as well as the District and Puerto Rico that will discuss and share their findings and look into operations in their particular state.

The result of this increased oversight besides legal fees and dropping out of particular contracts, may be the loss of political clout in States which will impact:

1) The HMO's ability to expand within a State

2) The Rates paid to the HMOs and increases in follow-on years.

3) The decision by other States to implement HMO programs in Medicaid.

The States tightening budgets will also hinder the ability of these plans to receive large rate increases.