SACRAMENTO, Calif. — California Gov. Gavin Newsom will soon decide whether the most populous U.S. state will join 25 others in regulating the middlemen known as pharmacy benefit managers, or PBMs, whom many policymakers blame for the soaring cost of prescription drugs.
PBMs have been under fire for years for alleged profiteering and anticompetitive conduct, but efforts to regulate the industry at the federal level have stalled in Congress.
The three largest PBMs are owned by insurers and retail pharmacy chains, and about 80% of prescription drug sales in the United States are controlled by them: OptumRx, owned by UnitedHealth Group; CVS Caremark, owned by CVS Health, which also owns the insurer Aetna; and Express Scripts, owned by The Cigna Group.
The proposed law, spearheaded by state Sen. Scott Wiener of San Francisco, a Democrat, would require PBMs to apply for a license by 2027 and would mandate that licensed PBMs pass along 100% of pharmaceutical manufacturers' rebates to health plans or insurers. Drug companies often offer substantial discounts on medications to boost demand, and one of the major criticisms of PBMs is that they pocket rebates rather than pass savings along to customers.
The law would also mostly bar PBMs from steering patients to pharmacies they own, which includes the major mail-order pharmacies. And it would prohibit them from giving independent pharmacies lower insurance reimbursements than they offer the big chains — a major issue for the dwindling number of independents around the country.
Wiener said the law aimed to rein in what he called "the worst abuses by PBMs." Proponents of the legislation say the experiences in the 25 states that require PBM licensing and the 16 that ban steering of patients to preferred vendors show that regulations reduce costs for consumers.
"When they're licensed like we're looking at, the cost goes down. States without licensing saw costs go up," said Assembly member Devon Mathis, one of two Republicans to co-author the bill, citing the National Community Pharmacists Association.
Health insurance premiums increased an average of 16.7% nationwide from 2015 to 2019, the association calculated, with premiums in states that license PBMs increasing 0.3 of a percentage point below the national average and those without, 0.4 above. The association claimed similar benefits from several other reforms affecting pharmacies.
The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, said Wiener's bill "blatantly" favors independent retail pharmacies over chains.
"This legislation does nothing to lower costs for patients; it simply seeks to financially promote one industry over another with no consumer benefit," the group said.
Insurance companies argue that the California bill would reduce the PBMs' ability to negotiate lower drug prices, resulting in higher coverage premiums for everyone. But drugmakers argue that reforms don't raise premiums.
Supreme Court Decision Looms
States have stepped in to regulate PBMs in the absence of any federal action; Congress has been holding oversight hearings on PBMs, and the Federal Trade Commission in July said PBMs "may be profiting by inflating drug costs and squeezing Main Street pharmacies," but there has been no new legislation or efforts to crack down based on existing laws barring anticompetitive conduct.
The U.S. Supreme Court could soon weigh in on whether states have the authority to regulate PBMs. A federal appellate court blocked Oklahoma regulations on PBMs on the grounds that federal law held sway, and a group of 35 state attorneys general, including California's Rob Bonta, have asked the Supreme Court to overturn the ruling.
A central complaint about PBMs is that they take money from pharmaceutical companies, in the form of "rebates," to give their drugs preferential treatment on health plans' lists of medications that are covered by insurance, known as formularies. Those rebates may play a role in raising drug prices, found a 2020 paper by the University of Southern California's Schaeffer Center for Health Policy & Economics.
Under the California bill, those rebates are to be used "for the sole purpose of lowering deductibles and out-of-pocket cost for consumers," said Assembly member Jim Wood, a Democrat. "There is a perverse incentive by PBMs to choose for their formulary the drugs that will give them the biggest rebate, the largest rebate, even if there are other drugs just as effective and lower-cost. That alone should send shivers down your spine."
Crackdown in California
California collected more than $215 million last year from the nation's largest Medicaid insurer, Centene, after it failed to disclose or pass along drug discounts negotiated by its PBM to the state Medicaid agency.
Independent pharmacies say provisions in the proposed California law requiring PBMs to offer them the same pricing as the chains could be a lifeline.
Clint Hopkins, who has co-owned Pucci's Pharmacy in Sacramento for eight years, said he's forced to regularly turn away customers rather than lose hundreds of dollars each time he fills their high-cost prescriptions.
For instance, he said his cost for a monthly dose of Biktarvy, used to treat HIV, is $3,881.68. But he said pharmacy benefit managers short him up to $360 on the reimbursement.
"They dictate the rates to us, and they will not negotiate," said Hopkins, who testified for the bill on behalf of the California Pharmacists Association. "Sometimes I have to say, 'I'm sorry, I want to help you, but I can't lose this much money on your prescription.'"
While the bill passed with unusual legislative support, it faces an uncertain future with the Democratic governor, who has until Sept. 30 to sign or veto it.
Newsom vetoed a 2021 bill that would have barred PBMs from steering patients to their own pharmacies, citing potential unintended consequences.
And his Department of Finance said administering the licensing and collecting the data required by the law would cost several million dollars. In vetoing other legislation, Newsom has repeatedly cited costs, as the state struggles with a massive budget deficit.
Ballad Health, an Appalachian company with the nation's largest state-sanctioned hospital monopoly, may soon be required to improve its quality of care or face the possibility of being broken up.
Government documents obtained by KFF Health News reveal that Tennessee officials, in closed-door negotiations, are attempting to hold the monopoly more accountable after years of complaints and protests from patients and their families.
Ballad, a 20-hospital system in northeastern Tennessee and southwestern Virginia, was created six years ago through monopoly agreements negotiated with both states. Since then, Ballad has consistently fallen short of the quality-of-care goals, according to annual reports released by the Tennessee Department of Health.
Despite these failures, Tennessee has given "A" grades and annual stamps of approval to Ballad that allow the monopoly to continue. This has occurred, at least in part, because Ballad is graded against a scoring rubric that largely ignores how its hospitals actually perform.
Now that may change. In an ongoing renegotiation of Tennessee's monopoly agreement, the state health department has pushed for an eightfold increase in the importance of hospital performance, making it "the most heavily weighted" issue on which Ballad would be judged, according to state documents obtained through a public records request. The negotiations appear to be the state's most substantial response to residents who sound alarms about Ballad hospitals.
Dani Cook, a community organizer who has led efforts against Ballad for years, including an eight-month protest outside a Ballad hospital in 2019, said a renegotiated monopoly agreement could be a first step toward progress that locals have long sought, but only if it is enforced by the state.
Cook also questioned why Tennessee took years to prioritize something as fundamental as good care.
"That's what baffles me about this entire relationship: Ballad seems to never be held to account," Cook said. "And that's why, when I look at this, I say, ‘Oh that sounds great.' But let's see what happens."
Ballad Health was created in 2018 after Tennessee and Virginia officials waived federal anti-monopoly laws and approved the nation's biggest hospital merger based on what's called a Certificate of Public Advantage, or COPA, agreement. Despite the warnings of the Federal Trade Commission, the region's rival hospital systems became a single system without competition. Ballad is now the only option for hospital care for most of about 1.1 million people in a 29-county region at the nexus of Tennessee, Virginia, Kentucky, and North Carolina.
In an effort to offset the perils of the monopoly, Ballad was required to enter agreements with the states that set expectations for the company and limited its ability to raise prices or close hospitals. Each year, Tennessee grades Ballad against this agreement on a 100-point scale. If the company performs poorly, Tennessee could in theory revoke the COPA, and then enforce a plan to split Ballad into separate companies, according to the monopoly agreement.
The new negotiation documents offer a snapshot of how Tennessee hopes to reshape this agreement, detailing more than a dozen changes the health department proposed in February and a counterproposal from Ballad in May. It is unclear if or how these proposals may have changed in the subsequent months.
Tennessee Department of Health spokesperson Dean Flener said the agency would not comment on Ballad or the ongoing negotiations.
In a written statement, Ballad did not comment directly on the negotiations but said the company "enthusiastically agrees that the most important thing to our patients is the quality of care they receive." The company said in 2023 that its hospital quality slipped due to the pressure of the coronavirus pandemic and that it was in the process of rebounding.
"We strongly support a shared focus on quality of care as it relates to the COPA," Molly Luton, a Ballad spokesperson, said in the statement.
Historically, quality of care has been just a small part of how Ballad is held accountable. Twenty percent of Ballad's annual COPA score comes from measurements of hospital quality, but the company gets full credit on three-fourths of those measurements if it reports any value — even a terrible one. Only 5% of the annual score is determined by real-world hospital performance.
If quality was weighted more, Ballad would have scored much worse in past years. Annual reports released by the Tennessee Department of Health over the last two years show that Ballad failed to meet more than 74% of the state's quality-of-care benchmarks, including some about mortality rates, readmission rates, emergency room speed, surgery-related infections, and patient satisfaction.
Under Tennessee's proposed changes, all these metrics would matter much more. But Tennessee would also lower the overall standards for Ballad's monopoly and ease a charity care obligation that Ballad has repeatedly not met, according to the negotiation documents. Ballad has said it hasn't met the charity care obligation because changes to Medicaid programs have left fewer patients uninsured and in need of charity.
The documents show that:
Tennessee has proposed increasing the share of Ballad's annual score that is attributable to real-world quality of care from 5% to 40% and no longer giving Ballad any points for merely reporting quality statistics. In a counteroffer, Ballad proposed raising this percentage to 34%, with some points still awarded to the company just for reporting.
