hen President Donald Trump tapped policy consultant Seema Verma to run Medicaid and Medicare in his administration, he called her part of a health care “dream team.”

But the health policy changes she helped design in Iowa have felt more like a nightmare to providers serving poor and disabled residents across the state.

Verma has helped several states revamp Medicaid, including Kentucky and Indiana. Here in Iowa, she worked on an aggressive effort to privatize the program, which provides health care to about 600,000 adults and children.


The idea was simple: Shift risk, and cost, away from the state and give providers a financial incentive to keep patients healthy. Under the new model, the state would no longer pay directly for residents’ care. Instead, Iowa would give private managed care organizations a fixed amount per enrollee each month, with the sum adjusted to account for the person’s health needs.

Thirty-nine states have done something similar; more than 60 percent of Medicaid recipients nationally are in a managed care system. But Iowa took a huge leap in doing it so quickly and so abruptly. Most states phase in privatization over time. Governor Terry Branstad, a Republican, initially planned to do it all at once on Jan. 1, 2016, just a few months after announcing his reform blueprint.

Regulators in the Obama administration insisted he take a few more months to prepare, to avoid “serious disruptions” in care.

Even so, complaints poured in when the new program went live on April 1, 2016, shifting all Medicaid recipients at once to managed care.

Nearly a year later, the complaints are still coming: Hospitals, nursing homes, and clinics that provide care to Medicaid patients say they’ve lost hundreds of thousands of dollars in expected reimbursements — and have had to spend untold hours chasing down payments.

The three for-profit managed care organizations running the program aren’t happy either, saying they are hemorrhaging money and accusing the state of vastly underfunding Iowa’s $4.2 billion Medicaid program.

“It’s been a rocky road,”said Julia Paradise, associate director of the Program on Medicaid and the Uninsured at the Kaiser Family Foundation.

‘One wild ride’ for hospitals

State Senator Liz Mathis, a Democrat who sits on the Health Policy Oversight Committee, said the state’s transition to managed care has been a failure.

“I’d give it an ‘F,’” she said. “It has been one wild ride for hospitals, for clinics, for nonprofit providers of mental health and behavioral health — anyone who sees a patient or client.”

Iowa’s Medicaid recipients were already responsible for modest copays for services; the reform didn’t change that. But many have had other complaints. Mathis said she’s had to intervene in 224 Medicaid-related cases from constituents in her district in eastern Iowa; patients have told her they’re unable to get an insulin pump or see a therapist, among other concerns.

“If this system is here to stay, we’ve got to make it better,” she said.

Two of the managed care organizations now running Iowa’s Medicaid programs did not respond to questions from STAT. A third said it was unable to answer questions by deadline.

Verma, who is awaiting a confirmation hearing for the top job at the Centers for Medicare and Medicaid Services, did not return requests for comment. Branstad, who has been tapped by Trump as the next ambassador to China, also did not return calls.

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But in his recent state of the state address, Branstad said the shift to “modernized Medicaid” would save the state $110 million during the current fiscal year, with more than $230 million in additional savings to come in 2018 and 2019.

“We think the savings in Medicaid is going to be even a little better than we estimated,” Branstad told reporters. “So we feel pretty good about that.”

Payments coming up far short

The view doesn’t look as good from hospitals and nursing homes.

John Bigelow Jr., executive director at the Southwest Iowa Mental Health Center, said the facility was short $313,000 at last count for psychiatric care, outpatient therapy, and other services, in part because the managed care organizations have not reimbursed the center at the same rate the state did.

“We’re doing the same care. We’re just not getting paid for it like we were,” Bigelow said.

In northwest Iowa, Martin Guthmiller, the CEO of Orange City Area Health System, said the hospital, rural clinics, and nursing home that are part of the health system he runs were owed $250,000 even after spending a lot more time and effort trying to get paid.

“Patients get care, but it’s the providers that have to deal with the shortfalls and the complexities that you don’t hear about,” Guthmiller said.

And Veterans Memorial Hospital in rural northeast Iowa has only been able to sign a contract with one of the three managed care organizations. As a result, many walk-ins to the emergency department are out of network. The hospital takes care of those patients. It just doesn’t get reimbursed.

“We’re left with this mess,” CEO Mike Myers said. “We’ve started to see a climb in our bad debt and our charity care.”

When Democrats surveyed of 423 Iowa Medicaid providers over the summer, 61 percent said privatization had reduced the quality of services they could provide. Some 90 percent said administrative costs had increased.

“It’s created quite an administrative and financial burden on our hospitals and other providers,” said Scott McIntyre, vice president of communications at the Iowa Hospital Association.

Managed care groups see ‘drastic’ underfunding

The managed care organizations have also been hurting. In a series of letters to the state last year, obtained by the Des Moines Register under an open records request, they complained of higher-than-expected patient costs and said they needed more money.

For the first six months of the program, Anthem’s Amerigroup reported a $147 million loss. AmeriHealth Caritas reported a $132 million loss. UnitedHealthcare did not state a dollar loss, but in a report filed with the state said its operations were significantly in the red.

Iowa responded by putting more money into Medicaid: $33.2 million in state funds and $94.5 million in federal funding.

Still, the managed care organizations have said it’s not enough.

“Overall, the program remains drastically underfunded,” Kimberly S. Foltz, CEO UnitedHealthcare Community Plan of Iowa wrote in a November letter to Iowa’s Medicaid director.

In Washington, meanwhile, Congressman Dave Loebsack, a Democrat, has asked the federal Centers for Medicare and Medicaid to rescind the federal waiver allowing managed care companies to run Iowa’s Medicaid.

But that’s unlikely to happen under the new administration.

If confirmed, Verma is expected to give states even more flexibility to design new Medicaid programs — including more privatization.

Correction: An earlier version of this story misstated the location of the Orange City Area Health System.

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