5 Questions: How Kaiser Permanente's No-Bid Deal May Affect CalAIM

"All of us are doing our best to implement the most transformational Medi-Cal initiative in state history, and to put all this together without a public process is very disconcerting." -- Jarrod McNaughton, CEO, Inland Empire Health Plan.

Kaiser Permanente has a new direct contract to provide care for California's Medicaid (Medi-Cal) enrollees. The issue? It didn't have to bid for it. The exception has angered other Medi-Cal MCOs and raised questions about not only the integrated delivery network's (IDN) close ties to state government officials but also the potential impact on Medi-Cal's massive reform initiative, CalAIM.

1. What is KP's arrangement with the state?

As reported by Kaiser Health News (KHN)* and beginning in 2024, Kaiser will provide care for additional Medi-Cal enrollees but only those who are current IDN members. The exception is children in foster care and those who are dually eligible for Medicaid and Medicare. Kaiser will hold the only statewide Medi-Cal contract and will be the only MCO permitted to limit who it cares for. The company currently covers Medi-Cal enrollees but through subcontracts with half of the state's other program plans (12 of 24).

2. Why does it matter?

Three reasons: Process exceptions, competitor losses, and potential reform impacts.

KHN notes that Medi-Cal's other MCOs "have spent many months and considerable resources developing their bidding strategies" for 2024. To KHN, the CEO of Inland Empire Health Plan (IEHP) Jarrod McNaughton stated that "to put all this together without a public process is very disconcerting."

The bidding process exception results in notable enrollment and financial losses for plans that Kaiser has historically subcontracted with: 144,000 members and $10 million in associated annual revenue for IEHP and 244,000 members for L.A. Care Health Plan. Citing Michelle Baass, Department of Health Care Services director, Kaiser Medi-Cal enrollment will increase 25% as a result of the contract.

KHN further reports that all of Kaiser's Plan Partners keep "a small slice of the Medi-Cal dollars earmarked for those patients" and that "[u]nder the new contract, KP can take those patients away and keep all of the money." That small slice was 2% which Kaiser noted in its response statement "is no longer effectively capped."

There is added concern that the Kaiser deal will jeopardize CalAIM, the state's new five-year Med-Cal transformation that includes new non-clinical benefits (e.g., social determinants of health), Enhanced Care Management, and data/infrastructure support. One of CalAIM's primary objectives is to make Medi-Cal "integrate more seamlessly with other social services." This could be disrupted if care decisions are made not by local health plans working closely with their community-based, safety net providers but by Kaiser.

3. How are stakeholders responding?

In short, with frustration.

"It has caused a massive amount of frenzy," said Jarrod McNaughton, IEHP CEO. In a prepared document, IEHP adds: "Awarding a no-bid Medi-Cal contract to a statewide commercial plan with a track record of 'cherry picking' members and offering only limited behavioral health and community support benefits not only conflicts with the intent and goals of CalAIM but undermines publicly organized healthcare."

Criticism is coming from other sectors as well. KHN quotes California State University-East Bay health policy faculty Andrew Kelly, who notes: "[T]here's a different type of power that comes from your ability to have this privileged position within public programs."

Kaiser counters that "nothing in this state contract should affect the current reprocurement process" and that its contract actually "levels the playing field to include only network model plans in the procurement."

4. What is KP's position?

As noted by KHN, Kaiser's CHO Dr. Bechara Choucair argues that because the company has no special profit motive—citing as evidence its significant nonprofit and safety net commitments—the sole-source contract should not be an issue. In its written statement, the IDN also addressed that its:

• service area will include new and multiple counties;
   
• member-only contract will exempt it from the Medi-Cal auto-enrollment process;
   
• member-only contract includes people with a variety of health statutes and that its model is recognized as innovative; and  
   
• Medi-Cal performance and reporting requirements will be identical to other MCOs.
   

5. What now?

The state legisature and CMS must approve Kaiser's sole-source contract. State approval includes an exception that would allow Kaiser to contract in Medi-Cal County-Operated Health System service areas. Other Medi-Cal MCOs are preparing media statements, but they were not final at the time of publication.

*Kaiser Health News is not connected to Kaiser Permanente