Tennessee proposed lowering the minimum overall score that Ballad needs to obtain each year for its monopoly to be considered a "clear and convincing public advantage." If Ballad falls below this threshold, the COPA agreement could be modified or "terminated." Tennessee wants to lower the threshold from 85 out of 100 to 75. In its counteroffer, Ballad proposed 70.
Tennessee would reduce or weaken a requirement for Ballad charity care spending that is largely moot. Ballad has been required to provide more than $100 million in free or discounted charity care to low-income patients each year under the current monopoly agreement, but it has failed to do so five years in a row, falling short by about $194 million in total. Tennessee has waived the requirement each year.
Cook, who described the new documents as a rare glimpse into closed-door dealings that Ballad patients never get to see, said it was striking to witness the company push for lower standards.
"Why would they be pushing back on improving the quality of care that people receive?" Cook said. "If they are really among the nation's best — because that's what they tell the entire region — why do you need the standards lowered?"
ATLANTA — On a recent summer evening, Raymia Taylor wandered into a recreation center in a historical downtown neighborhood, the only enrollee to attend a nearly two-hour event for people who have signed up for Georgia's experimental Medicaid expansion.
The state launched the program in July 2023, requiring participants to document that they're working, studying, or doing other qualifying activities for 80 hours a month in exchange for health coverage. At the event, booths were set up to help people join the Marines or pursue a GED diploma.
Taylor, 20, already met the program's requirements — she studies nursing and works at a fast-food restaurant. But she said it wasn't clear what paperwork to submit or how to upload her documents. "I was struggling," she said.
Georgia is the only state that requires certain Medicaid beneficiaries to work to get coverage. Republicans have long touted such programs, arguing they encourage participants to maintain employment. About 20 states have applied to enact Medicaid work requirements; 13 won approval under the Trump administration. The Biden administration has worked to block such initiatives.
The Georgia Pathways to Coverage program shows the hurdles ahead for states looking to follow its lead. Georgia's GOP leaders have spent millions of dollars to launch Pathways. By July 29, nearly 4,500 people had enrolled, the state's Medicaid agency told KFF Health News.
That's well short of the state's own goal of more than 25,000 in its first year, according to its application to the federal government, and a fraction of the 359,000 who might have been eligible had Georgia simply expanded Medicaid under the Affordable Care Act, as 40 other states did.
So far, the pricey endeavor has forced participants to navigate bureaucratic hurdles rather than support employment. The state would not confirm whether it could even verify if people in the program are working.
Research shows such red tape disproportionately affects Black and Hispanic people.
"The people that need access to healthcare coverage the most are going to struggle with that administrative burden because the process is so complicated," said Leah Chan, director of health justice at the Georgia Budget and Policy Institute.
At an August press event, Georgia Republican Gov. Brian Kemp announced a $10.7 million ad campaign to boost enrollment in Pathways, one of his administration's major health policy initiatives. The plan has cost more than $40 million in state and federal tax dollars through June, with nearly 80% going toward administration and consulting fees rather than paying for medical care, according to data the state Medicaid agency shared with KFF Health News.
Enrollment advisers, consumer advocates, and policy researchers largely blame a cumbersome enrollment process, complicated program design, and back-end technology flaws for Pathways' flagging enrollment. They say that the online application is challenging to navigate and understand and lacks a way for people to receive immediate support, and that state staffers don't respond to applicants in a timely manner.
"It's just an administrative nightmare," said Cynthia Gibson, director of the Georgia Legal Services Program's Health Law Unit, who helps Pathways applicants appeal denials.
Administrative challenges have also undermined a key part of the program's philosophy: that people maintain employment to keep coverage. As of July, the state was not removing enrollees for not meeting Pathways' work requirement, according to Fiona Roberts, a spokesperson for Georgia's Medicaid agency.
"We understand that people need to be held accountable to those 80 hours for the spirit of the program, and we intend to do that," said Russel Carlson, the agency's commissioner.
Pathways is set to expire Sept. 30, 2025, unless the state asks the Centers for Medicare & Medicaid Services for an extension. Georgia officials say they won't have to make that request until next spring, well after November's election. So the state could be asking for an extension from the Trump administration, which approved the program in the first place.
Georgia officials sued the Biden administration this year to keep Pathways running without going through the official extension process, which requires the state to conduct public comment sessions, gather extensive financial data, and prove that Pathways has met its goals. A federal judge ruled against Georgia.
A CMS spokesperson said the agency wouldn't comment on the program.
During the August press event, Kemp said the Biden administration's attempt to stop the program in 2021 delayed its rollout and stymied enrollment. A federal court blocked the administration and allowed Georgia to proceed.
People familiar with the enrollment process said Pathways has been mired in design flaws and system failures. As of the end of May, 13,702 applications were waiting to be processed, according to state documents.
The program's lengthy questionnaires and technical language are confusing, guidance is opaque, and tools to upload documents are tricky to navigate, according to interviews with health insurance enrollment specialists conducted for the Georgia Budget and Policy Institute.
"It's not an easy, ‘Oh, I want to apply for Pathways,'" said Deanna Williams, who helps people enroll in insurance plans at Georgians for a Healthy Future, a consumer advocacy group. People generally learn about the program after being denied other Medicaid coverage, she said.
In the online application, people click through pages of questions before they're shown a screen with information about Pathways, Williams said. Then they must check a box and sign a form saying they understand the program's requirements.
Sometimes the Pathways application doesn't pop up, and she must start over. The process to apply is "not smooth," she said.
Data shows that people who don't earn enough to qualify for free ACA plans but also make too much for Medicaid are disproportionately people of color. Pathways offers Medicaid coverage to adults earning up to the federal poverty level: $15,060 for an individual or $31,200 for a family of four.
Some people eligible for Pathways who work in retail or restaurants with fluctuating hours are nervous they can't meet requirements every month, Williams said.
Many current enrollees don't know how to upload documents, and the website sometimes stops working, said Jahan Becham, an employment specialist for Pathways at Amerigroup Community Care. Or people just forget.
Every month Becham gets a list of 200 to 300 enrollees who haven't submitted their hours. "It is something new, and not many people are used to this," Becham said.
"I would get reminders," said Taylor, who attended the event for enrollees in August. "I just didn't know how."
In a June 2023 meeting with Georgia Medicaid staffers weeks before the program launched, federal officials questioned why the state wasn't automatically verifying eligibility with existing data sources, according to meeting minutes KFF Health News obtained through a state open-records request. Georgia officials said they were unsure when they'd be able to simplify the verification process.
Many potential participants face improper denials, advocates said. Gibson, at the Georgia Legal Services Program, said not enough workers are trained to properly evaluate applications.
Fewer than 1 in 5 people who have their Pathways applications processed had been accepted into the program as of May, according to a KFF Health News analysis of state data. Roberts, with the state, said people were denied because they earned too much, didn't meet requirements, or didn't complete the paperwork.
A full-time graduate student was wrongly blocked from the program, and in February a state administrative judge ordered her case be reconsidered. In another case, a different judge ruled a 64-year-old woman who couldn't work because she was her disabled husband's full-time caregiver would not qualify for Pathways.
Despite the challenges, state records from May show no individuals were removed from the program since it launched for failing to meet work requirements.
Georgia's experiment comes after a 2018 effort in Arkansas to implement work requirements on an existing Medicaid expansion population led to 18,000 people losing coverage, many of whom either met requirements or would have been exempted.
Taylor found out about Pathways when she applied for food stamps last year. It wasn't until August that she learned she could submit her school schedule to meet the qualifying hours requirement. With a full Medicaid expansion, Taylor would have been eligible for health coverage without the extra effort. But, for her, it's still worth it.
"It's important to have health insurance," said Taylor, who has been to the dentist several times and plans to visit a doctor. "I'm glad I have it."
Several large nonprofit Catholic health systems spend far less on community benefits such as free or discounted care than the estimated value of the millions they secure in tax breaks.
This article was published on Thursday, September 12, 2024 in KFF Health News.
When Jessica Staten's kidney stones wouldn't pass, she said, her doctor suggested a procedure to "blow 'em up." She went to have it done last November at St. Joseph Medical Center in Bellingham, Washington, one of nine hospitals that the Catholic health system PeaceHealth operates in the Pacific Northwest and Alaska.
"I was probably there a total of 3½ hours, and everything went well," said Staten, who works as an accountant and has health insurance. What came next shocked her: PeaceHealth sent a bill for $5,313.63 and, she said, told her she didn't qualify for help to lower the cost. Staten said she asked about financial assistance but was told she earned slightly too much.
PeaceHealth aims to "carry on the healing mission of Jesus Christ by promoting personal and community health, relieving pain and suffering, and treating each person in a loving and caring way," according to a 2022 tax filing.
For Staten, suffering lingered long after receiving care from the health system with the only hospital in town.
To pay off her medical bill, Staten ultimately took on more debt, using her condo as collateral to secure a line of credit of more than $5,000, according to records reviewed by KFF Health News. She said the line of credit had an 11.2% interest rate. That was cheaper than a payment plan the hospital offered through a third party, which Staten said she was told would have charged about 12.5% interest.
"It's all about the money," said Staten, who has lived in Bellingham for more than 30 years. "That's the way they think now at the hospital."
PeaceHealth spokesperson Victoria Wilson said the hospital offers patients interest-free 12-month payment plans. For some patients, the monthly obligation is unaffordable. PeaceHealth also now offers longer-term plans with a 9% interest rate "in alignment with current regulations," she said, declining to elaborate further.
