California's ambitious plan to overhaul its Medicaid system has ignited a fierce battle among insurers after some companies were shut out of the market following a competitive bidding process earlier this year.
The state aims to transform Medicaid coverage to improve health outcomes through better care coordination and by expanding its focus on social determinants like housing instability and food insecurity.
California is in the midst of a homelessness crisis, underscored this month when new Los Angeles Mayor Karen Bass declared a state of emergency over the problem in her first official act in office.
As the state prepares to roll out a revamped Medicaid program in 2024, the expectation is that more emphasis on prevention through intensive case management will translate to fewer costly emergency room visits and hospital stays. Reducing racial and ethnic health disparities, holding health plans more accountable for quality care, and providing more transparency to consumers are additional goals of the strategy.
For insurers, participation in the country’s largest Medicaid market is at stake. Dubbed Medi-Cal, the program serves more than 14.6 million low-income Californians, of whom 12 million are enrolled in managed care plans, according to the nonprofit California Health Care Foundation.
Medicaid is typically among the largest components of state budgets. Including both federal and state funds, Medicaid spending proposed in California Gov. Gavin Newsom’s budget for 2022-23 exceeds $130 billion per year, said Brad Ellis, head of U.S. health insurance at Fitch Ratings. “The amount of health plan revenue involved is quite significant,” he said.
To implement its new vision for Medi-Cal, the state this summer selected three plans — Elevance Health's Anthem Blue Cross Partnership, Molina Healthcare and Centene's Health Net — to receive coveted contracts in its first-ever competitive procurement process for commercial managed care.
Several plans that lost out in the bidding, however, are not accepting defeat. After the contract awards were announced, four plans — Aetna Better Health of California, Blue Shield of California Promise Health Plan, Community Health Group Partnership Plan, and Health Net Community Solutions — submitted appeals to the state challenging the outcome of the competitive procurement process.
“MCOs that win contracts will experience growth in revenue and likely profits, with the magnitude of both depending on the size of the contracts (counties) awarded. These companies will also need to add staff to manage the additional business. Companies that lost contracts will obviously experience the opposite,” Ellis said.
Community Health Group, which lost the San Diego County business even though it is locally based, said it was not awarded a contract despite scoring less than one point below the next highest bidder. “The decision by DHCS was wrong and will decrease the quality of care available to the 330,000 San Diego-area residents we currently serve,” Norma Diaz, CEO of the nonprofit, said in a statement.
In addition ti filing a formal appeal, Blue Shield of California is suing the state's Department of Health Care Services in California Superior Court. The payer is accusing the agency of failing to release documents about the scoring process and methodology used in determining the contract winners. Blue Shield asked that more time be granted for parties in the appeals process to review all of the related documents.
“We are turning to the court to insist on a full, fair, and robust Medi-Cal procurement appeals process. We believe that the Department of Health Care Services has a duty to get this right and not just rubber stamp its original decision,” Kristen Cerf, CEO of Blue Shield of California Promise Health Plan, said in a statement.
DHCS spokesperson Anthony Cava, in an email to Healthcare Dive, said there is no specific date set for when the state hearing officer reviewing the Medi-Cal appeals will issue a determination.
Centene, which won contracts in nine counties but lost in Los Angeles, Sacramento and Kern and is also appealing the decision, has forecast a downside risk to its 2024 earnings of 25 to 50 cents per share if factors including the loss of Medi-Cal business play out.
Molina, meanwhile, is adding staff and IT infrastructure as it gears up for an expansion after winning the Los Angeles County contract.
Stephens analyst Scott Fidel estimated that Molina could add about 1.4 million members while Centene could lose about 1.2 million, mostly due to the loss of its Los Angeles business. “While the company’s most significant Medi-Cal win in LA County still faces some competitor appeals, (Molina) is confident it will be awarded the full business, embedding its contribution in the 2024 premium revenue target of $37+ billion,” Fidel said in a research note.
All told, about 2.3 million Medi-Cal enrollees may be forced to change health plans in 2024 because DHCS reduced the overall number of options available and did not ask their current plan to continue in the program, according to the California Health Care Foundation. But that decision could be a positive for enrollees, the foundation said, citing research that found having more choices did not improve quality of care or member satisfaction and made the system more difficult to navigate.
In a further wrinkle to the Medi-Cal award process, Kaiser Permanente received a no-bid contract, subject to federal approval. Rivals argue the award, covering 32 counties, will allow the payer to cherry pick healthier, less expensive members.
While it is unclear whether the appeals process will result in any changes to the original DHCS awards, “such appeals have sometimes been successful in the past,” Ellis said.