"Each patient who comes to us seeking care is experiencing a vulnerable moment in their life and needs healing," Wilson said in an emailed statement. "We hold each healing opportunity sacred, so financial healing is closely aligned with our Mission."
The "Ethical and Religious Directives for Catholic Health Care Services," issued by the U.S. Conference of Catholic Bishops, outlines social responsibility principles for Catholic health facilities. One states that "a just health care system will be concerned both with promoting equity of care — to assure that the right of each person to basic health care is respected — and with promoting the good health of all in the community."
As of 2023, there were just over 600 Catholic general hospitals nationally and roughly 100 more managed by Catholic chains that place some religious limits on care, a KFF Health News investigation revealed.
Catholic nuns established many hospitals in the name of service. But modern-day practices at such facilities demonstrate how they adhere to the directives and church teaching in one way — prohibiting or limiting procedures that the church deems immoral, such as abortion and what it calls "assisted suicide" — while neglecting social responsibility standards, patients and clinicians said.
"It does show the lack of control or influence that the faith organization has over the actual company," said Shane Alderson, chair of the Baker County Board of Commissioners in Oregon. The local Catholic hospital owned by Trinity Health — Saint Alphonsus Medical Center-Baker City — last year shut down its obstetrics department. Its intensive care unit is also closed, Alderson said. "You get the feeling when you go to a Catholic hospital that the care and the vision is a lot more defined by the faith," he said, adding: "It's not really. It's corporate."
Sister Mary Haddad, president of the Catholic Health Association, said in a written statement that Catholic health systems "remain true to our origins and the missions on which we were founded through our ongoing commitment to serving those most in need." In addition to patient care, she said, this includes investing in programs to address societal problems such as homelessness and food insecurity.
Health systems like CommonSpirit Health, Ascension, PeaceHealth, Trinity Health, and Providence St. Joseph pay their chief executives millions of dollars a year — payouts that kept pace during the covid-19 pandemic emergency, according to each company's tax filings.
CommonSpirit Health's then-CEO Lloyd Dean earned roughly $28 million in 2022; he was among nearly three dozen executives who pulled down more than $1 million that fiscal year, according to the health system's tax filings.
Elsewhere, Rod Hochman, CEO of Providence St. Joseph Health, earned $12.1 million. Ascension CEO Joseph Impicciche was paid $9.1 million, according to corporate tax filings.
Spokespeople for Providence and Ascension said CEO compensation levels are market-competitive; CommonSpirit spokesperson Felicity Simmons said that Dean, who retired in July 2022, like other retiring executives "received standard deferred compensation benefits consistent with their many years of service." (CommonSpirit's 2021 tax filing showed Dean earned $35.5 million that year.)
To maintain their tax-exempt status, all nonprofit hospitals are required to spend on community benefits, but federal law doesn't specify how much or which services qualify.
Several large nonprofit Catholic health systems spend far less on community benefits such as free or discounted care to eligible patients and community health improvement services than the estimated value of the millions they secure in tax breaks, according to research by the nonpartisan Lown Institute.
Based on 2021 data, the think tank found that five of the 10 health systems with the greatest "fair share deficits" are Catholic: Providence, CommonSpirit Health, Trinity Health, Ascension, and Bon Secours Mercy Health's deficits were between $488 million and $1 billion.
Research by Community Catalyst, a consumer advocacy group, found that Catholic hospitals treat fewer Medicaid patients than other nonprofit hospitals, something at odds with their mission of prioritizing health care needs of the poor and underprivileged. And like other hospitals nationwide, many large Catholic health systems allow aggressive tactics against patients for unpaid medical bills such as using third-party collections, filing lawsuits, placing liens, garnishing wages, reporting bad debt to credit bureaus, or restricting care to people who owe, a KFF Health News investigation found.
Catholic bishops are "quite zealous for making sure that the reproductive and end-of-life care components of the ERDs are followed," said Patricia Gabow, a physician who led a Denver safety net health system for two decades and has written about the evolution of Catholic healthcare in the U.S. She said "they should be as zealous" on enforcing the directives outlining Catholic healthcare's social responsibilities.
Among those directives is this: "Catholic health care should distinguish itself by service to and advocacy for those people whose social condition puts them at the margins of our society and makes them particularly vulnerable to discrimination" including "the poor; the uninsured and the underinsured"; and "children and the unborn." The U.S. Conference of Catholic Bishops declined to comment for this article, referring questions to the Catholic Health Association.
PeaceHealth's first hospital was founded in the 1890s by nuns from New Jersey who ventured to the West to care for loggers, millworkers, fishers, and their families in the country's remote frontier. Seven nuns and a cook staffed St. Joseph Hospital in Whatcom County, Washington, where Bellingham is located. St. Joseph is the Catholic patron saint of families, workers, and the dying.
Now no nuns serve on St. Joseph Medical Center's or PeaceHealth's leadership teams; two are on the health system's 11-person board of directors. PeaceHealth CEO Liz Dunne earned $3.6 million in the fiscal year that ended June 30, 2023, tax filings show, and the Lown Institute estimates the health system spent $108.7 million less on community investments than the value of its tax exemptions. PeaceHealth declined to comment on executive compensation or the Lown Institute's findings.
In 2023, the health system was forced to refund up to $13.4 million to more than 15,000 low-income patients after the Washington attorney general's office found it billed patients who should have received financial help.
Catholic health systems "set a standard for themselves which is higher" than other U.S. hospitals, Gabow said. "Do they reach what they set for themselves? And there's a fair amount of data to say probably not."
Shutting Down Maternity Care
For more than a century, a Catholic hospital now named Saint Alphonsus Medical Center has provided care in Baker City, Oregon, a 10,000-person town less than 100 miles from the Idaho border.
The hospital was founded in 1897 by nuns from Philadelphia. They treated 115 patients in the first year, "many of whom were loggers, ranchers, and gold miners," according to a document detailing its history. Patients "received complete health coverage" for $1 a month.
Like many of its peers across the nation, the small rural hospital would become part of larger Catholic health systems. In 2010 it settled in as part of Trinity Health, the nation's fourth-largest hospital system by number of beds, according to federal data. Trinity Health operates 101 hospitals, plus other care sites, in 27 states. CEO Michael Slubowski's most recently reported salary was $5.3 million in the company's 2023 fiscal year, when Trinity had an operating margin of -2%, according to financial statements and tax filings. Operating margins are a measure of a hospital's financial health.
Trinity Health spokesperson Melissa Lander said Slubowski's compensation is based on factors including experience and performance, and pay "must be market competitive to attract and sustain talented people."
Baker City was given a jolt in 2023. Blaming staffing shortages and a decline in births, hospital executives announced that Saint Alphonsus would close its obstetrics unit, the only one in the county. The move caused an uproar locally and pushback by Oregon's two Democratic senators.
"What they were doing is essentially getting rid of the unit that made no money and cost a lot," said Cathie Roach, a nurse who worked in Saint Alphonsus Medical Center's obstetrics unit for roughly a decade before retiring last year.
Roach said the staffing shortages were "pretty much of their making." Hospital management rotated nurses among departments in ways that made some feel "really uncomfortable," and the hospital didn't consider alternative ways of staffing the OB unit, she said.
For months, she said, nurses were getting hints that executives might close the birth center and began looking for jobs elsewhere. "Out here if you want to be an OB nurse and this is the only hospital, and they start talking about closing," she said, "then, time to get out."
Hospital leaders said its obstetric deliveries had "declined at a record rate." However, birth data from the Oregon Health Authority tells a different story.
Births at the Baker City hospital declined to 103 in 2015, a nearly 30% drop from 2013, before rebounding. Annual births were in the 120s or 130s until the covid-19 pandemic took hold, when they fell 25% from 2019 to 2020. Still, from 2020 to 2022, between 100 and 112 babies were delivered each year.
Saint Alphonsus Health System and Trinity Health declined to comment.
Now the closest hospital where a person can give birth is over 40 miles away. In the winter in eastern Oregon, roads to get there are often closed.
In 2023, 54% of Baker County resident births were paid for by Medicaid, the health coverage program for people with low incomes, according to Oregon Health Authority statistics. That's a higher share than Medicaid-covered births statewide.
"They really lost their charity," Roach said, "when the old nuns disappeared."
The Reach of Market Power
The actions of Catholic health systems can have an outsize impact because of their reach, fueled by mergers in recent years: Four of the 10 largest U.S. hospital chains by number of beds are Catholic, according to federal data from the Agency for Healthcare Research and Quality.
Haddad noted that that power has worked for the good of vulnerable populations.
The association and most of the Catholic health systems criticized the Lown Institute report on community benefit spending as flawed for excluding several categories reported to the IRS, including uncompensated care costs and spending on health professional education. Haddad called the research an effort "to disparage the work of Catholic health care by publishing misleading and biased reports that cherry-pick data."
The Lown Institute considers five categories of community investments, including financial assistance for patients, community health services, and health services such as free clinics and addiction treatment.
Ascension spokesperson Sean Fitzpatrick called the report an "exercise in misinformation"; Trinity Health's Lander said it "gives inaccurate and, unfortunately, misleading conclusions." Bon Secours Mercy Health spokesperson Maureen Richmond said that the report "utilizes flawed high-level assumptions and incomplete data" and that the health system's community benefit spending in 2021 exceeded the value of its tax exemptions by more than $274 million — while Lown calculated that its benefit fell short of tax exemptions by $488 million. Providence spokesperson Melissa Tizon said Lown's methodology "falls short."
The CHA and multiple health systems declined to answer questions about whether certain business practices raised by this story were consistent with the mission of Catholic health care.
Years ago, Catholic hospital mergers were motivated primarily by ministry, said Lawrence Singer, a retired associate professor who was affiliated with Loyola University Chicago School of Law. But things have changed.
"It really isn't ‘save the ministry' any longer," he said. "It's really business that's driving a lot of this now."
Consolidation raises market power, and several studies have found that it leads to higher prices for patients while the quality of care remains steady or declines.
The Federal Trade Commission has blocked certain deals it predicts could reduce competition. Historically the agency has targeted transactions in which hospitals operate in the same market, according to antitrust law experts. State regulators have broader authority than the federal government, but most states can't reject proposed mergers without going to court, according to researchers at the University of California Law-San Francisco.
Some of the largest Catholic health systems, including CommonSpirit Health, Providence St. Joseph Health, and Trinity Health, achieved their size due to a different strategy: combining companies with little to no geographic overlap. Such "cross-market mergers" are traditionally harder for the FTC to block, according to health care antitrust experts.
When hospitals in the same market try to merge, "in some ways it's a lot easier to quantify what's going on" and the potential harm to competition, said Kevin Hahm, an antitrust attorney at Hunton Andrews Kurth and a former FTC official who investigated health care transactions.
But deals involving hospitals in different regions are increasingly drawing scrutiny. Researchers at the University of California-Berkeley, UC Law-San Francisco, and the University of Auckland found that health systems that acquired hospitals more than 50 miles away increased prices by 12.9% after six years compared with hospitals not involved in mergers or acquisitions.
"The new frontier," said Thomas Greaney, one of that merger study's authors, "is whether we'll go after what we've called system power."
'We're a Captive Audience'
Bellingham is one of the nation's least competitive hospital markets: In 2021, it was the fifth most concentrated in the U.S. and had the highest health care prices of metro areas in Washington, according to the nonprofit Health Care Cost Institute.
The nuns who established PeaceHealth's first hospital would open or operate others throughout the 20th century. PeaceHealth also acquired hospitals through mergers, including Southwest Medical Center in Vancouver and United General Hospital in Sedro-Woolley.
"PeaceHealth is the leader in all three of its markets, with decided market share leads in its Northwest and Oregon markets," credit ratings firm Fitch Ratings reported in March. PeaceHealth declined to answer questions about whether a desire to charge higher prices drives market decisions.
Its hospitals stand out for what they're paid. Rand Corp. researchers told KFF Health News that commercial health plans in 2022 paid PeaceHealth's Washington hospitals 314% of what Medicare would have paid for the same services. Those are the highest-priced rates among health systems in the state, according to Rand's analysis. PeaceHealth declined to comment.
Staten's medical bill from PeaceHealth is gone: She used the home equity line of credit to pay it off. Now she's paying more on her mortgage every month.
She said she can't afford to have another experience like her kidney stone surgery, which she was told involved a laser to break the stones into smaller pieces.
"It's not like you've got three hospitals to choose from," Staten said. "We're a captive audience."
John Baackes, 78, who will retire after the end of the year, helped transform L.A. Care into a major market player following its expansion under the ACA.
This article was published on Wednesday, September 11, 2024 in KFF Health News.
LOS ANGELES — For nearly a decade, John Baackes has led L.A. Care Health Plan, a publicly run insurer primarily serving low-income Los Angeles County residents on Medi-Cal. It is by far the largest Medi-Cal plan in the state.
Baackes, 78, who will retire after the end of the year, helped transform L.A. Care into a major market player following its expansion under the Affordable Care Act. He implemented a new administrative structure and promoted a new internal culture. The insurer generated $11.3 billion in revenue last year, with membership close to 2.6 million people — nearly 900,000 more than when Baackes took the reins in March 2015.
"I recognized when I got here that L.A. Care was a big frog in a big pond," he said in an interview with KFF Health News on the 10th floor of L.A. Care's downtown headquarters. But the organization still had a small-plan mentality, he said, until he convinced his staff "that we had an opportunity to really be leaders."
Baackes moved to Los Angeles from Philadelphia, where he had headed the Medicare Advantage business of AmeriHealth Caritas VIP Care. He started at L.A. Care 15 months after the implementation of the ACA, which expanded Medicaid eligibility and created insurance exchanges where uninsured people could buy federally subsidized coverage.
L.A. Care's Medi-Cal rolls swelled, and it offered a new health plan sold on the state's ACA exchange, Covered California, as well as one for medically vulnerable seniors who are eligible both for Medi-Cal and Medicare.
But Baackes saw that L.A. Care didn't have the right structure to manage the bigger organization it had become. So, he hired directors to oversee each of the health plans and revamped the chain of command.
The changes required a long period of reorientation, Baackes recalled. Then, "one of the officers came up to me one day and said, ‘Well, before I had to talk to everybody, but now I know who to talk to.' I thought, ‘OK, phew, now we're making progress.'"
Baackes has sometimes butted heads with state regulators, including when L.A. Care was fined $55 million in 2022 for "deep-rooted, systemic failures that threaten the health and safety of its members." Baackes thought the fine was not justified. L.A. Care contested it and still has not paid it.
Baackes, who will retain his position as chair of Charles R. Drew University of Medicine and Science, a medical school that trains health professionals to work in underserved areas, expounded on the shortcomings and successes of the U.S. health system and Medi-Cal, which covers well over a third of California's population.
Like many of his colleagues, he believes Medi-Cal's principal flaw is low payments to providers, which is exacerbated by a shortage of labor in health care. That discourages doctors and other providers from taking Medi-Cal patients, limiting their choices and extending their wait times for care. He supports Proposition 35, a measure on the ballot this November that would secure a permanent revenue stream to increase Medi-Cal payments.
L.A. Care tackled the labor shortage by creating a $205 million fund to pay for medical school scholarships, help clinics hire doctors, and offer educational debt relief to doctors who work in safety-net settings. Jennifer Kent, former director of the California Department of Health Care Services, which oversees the Medi-Cal program, said she was impressed when Baackes used money from a rate settlement with her agency to help fund those initiatives.
"John very clearly has an appreciation and a passion for the program and what it represents in terms of the power to change people's lives," Kent said.
This interview with Baackes has been edited for length and clarity:
Q: Voters will decide, with their vote on Proposition 35, whether money from an industry tax will be locked into Medi-Cal permanently, curbing Gov. Gavin Newsom's plan to tap the revenue for the state's budget shortfall. Where do you stand on this?
I understand they've got a budget deficit, and they've got to do something about it. But we have to have security of the funding, and if it's going to be decided in every budget, there's going to be politics and other priorities. This is the same way education runs. They went to a ballot initiative to lock in their portion of the budget, and I think the health of over one-third of the population is as important as education.
Q: Medi-Cal has embarked on an ambitious expansion, including full coverage for all immigrants, a push to increase the amount of primary care provided, the elimination of an asset test, and continuous coverage for children up to age 5, among other things. Does the provider shortage in Medi-Cal dampen the prospects of these efforts?
Absolutely. If we are giving people expansion in access, then we have to have the resources for them to take advantage of it — unless we're going to say, "Yeah, you have access, but figure it out on your own." If we look at Los Angeles County, we've got plenty of doctors bumping into each other in places like Beverly Hills and Santa Monica. But if you go to South L.A., the Antelope Valley, it's a different story.
Q: What do you think of the Office of Health Care Affordability's goal of limiting annual health care spending increases to 3.5% at first, and ultimately to 3%?
Well-intended, but I do not see how it can be effective without causing a lot of damage along the way. You can restrict the amount of money that can be spent, but it doesn't fix the underlying drivers of why it costs so much.
Q: So it could ultimately reduce care for patients?
Yeah. I think so. Because if doctors and nurses demand higher salaries and can command them because there aren't enough people, then having an administrative hammer that you can't spend more isn't going to work.
Q: A lot of people would say the whole U.S. health care system, not just Medicaid, is failing patients. Access to care, and the cost of it, is difficult for a lot of people. How do we fix the system?
We need to simplify the regulatory environment. Regardless of whether it's commercial insurance, Medicare, or Medicaid, the regulations are piling up and they cost money. The second thing: I think particularly the safety-net providers might have to say there can be no for-profit or private equity investors in that area. I'm not against capitalism. I just think if you're going to make that money on a system that's underfunded in the first place, something is being lost.
Q: What are your thoughts about the California Advancing and Innovating Medi-Cal program (CalAIM), especially the community supports such as meals designed for specific medical conditions, home modifications, and help finding housing?
CalAIM is a wonderful program in the sense that it begins to recognize that social determinants do influence your health. So we're finally saying, "OK, we'll put some money toward paying for those." But the trade-off is that they want to reduce the medical costs by making these investments. The problem is we are trying to save dollars that are already deeply discounted. Of the 14 community supports they have, the one that is in my mind a slam dunk is the medically tailored meals.
Q: How has your thinking about health care evolved?
What I've learned and experienced is that health care is part of social justice, and we have to think of it that way. Any other way of thinking of it is going to create winners and losers.
Suspicions that U.S. consumers' personal information could be accessed from India led regulators to abruptly bar two large private sector enrollment websites from accessing the Affordable Care Act marketplace in August.
New details about the suspensions come in legal filings made late Friday stemming from an effort by the two to regain access to the Obamacare marketplace before the upcoming ACA open enrollment period, which starts Nov. 1.
The Centers for Medicare & Medicaid Services wrote in a Sept. 2 letter to the companies that they were suspended after the agency identified "a serious lapse in the security posture" that could have led to marketplace data, including consumers' personal information, being accessed from overseas.
The letter, included in the court filings, also noted that regulators will audit the two companies because they have "reasonable suspicion" that they are players in a separate problem: signing people up for Obamacare coverage — or changing their policies — without the consumers' permission.
Whether those legal issues will be resolved before the upcoming enrollment period is an open question. Currently, the concerns raised about the companies remain allegations, with none of the legal challenges or the audit close to a ruling or conclusion.
Still, the larger issue of fraudulent ACA enrollment by rogue insurance agents seeking commissions will continue to pose a headache for regulators, with more than 200,000 complaints filed by consumers in the first six months of 2024. And it has become a political problem for the Biden administration. GOP lawmakers blamed the schemes partly on Biden-backed expanded Obamacare premium subsidies.
President Joe Biden has claimed record-breaking enrollment under the ACA as one of his administration's major accomplishments, and regulators are looking to thwart deceptive enrollment schemes without slowing legitimate sign-ups. In recent weeks they've removed at least 200 agents' access to the federal ACA marketplace, and in July began requiring, in many circumstances, that brokers participate in three-way calls with their clients and the healthcare.gov help center before changes can be finalized.
The CMS letter now adds another layer. It is the first time this year the agency has called out a company over questionable enrollments, saying it suspects "the Speridian Companies" might have "directed its employees and other agents to change Marketplace enrollees' coverage and enroll insured and uninsured consumers without the enrollees' consent."
California-based Speridian Global Holdings owns the companies in question, which include enrollment platform Benefitalign and TrueCoverage, doing business as the Inshura enrollment site. It has a data center in India.
The now-suspended Benefitalign site handled at least 1.2 million applications for ACA coverage during the last open enrollment period, according to court documents, which would rank it among the largest of the private enrollment sites allowed to integrate with healthcare.gov, the federal marketplace.
Previously, CMS had said publicly only that it suspended the websites for "anomalous activity."
The suspended companies deny any wrongdoing related to enrollment schemes. Spokesperson Catherine Riedel declined comment beyond their court filings.
In late August they filed a complaint against CMS over the suspensions in U.S. District Court for the District of Columbia, seeking a restraining order. They added to that complaint on Sept. 6, calling CMS' suspension action "lawless."
On Aug. 8, CMS suspended the two websites from accessing healthcare.gov information.
It did so, according to the Sept. 2 letter, over concerns that some consumer information "is processed and/or stored" in India, citing "suspicions" that the data is "being accessed from outside of the United States."
That's a problem, the letter says, because marketplace data must stay in the U.S. to "eliminate the possibility that foreign powers might obtain access." Additionally, websites approved by CMS to integrate with the federal marketplace cannot transmit data outside of the U.S. or allow access from outside the country, under the terms of agreements such companies sign to get CMS approval to operate.
CMS did not spell out what consumer information might have been included, but ACA applications can contain information including a person's name, date of birth, address, and detailed household income information.
Speridian companies were suspended, then reinstated, from the marketplace in prior years over other concerns, including problems with false Social Security Numbers submitted with some TrueCoverage ACA applications in 2018, and for a 2023 effort by Benefitalign to access the federal marketplace's "software testing environment" from India, according to the CMS letter.
In seeking a restraining order against CMS, the companies argue that the agency's action to suspend them now is arbitrary and capricious and violates its own regulations as well as the due process clause of the Constitution.
The filing calls the Sept. 2 CMS letter explaining the reasons for the suspensions "a post hoc justification" that includes a litany of "'concerns,' suspicions,' 'allegations.'" The filing also asserts "these intimations of violations are made without evidence of any actual violation."
The court documents say the suspensions will prevent the companies from participating in the upcoming open enrollment period, harming them and "the thousands of brokers" and "millions of consumers who count on brokers" using those websites to sign up for ACA coverage.
The suspension remains in place, the CMS letter says, partly because its concerns have not been allayed by information provided by the companies, but also while the audit is conducted.
CMS has "reasonable suspicion, based on credible evidence it has considered," that the companies were involved in enrolling consumers or changing their coverage without specific permission, the letter stated, noting that such allegations are included in a civil lawsuit filed by private sector lawyers in U.S. District Court for the Southern District of Florida.
The firms have previously said the allegations in the civil lawsuit are without merit.
Brokers who have used the suspended websites in the past have other options to enroll clients, including several other websites currently approved to integrate with the federal Obamacare marketplace. Consumers can also go directly to the federal or state ACA websites and enroll themselves or get assistance from call centers associated with those marketplaces.
The computer systems run by the consulting giant Deloitte that millions of Americans rely on for Medicaid and other government benefits are prone to errors that can take years and hundreds of millions of dollars to update. While states wait for fixes from Deloitte, beneficiaries risk losing access to health care and food.
Changes needed to fix Deloitte-run eligibility systems often pile on costs to the government that are much higher than the original contracts, which can slow the process of fixing errors.
It has become a big problem across the country. Twenty-five states have awarded Deloitte contracts for eligibility systems, giving the company a stronghold in a lucrative segment of the government benefits business. The agreements, in which the company commits to design, develop, implement, or operate state-owned systems, are worth at least $6 billion, dwarfing any of its competitors, a KFF Health News investigation found.
Problems and delays can extend beyond Medicaid — which provides health coverage to roughly 75 million low-income people — because some state systems assess eligibility for other safety-net programs. Whether a person gets the benefits they are entitled to depends on what the computer says.
There is no automatic switch to stop errors in the system, said Elizabeth Edwards, a senior attorney with the National Health Law Program, a nonprofit that advocates for people with low incomes and medically underserved populations. The group in January filed a complaint urging the Federal Trade Commission to investigate Deloitte, alleging "ongoing and nationwide" errors and "unfair and deceptive trade practices."
"People will go without care," Edwards said, and until there's a fix or a workaround, "you will continue to have the harm over and over again."
Kenneth Smith, a Deloitte executive who leads its national human services division, previously told KFF Health News that Medicaid eligibility technology is state-owned and agencies "direct their operation" and "make decisions about the policies and processes that they implement." Smith has called the legal nonprofit's allegations "without merit."
States set aside millions of dollars to cover the cost of changes, but systems may require fixes beyond the agreed-upon work. The number of hours or updates is capped each year, so states are left to prioritize certain fixes over others. And even though Deloitte isn't reinventing the wheel for each eligibility system it builds or runs, the company addresses problems state by state rather than patching through fixes for systems across states, Smith said — a change request in one state "likely has absolutely nothing to do with another state."
"Because of the custom nature of these systems, it's never quite that simplistic as, 'Hey, a particular issue that's arisen in state of A is directly applicable to state of B,'" Smith said.
Speaking generally, Smith said, "I'm unaware of any circumstance in which a client has needed to get something done that we haven't found a way to get it done."
Deloitte's estimates show that 35 change requests for Georgia's eligibility system in 2023 would take more than 104,000 hours of work, according to a list of change requests that KFF Health News obtained in response to a public records request. That's the equivalent of 50 years of work, if someone worked 52 weeks a year at 40 hours a week.
"System changes were made to align with changing federal and state policies, as well as to meet evolving business needs," said Ellen Brown, a spokesperson for the Georgia Department of Human Services. Brown earlier said changes also were made to "improve functionality."
The federal government — that is, its taxpayers — covers 90% of states' costs to develop and implement state Medicaid eligibility systems and pays 75% of ongoing maintenance and operations expenses, according to federal regulations.
Eligibility systems for years have posed problems for states because of the dynamic between contractors and government officials, said Matt Salo, CEO of consulting firm Salo Health Strategies. The companies hold the expertise "and, quite frankly, they're kind of running circles around the state capacity," said Salo, a former executive director of the National Association of Medicaid Directors.
"For decades all I've heard from states in this arena is: We know that when we go out to contract it's going to cost us a lot of money and it is going to run over, it is going to deliver years late, it is going to deliver millions if not hundreds of millions of dollars over budget," Salo said, and "by the time it's delivered, our needs have changed and so it's just this constant process of change orders and going back and fixing."
Two advocacy groups last August sued Florida in federal court, alleging tens of thousands of people were losing coverage without proper warning. And Florida's eligibility system was cutting off Medicaid coverage for some moms after giving birth, William Roberts, a state employee who reviews Medicaid eligibility decisions, testified when the case went to trial in July.
Florida previously gave moms two months of Medicaid coverage after giving birth. Federal regulators in 2022 approved Florida's proposal to grant Medicaid benefits for 12 months. But in April 2023 state officials discovered a "glitch," Roberts said, and "the system had reverted back to only giving mothers two months instead of giving them the 12 months that they were entitled to."
What became clear in the testimony is that the state and Deloitte take different views on what constitutes a "defect" in a Deloitte-run system. Deloitte said it would fix defects without billing any additional hours for the work. Although Deloitte is not a named defendant in the lawsuit, the company was called to testify about its role in operating Florida's eligibility system.
Harikumar Kallumkal, a Deloitte managing director who oversees the Florida system, initially testified that, in this case, there was no problem and "the computer system was providing 12 months" of postpartum coverage.
Then Kallumkal said, "Even in this case, I do not believe it was a defect." Even so, "we did fix that." And for the fix, he said, Deloitte "did not charge" the state.
Rather, a separate defect may have resulted in coverage losses for mothers after childbirth, Kallumkal testified.
Some historical data "required to determine postpartum coverage" was not loading into the system, Kallumkal said. "I don't know how many cases it impacted," he said, but Deloitte fixed the problem.
The courtroom revelation confirmed what Florida advocates already knew: an eligibility system issue prevented some of the state's most vulnerable from getting care. Florida denied allegations that it terminated Medicaid coverage without providing adequate notice. The case is ongoing.
When Michigan resumed regular Medicaid eligibility checks following the covid-19 pandemic, advocates saw a concerning trend.
The computer system routinely fails to recognize when certain adults with disabilities should receive Medicaid benefits, said Dawn Calnen, executive director of The Arc of Oakland County, which provides support for those with intellectual and developmental disabilities.
Often a person who qualifies for Medicaid initially for one reason could remain eligible even when life circumstances change. Calnen said there's no question that the people her group assisted are still eligible, just in a different way than during the pandemic.
The problem is frequent enough that Calnen's group felt compelled to notify others. "We kind of shout it from the rooftop for people: Know that this is going to happen."
When asked about the problem, Chelsea Wuth, a spokesperson for Michigan's Department of Health and Human Services, said there were "no issues" with the system. Deloitte operates Michigan's eligibility system. The company said it does not comment on state-specific issues.
Tennessee hired Deloitte in 2016 to build an eligibility system after the state canceled a contract with Northrop Grumman due to chronic delays. Deloitte didn't create the Tennessee system, known as TEDS, from scratch. It built on components from Georgia's system, according to a legal declaration and a deposition of Kimberly Hagan, Tennessee Medicaid's director of member services, that were part of a class-action lawsuit that Medicaid beneficiaries filed against the state in 2020.
The lawsuit, which is ongoing and does not name Deloitte as a defendant, seeks to order Tennessee to restore coverage under its Medicaid program, known as TennCare, for those who wrongly lost it. Hagan, in a court filing, said many problems "reflect some unforeseen flaws or gaps" with the Tennessee eligibility system and "some design errors."
A federal judge on Aug. 26 sided with the Medicaid beneficiaries, ruling that Tennessee violated federal law and the U.S. Constitution. "Poor, disabled, and otherwise disadvantaged Tennesseans should not require luck, perseverance, or zealous lawyering to receive healthcare benefits they are entitled to under the law," wrote U.S. District Court Judge Waverly D. Crenshaw Jr., adding, "TEDS is flawed, and TennCare knows that it is flawed."
Tennessee Medicaid spokesperson Amy Lawrence said the state is "determining what our next steps will be."
Tennessee's $823 million contract with Deloitte shows that the budget for changes outside the contract's original scope increased by hundreds of millions of dollars. Deloitte's maximum compensation for such change orders rose to $417 million under a 2023 contract amendment, up from $103.6 million four years earlier.
Lawrence said state officials "do not and would not pay to fix vendor errors." Lawrence attributed the cost increases to "system modernization" in "an effort to enhance our citizens' interactions with the state Medicaid program." Additional funding was also needed to comply with new federal requirements related to the covid-19 pandemic, she said.
Waiting on Fixes
States sometimes wait so long for Deloitte's fixes that the staffers who worked on the problems don't see the results. Jamie Perkins was responsible for making letters easier for Colorado Medicaid enrollees to understand. The letters are generated by Colorado's Deloitte-run eligibility system. State audits have found that the notices confuse enrollees and contain errors. Perkins said she left her job in 2021, frustrated that many of her fixes hadn't been implemented.
"It feels like a really perverse reward system, frankly, for Deloitte," Perkins said. "When Deloitte is themselves making a problem that did not originate with the department, the department is still paying them to fix those problems."
The state's contract with Deloitte now outlines "protocols to address issues that are the result of the contractor," said Trish Grodzicki, a spokesperson for Colorado's Medicaid agency. As of June 30, Colorado "has made substantial improvements" and a "majority of the letters have been rewritten" and updated in the system, she said.
Deloitte spokesperson Karen Walsh said "a change request can represent a number of different things," including when states make policy decisions that would warrant system updates. Smith said Deloitte views change requests and system issues, or defects, as different things.
"We have a responsibility when there's a system issue to fix that," Walsh said. "We don't get a change request to fix an issue."
Yet in Kentucky and other places, states have submitted change orders to resolve issues. Government officials and Deloitte sometimes negotiate fixes for months before they're implemented.
Kentucky resident Beverly Likens lost Medicaid coverage in June 2023 partly due to an error with the state's Deloitte-run system. State health officials told a legal aid group in September 2023 that a "change order has been submitted" to fix the glitch, which blocked her new coverage application from getting through online.
Likens, with the help of a lawyer, had her Medicaid benefits quickly reinstated, but that was far from the end of the saga. The problem that caused her benefits to lapse was resolved in April — 10 months later — when Kentucky implemented the first phase of a change request, Kentucky's Cabinet for Health and Family Services told KFF Health News.
Agency spokesperson Brice Mitchell said the change request was designed to address a "limitation of the system rather than technical issues." The request, for which a second phase was implemented in July, cost $522,455 and took more than 3,500 hours of work, according to Mitchell and documents obtained in response to a public records request. All such requests "are thoroughly vetted, negotiated and approved by several areas within the Cabinet," Mitchell said in an emailed statement.
"These are large, complex system implementations," Walsh, of Deloitte, said. "So in all of them, you're going to be able to find a point in time where there was an issue that needed to be fixed. And you can also find millions of people every day who are getting benefits through these systems."
In February, Georgia officials were discussing a high-priority change request to resolve an ongoing problem: A defect affected potentially tens of thousands of "cases/claims" for families in the Supplemental Nutrition Assistance Program, known as SNAP, and the Temporary Assistance for Needy Families program that, among other problems, led the state to recoup some residents' entire benefit, according to state documents KFF Health News obtained from a public records request. The programs provide monthly cash assistance to low-income people for food and housing. Georgia in 2014 inked a contract with Deloitte to build and maintain its eligibility system, known as Georgia Gateway.
Federal regulations cap how much money the government can recoup if a SNAP recipient was overpaid at 20% or $20, whichever is higher, according to legal aid attorneys and SNAP experts.
"We have plenty of clients who, that is their entire grocery budget," said Adrianne Freeman, deputy director for litigation and advocacy at the Georgia Legal Services Program.
The defect — which Georgia DHS' Brown said was identified on April 29, 2022 — created several problems, including incorrect calculations of how much to recoup and clawbacks not occurring on the correct start dates. "The Gateway system did not consistently adjust or apply the recoupment amount correctly," Brown said.
A fix was deployed the weekend of Feb. 17, the documents state, but a formal change request was needed to "allow the State Agency (SA) to correctly apply allotment reductions to all SNAP and TANF cases impacted by Defect 21068," the documents state. The change order would allow state officials to run an automated one-time mass update to fully resolve the problem.
The target date for doing so: March 1. That was nearly two years after officials were provided an "original report" noting that more than 25,000 cases may have been affected, the documents state.
Relying on Workarounds
States often face constraints on how many changes can be made in a year. In Texas, there is a years-long waitlist for changes, according to advocates, state documents, and the state health agency. "The system isn't nimble enough to meet the needs and often relies really heavily on manual workarounds," said Stacey Pogue, a senior research fellow at Georgetown University's Center on Health Insurance Reforms with expertise on Medicaid in Texas.
Texas eligibility workers use workarounds to process applications while awaiting permanent fixes. Deloitte said in its $295 million Texas contract that "there is a real need" for workarounds, which allow operations to continue "without affecting client benefits."
Many of these "temporary" fixes were implemented years ago and were still in use in 2023, according to records obtained by KFF Health News that found 45 active workarounds in Texas last year. In one instance, a workaround was implemented nearly 14 years ago. Deloitte acknowledged in its Texas contract that reducing workarounds "is one of the top priorities."
Smith of Deloitte said it doesn't always take months to fix a problem: "We have changes that get implemented in a day and changes that get implemented in a month."
Further, Smith said, Deloitte "is one part of implementing a change," noting "we're often not necessarily the constraint."
The state considers several factors when assessing which fixes to tackle first, including how many beneficiaries are affected. The more complex the workaround, "the longer it may take for staff to process eligibility," said Jennifer Ruffcorn, a spokesperson for Texas Health and Human Services.
In Florida — in addition to the lapses in coverage for maternal care — the National Health Law Program and the Florida Health Justice Project alleged in their lawsuit in federal court that notices to Medicaid beneficiaries alerting them their benefits would be terminated did not explain the basis for the decision.
In October, about a month after the lawsuit was filed, the state asked Deloitte to provide an estimate to alter the notices, Kallumkal of Deloitte testified at trial in August.
Deloitte estimated it would need roughly 28,000 hours, he said. That's more than twice the 12,600 hours the state sets aside each year to pay Deloitte for revisions. The extra hours would require an amended contract in which the state would have to agree to pay more. Florida's Department of Children and Families did not respond to requests for comment.
For Deloitte, extra hours mean more revenue, Kallumkal acknowledged during his testimony while under cross-examination. Deloitte subsequently provided the state with a new estimate for a narrower scope of work that would take 12,000 hours, he said.
One of California's two programs for training nurse-midwives has stopped admitting students while it revamps its curriculum to offer only doctoral degrees, a move that's drawn howls of protest from alumni, health policy experts, and faculty who accuse the University of California of putting profits above public health needs.
UC-San Francisco's renowned nursing school will graduate its final class of certified nurse-midwives next spring. Then the university will cancel its two-year master's program in nurse-midwifery, along with other nursing disciplines, in favor of a three-year doctor of nursing practice, or DNP, degree. The change will pause UCSF's nearly five decades-long training of nurse-midwives until at least 2025 and will more than double the cost to students.
State Assembly member Mia Bonta, who chairs the health committee, said she was "disheartened" to learn that UCSF was eliminating its master's nurse-midwifery program and feared the additional time and costs to get a doctorate would deter potential applicants. "Instead of adding hurdles, we need to be building and expanding a pipeline of culturally and racially concordant providers to support improved birth outcomes, especially for Black and Latina birthing people," she said in an email.
The switch to doctoral education is part of a national movement to require all advanced-practice registered nurses, including nurse-midwives and nurse practitioners, to earn doctoral degrees, Kristen Bole, a UCSF spokesperson, said in response to written questions. The doctoral training will feature additional classes in leadership and quality improvement.
But the movement, which dates to 2004, has not caught on the way the American Association of Colleges of Nursing envisioned when it called for doctorate-level education to be required for entry-level advanced nursing practice by 2015. That deadline came and went. Now, an acute need for maternal health practitioners has some universities moving in the other direction.
UCSF estimates tuition and fees will cost $152,000 for a three-year doctoral degree in midwifery, compared with $65,000 for a two-year master's. Studiesshow that 71% of nursing master's students and 74% of nursing doctoral students rely on student loans, and nurses with doctorates earn negligibly or no more than nurses with master's degrees.
Kim Q. Dau, who ran UCSF's nurse-midwifery program for a decade, resigned in June because she was uncomfortable with the elimination of the master's in favor of a doctoral requirement, she said, which is at odds with the state's workforce needs and unnecessary for clinical practice.
"They'll be equally prepared clinically but at more expense to the student and with a greater time investment," she said.
Nurse-midwives are registered nurses with graduate degrees in nurse-midwifery. Licensed in all 50 states, they work mostly in hospitals and can perform abortions and prescribe medications, though they are also trained in managing labor pain with showers, massage, and other natural means. Certified midwives, by contrast, study midwifery at the graduate level outside of nursing schools and are licensed only in some states. Certified professional midwives attend births outside of hospitals.
The California Nurse-Midwives Association also criticized UCSF's program change, which comes amid a national maternal mortality crisis, a serious shortage of obstetric providers, and a growing reliance on midwives. According to the 2022 "White House Blueprint for Addressing the Maternal Health Crisis" report, the U.S. has the highest maternal mortality rate of any developed nation and needs thousands more midwives and other women's health providers to bridge the swelling gap.
Ginger Breedlove, founder and CEO of Grow Midwives, a national consulting firm, likened UCSF's switch from master's to doctoral training to "an earthquake."
"Why are we delaying the entry of essential-care providers by making them go to an additional year of school, which adds nothing to their clinical preparedness or safety to serve the community?" asked Breedlove, a past president of the American College of Nurse-Midwives. "Why they have chosen this during one of the worst workforce shortages combined with the worst maternal health crisis we have had in 50 years is beyond my imagination."
A 2020 report published in Nursing Outlook failed to find that advanced-practice registered nurses with doctorates were more clinically proficient than those with master's degrees. "Unfortunately, to date, the data are sparse," it concluded.
There is no evidence that doctoral-level nurse-midwives will provide better care, Breedlove said.
"This is profit over purpose," she added.
Bole disputed Breedlove's accusation of a profit motive. Asked for reasons for the change, she offered broad statements: "The decision to upgrade our program was made to ensure that our graduates are prepared for the challenges they will face in the evolving health care landscape."
Like Breedlove, Liz Donnelly, vice chair of the health policy committee for the California Nurse-Midwives Association, worries that UCSF's switch to a doctoral degree will exacerbate the twin crises of maternal mortality and a shrinking obstetrics workforce across California and the nation.
On average, 10 to 12 nurse-midwives graduated from the UCSF master's program each year over the past decade, Bole said. California's remaining master's program in nurse-midwifery is at California State University in Fullerton, south of Los Angeles, and it graduated eight nurse-midwives last year and 11 this year.
In some parts of California, expectant mothers must drive two hours for care, said Bethany Sasaki, who runs Midtown Nurse Midwives, a Sacramento birth center. It has had to stop accepting new clients because it cannot find midwives.
Donnelly predicted the closure of UCSF's midwifery program will significantly reduce the number of nurse-midwives entering the workforce and will inhibit people with fewer resources from attending the program. "Specifically, I think it's going to reduce folks of color, people from rural communities, people from poor communities," she said.
UCSF's change will also likely undercut efforts to train providers from diverse backgrounds.
Natasha, a 37-year-old Afro-Puerto Rican mother of two, has spent a decade preparing to train as a nurse-midwife so she could help women like herself through pregnancy and childbirth. She asked to be identified only by her first name out of fear of reducing her chances of graduate school admission.
The UCSF program's pause, plus the added time and expense to get a doctoral degree, has muddied her career path.
"The master's was just the perfect program," said Natasha, who lives in the Bay Area and cannot travel to the other end of the state to attend CSU-Fullerton. "I'm frustrated, and I feel deflated. I now have to find another career path."
A decade ago, federal officials drafted a plan to discourage Medicare Advantage health insurers from overcharging the government by billions of dollars — only to abruptly back off amid an "uproar" from the industry, newly released court filings show.
The Centers for Medicare & Medicaid Services published the draft regulation in January 2014. The rule would have required health plans, when examining patient's medical records, to identify overpayments by CMS and refund them to the government.
But in May 2014, CMS dropped the idea without any public explanation. Newly released court depositions show that agency officials repeatedly cited concern about pressure from the industry.
The 2014 decision by CMS, and events related to it, are at the center of a multibillion-dollar Justice Department civil fraud case against UnitedHealth Group pending in federal court in Los Angeles.
The Justice Department alleges the giant health insurer cheated Medicare out of more than $2 billion by reviewing patients' records to find additional diagnoses, adding revenue while ignoring overcharges that might reduce bills. The company "buried its head in the sand and did nothing but keep the money," DOJ said in a court filing.
Medicare pays health plans higher rates for sicker patients but requires that the plans bill only for conditions that are properly documented in a patient's medical records.
In a court filing, UnitedHealth Group denies wrongdoing and argues it shouldn't be penalized for "failing to follow a rule that CMS considered a decade ago but declined to adopt."
This month, the parties in the court case made public thousands of pages of depositions and other records that offer a rare glimpse inside the Medicare agency's long-running struggle to keep the private health plans from taking taxpayers for a multibillion-dollar ride.
"It's easy to dump on Medicare Advantage plans, but CMS made a complete boondoggle out of this," said Richard Lieberman, a Colorado health data analytics expert.
Spokespeople for the Justice Department and CMS declined to comment for this article. In an email, UnitedHealth Group spokesperson Heather Soule said the company's "business practices have always been transparent, lawful and compliant with CMS regulations."
Missed Diagnoses
Medicare Advantage insurance plans have grown explosively in recent years and now enroll about 33 million members, more than half of people eligible for Medicare. Along the way, the industry has been the target of dozens of whistleblower lawsuits, government audits, and other investigations alleging the health plans often exaggerate how sick patients are to rake in undeserved Medicare payments — including by doing what are called chart reviews, intended to find allegedly missed diagnosis codes.
By 2013, CMS officials knew some Medicare health plans were hiring medical coding and analytics consultants to aggressively mine patient files — but they doubted the agency's authority to demand that health plans also look for and delete unsupported diagnoses.
The proposed January 2014 regulation mandated that chart reviews "cannot be designed only to identify diagnoses that would trigger additional payments" to health plans.
CMS officials backed down in May 2014 because of "stakeholder concern and pushback," Cheri Rice, then director of the CMS Medicare plan payment group, testified in a 2022 deposition made public this month. A second CMS official, Anne Hornsby, described the industry's reaction as an "uproar."
Exactly who made the call to withdraw the chart review proposal isn't clear from court filings so far.
"The direction that we received was that the rule, the final rule, needed to include only those provisions that had wide, you know, widespread stakeholder support," Rice testified.
"So we did not move forward then," she said. "Not because we didn't think it was the right thing to do or the right policy, but because it had mixed reactions from stakeholders."
The CMS press office declined to make Rice available for an interview. Hornsby, who has since left the agency, declined to comment.
But Erin Fuse Brown, a professor at the Brown University School of Public Health, said the decision reflects a pattern of timid CMS oversight of the popular health plans for seniors.
"CMS saving money for taxpayers isn't enough of a reason to face the wrath of very powerful health plans," Fuse Brown said.
"That is extremely alarming."
Invalid Codes
The fraud case against UnitedHealth Group, which runs the nation's largest Medicare Advantage plan, was filed in 2011 by a former company employee. The DOJ took over the whistleblower suit in 2017.
DOJ alleges Medicare paid the insurer more than $7.2 billion from 2009 through 2016 solely based on chart reviews; the company would have received $2.1 billion less if it had deleted unsupported billing codes, the government says.
The government argues that UnitedHealth Group knew that many conditions it had billed for were not supported by medical records but chose to pocket the overpayments. For instance, the insurer billed Medicare nearly $28,000 in 2011 to treat a patient for cancer, congestive heart failure, and other serious health problems that weren't recorded in the person's medical record, DOJ alleged in a 2017 filing.
In all, DOJ contends that UnitedHealth Group should have deleted more than 2 million invalid codes.
Instead, company executives signed annual statements attesting that the billing data submitted to CMS was "accurate, complete, and truthful." Those actions violated the False Claims Act, a federal law that makes it illegal to submit bogus bills to the government, DOJ alleges.
The complex case has featured years of legal jockeying, even pitting the recollections of key CMS staff members — including several who have since departed government for jobs in the industry — against those of UnitedHealthcare executives.
'Red Herring'
Court filings describe a 45-minute video conference arranged by then-CMS administrator Marilyn Tavenner on April 29, 2014. Tavenner testified she set up the meeting between UnitedHealth and CMS staff at the request of Larry Renfro, a senior UnitedHealth Group executive, to discuss implications of the draft rule. Neither Tavenner nor Renfro attended.
Two UnitedHealth Group executives on the call said in depositions that CMS staffers told them the company had no obligation at the time to uncover erroneous codes. One of the executives, Steve Nelson, called it a "very clear answer" to the question. Nelson has since left the company.
For their part, four of the five CMS staffers on the call said in depositions that they didn't remember what was said. Unlike the company's team, none of the government officials took detailed notes.
"All I can tell you is I remember feeling very uncomfortable in the meeting," Rice said in her 2022 deposition.
Yet Rice and one other CMS staffer said they did recall reminding the executives that even without the chart review rule, the company was obligated to make a good-faith effort to bill only for verified codes — or face possible penalties under the False Claims Act. And CMS officials reinforced that view in follow-up emails, according to court filings.
DOJ called the flap over the ill-fated regulation a "red herring" in a court filing and alleges that when UnitedHealth asked for the April 2014 meeting, it knew its chart reviews had been under investigation for two years. In addition, the company was "grappling with a projected $500 million budget deficit," according to DOJ.
Data Miners
Medicare Advantage plans defend chart reviews against criticism that they do little but artificially inflate the government's costs.
"Chart reviews are one of many tools Medicare Advantage plans use to support patients, identify chronic conditions, and prevent those conditions from becoming more serious," said Chris Bond, a spokesperson for AHIP, a health insurance trade group.
Whistleblowers have argued that the cottage industry of analytics firms and coders that sprang up to conduct these reviews pitched their services as a huge moneymaking exercise for health plans — and little else.
"It was never legitimate," said William Hanagami, a California attorney who represented whistleblower James Swoben in a 2009 case that alleged chart reviews improperly inflated Medicare payments. In a 2016 decision, the 9th Circuit Court of Appeals wrote that health plans must exercise "due diligence" to ensure they submit accurate data.
Since then, other insurers have settled DOJ allegations that they billed Medicare for unconfirmed diagnoses stemming from chart reviews. In July 2023, Martin's Point Health Plan, a Portland, Maine, insurer, paid $22,485,000 to settle whistleblower allegations that it improperly billed for conditions ranging from diabetes with complications to morbid obesity. The plan denied any liability.
A December 2019 report by the Health and Human Services Inspector General found that 99% of chart reviews added new medical diagnoses at a cost to Medicare of an estimated $6.7 billion for 2017 alone.
Federal regulators have blocked two private sector enrollment websites from accessing consumer information through the federal Obamacare marketplace, citing "anomalous activity."
The unusual step comes as the Centers for Medicare & Medicaid Services is under the gun to curb unauthorized enrollment and switching of Affordable Care Act plans by rogue agents. The agency received more than 200,000 complaints in the first six months of the year about such actions.
CMS said in a written statement that it had suspended the two sites — Benefitalign and Inshura — "while the anomalous activity is researched to ensure the EDE partners are in compliance with CMS data standards." EDE stands for "enhanced direct enrollment" and refers to websites approved to integrate with healthcare.gov.
In a separate development, the two websites, which insurance brokers use instead of the federal healthcare.gov site to enroll clients in Affordable Care Act plans, are mentioned in an ongoing civil lawsuit filed by attorneys representing consumers and agents who claim they've been harmed by enrollment schemes.
CMS posted on Aug. 9 an updated list of websites approved to integrate with the federal Obamacare marketplace that no longer included Benefitalign and Inshura. As a result, insurance agents can't use the websites to enroll customers in or make changes to their Obamacare plans.
Private sector enrollment sites were first allowed to integrate with healthcare.gov data under the Trump administration. About a dozen such sites are now approved to connect with the federal system.
Thwarting enrollment schemes and rogue insurance agents without making it too difficult for consumers and legitimate agents to enroll in health plans has become a political problem for the Biden administration. President Joe Biden has claimed record-breaking enrollment under the ACA as one of his administration's major accomplishments.
In recent weeks, lawmakers have called on CMS to do more and introduced legislation to increase penalties for agents who enroll people in plans without authorization. The large number of complaints from victims of the schemes have caught the attention of House Republicans, who on June 28 requested investigations by the Government Accountability Office and the Office of Inspector General at the Department of Health and Human Services.
CMS has since taken actions to short-circuit unscrupulous agents and call centers.
Until last month, agents using the approved private sector enrollment sites could access consumer information via healthcare.gov with only a name, birth date, and state of residence. CMS now requires three-way calls among agents, consumers, and the healthcare.gov helpline when agents new to a policy try to make a change. Many legitimate insurance agents are urging an additional fix used widely by state Obamacare enrollment systems: requiring two-factor authentication before consumer information can be accessed or changed by agents.
Meanwhile, the move to suspend the two enrollment websites baffled the companies, said Catherine Riedel, a spokesperson for TrueCoverage, an insurance call center that also does business as Inshura. TrueCoverage and Benefitalign are subsidiaries of Speridian Global Holdings of California.
"We don't know what they want us to do differently," she said.
The websites, she said, are cooperating with CMS, and they conducted an internal review that found no security issues. Very few details, other than "it is related to a potential technical anomaly reported by an outside party" were given, Riedel wrote, and the firms have not been provided "any specific, actionable information related to the alleged anomaly."
Both firms are mentioned in the lawsuit first filed in April in the U.S. District Court for the Southern District of Florida. The suit alleges that people and organizations engaged in misleading advertising, or made changes to ACA policies, without the express permission of consumers — all with a goal of racking up commissions.
Late on Aug. 16, that case was amended to add allegations and defendants, including Benefitalign. The other enrollment website, Inshura, is not listed as a defendant, although it is run by TrueCoverage, which is.
Riedel said TrueCoverage disputes the lawsuit's claims.
The case "is founded on misinformation and technical naivety that seems to have been connected to create a sensational and false narrative," she said.
The Aug. 16 filing alleges that TrueCoverage or Speridian Technologies, another subsidiary of Speridian Global Holdings, used the Benefitalign or Inshura websites to access U.S. consumers' personal information, then sent it to marketers in India and Pakistan. The allegation, if true, would violate agreements the private sector websites made with the federal government to gain approval to operate, the suit contends.
Riedel said there is no evidence to support the allegations and that it is technically impossible to move "bulk amounts of consumer data" from the Obamacare marketplace.
"Like many technology companies, some of TrueCoverage's marketing efforts have been based in India. However, as part of that marketing work, TrueCoverage did not move any customer data out of the EDE platform," she said.
The 185-page amended complaint added as a defendant Bain Capital Insurance Fund, part of one of the world's leading private investment companies, saying it "aided and abetted" Florida-based Enhance Health, which describes itself as a large broker of ACA plans. Bain helped launch Enhance with a $150 million investment in 2021 and appointed its CEO.
After initially planning to market Medicare Advantage plans, the lawsuit says, Enhance Health and Bain decided to shift to ACA plans, which were seen as more profitable. The suit alleges Enhance Health participated in unauthorized agent changes or switching of ACA policies.
Bain knew "what was going on" at Enhance "and ultimately supported it," the lawsuit says, noting that Bain executives sat on Enhance's board, controlled the hiring of executives, and were often at its Sunrise, Florida, offices. The firm hoped to sell the company once it showed how profitable it could be, the suit alleges.
In a written statement, Enhance Health said that "upholding the highest standards of compliance and controls is a core focus in all aspects of our operation and we will vigorously defend against these baseless claims."
Bain Capital Insurance did not reply to a request for comment.
The additional allegations expand on the initial April filing, which outlined a complex web of activities aimed at capitalizing changes to the ACA under Biden that resulted in broader availability of zero-premium plans for lower-income applicants. In some cases, consumers were lured to call centers through misleading ads touting nonexistent cash cards. Some call centers or agents filed duplicate coverage for the same individuals, without consumer permission, or split family members among multiple policies, the suit alleges.
Because the customers don't pay monthly premiums for the plans, they may not notice they've been enrolled until they try to obtain care.
Some consumers whose plans were switched lost access to their doctors or medications. Some face tax consequences if they were enrolled in duplicative coverage or in subsidized plans for which they did not qualify.
One victim added to the case, Paula Langley of Texas, initially responded to an advertisement promising a cash card. She called the number advertised and was enrolled in ACA coverage in February 2023 but never received the promised incentive, according to the lawsuit.
She and her husband began receiving multiple insurance cards from different insurers, the suit says. She would show up for a doctor's visit or to pick up a prescription only to find her coverage had been canceled, leaving her with unpaid medical bills.
All in all, she was switched among plans and agents at least 22 times in just over a year, the lawsuit alleges.
Attorneys Jason Kellogg of Miami and Jason Doss of Atlanta said they amended the lawsuit based on dozens of interviews with former employees of the named firms. They're seeking class-action status on behalf of affected consumers and agents who have lost business to the unauthorized plan-switching, and the suit alleges violations of the federal Racketeer Influenced and Corrupt Organizations — or RICO — Act.
"The scheme is bad enough because it's so large," Kellogg said. "But it's much worse given that it preys upon Americans who are at the lowest levels of the income scale, who may be desperate, are most vulnerable."
