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Molina CEO rejects criticisms over quality of care, profits

by News & Strategies - Managed Medicare & Medicaid
September 1, 2003

Before Long Beach, Calif.-based Medicaid insurer Molina Healthcare, Inc. had its initial public offering (IPO) of stock on July 2, a story in The Los Angeles Times brought attention to some of the company's below-average performance measures in California. The story also quoted Jerry Flanagan, a director with the Foundation for Taxpayer and Consumer Rights and a critic of Molina and other public Medicaid insurers' profits. At the time, Molina Chairman and CEO J. Mario Molina, M.D., declined to comment, citing the pre-IPO "quiet period," but he now tells MMM that many of Flanagan's criticisms are unfounded.

The newspaper article referred to Molina's below-average 2002 Health Plan Employer Data and Information Set (HEDIS) scores pertaining to child immunization rates. Figures from HEDIS, an annual quality measurement program run by the National Committee for Quality Assurance (NCQA), showed that the statewide average for children under age 2 in Medi-Cal Medicaid managed care plans receiving immunizations was 59.2%. While 16 health plans exceeded that average, Molina scored 48.6% and was ranked fourth lowest out of 22 plans.

Not only did Molina score below the minimum performance level (MPL) for immunizations, but also for well-child visits in the first 15 months of life and postpartum care. Molina did not score below the MPL for childhood immunization status (combination 1), but was still below the statewide average of 62.2%. At 52.1%, Molina did not make the ranks of the 16 health plans above the average for combination 1.

The California Department of Human Services contracts with 22 Medi-Cal managed care plans that serve more than 2.9 million Medi-Cal members. As of the first quarter of 2003, 254,000 of these members were served by Molina.

Molina also received low ratings in Michigan, according to the "Quality Checkup" on that state's Department of Community Health's Web site. Molina was the only Medicaid health plan in the state to receive just one star in all four quality-of-care categories, and it had no accreditation from NCQA, according to the February 2002 report. Dr. Molina notes that the plan was already going through the NCQA review process at the time of the report, and received accreditation as a new health plan later that year.

Molina has also received NCQA accreditation in California, and its Utah and Washington health plans are scheduled for review, according to Dr. Molina. By pursuing accreditation, the company hopes to "demonstrate to payers that [it is] adding value," he says.

Molina serves about 44,000 Medicaid members in Utah and has been a "good partner" to the Medicaid program, according to Julie Olson, director of the bureau of managed health care in the Utah Department of Health's division of health care financing. "Molina continues to provide quality health care services to Medicaid and CHIP enrollees in Utah," she says.

Company Points to Improvements

In response to criticisms about immunizations and other health care services, Dr. Molina asserts that the company's latest HEDIS scores show significant improvements in key areas. Molina's 2003 HEDIS results, released on Sept. 8 by the company, show that it reached the 90th percentile for childhood and adolescent immunizations in California and for prenatal and postpartum care and comprehensive diabetes care in Utah. Dr. Molina says the company set an internal goal of hitting the 75th percentile for all health plans' HEDIS scores, and while it might not hit that on every measure, the company strives to be above average. Molina also recently received an award from the Michigan Association of Health Plans, he says.

Dr. Molina adds that some problems with the earlier HEDIS scores were caused by data collection and transmittal, as well as the transition from an acquisition in Michigan. When the company entered Michigan, it acquired two qualified health plans and merged them together, but experienced some complications in transitioning the data to its system, he says. Molina's 2003
HEDIS scores reached the 75th percentile in Michigan for childhood immunization status (combination 1), according to the company.

In the Times story, Flanagan criticized Molina for raking in profits while serving a typically underserved population. Flanagan tells MMM that he is concerned about quality of care when a company decides to go public. "Analysts are interested in how much money the company is surplusing, [but this] poses a problem for health care," he says. "When more money is going to surplus accounts, there is less going to care." Flanagan says that before the IPO, Molina was "diverting" a significant amount, or about 26 cents out of every premium dollar, to surplus and administrative costs. He predicts that figure will be even greater "with Molina paying more attention to what Wall Street analysts say about the health of their company."

But Dr. Molina says this is simply not true. He acknowledges that reserves have gone up, but notes that so has membership. The company reported having 515,000 members as of June 30, 2003, compared with 447,000 one year earlier. That number is at 522,000 now, and is expected to go up by another 35,000 or 36,000 on Oct. 1 with the close of the second acquisition in Michigan this year (MMM 8/03, p. 9), says Dr. Molina. "As membership goes up, your statutory
reserves go up and costs go up. Our reserves that cover those claims have to go up," he says.

Molina also asserts that there is no diversion of money or playing with numbers. "Look at the 10-Qs," he says, referring to the company's quarterly reports filed with the U.S. Securities and Exchange Commission. "We're not diverting money. It's all right there... Our numbers are accurate and reportable."

According to Dr. Molina, the company reported a medical loss ratio of 83.6% for the six-month period ending June 30, 2002, with an administrative ratio of 10%. And for the same period of 2003, the medical loss ratio was 83%, with an administrative cost ratio of 9.95%. It would be impossible for the company to take 26 cents out of every premium dollar and still have those numbers, says Dr. Molina.

Flanagan stresses that he is concerned not just with Molina, but with any government-funded health plan that goes public when it is funded by tax dollars. "It is truly unfair that a company that collects taxpayer dollars and serves an underserved population profits at the expense of people's health," he asserts.

Flanagan's organization is calling for action that is similar to the latest auto insurance reform in California. His organization supports state Senate Bill 26, which would require health insurers to get state approval before raising premiums, copays or deductibles, but the bill has been held up in the Senate Insurance Committee because of insurer opposition.

According to Dr. Molina, Flanagan's organization is "concerned about the rapid rise of premium rates and pricing people out of the market." Dr. Molina, who also says "Mr. Flanagan won't talk to me," notes that there are significant differences in the way rates are paid for Medicare, Medicaid and commercial plans, and that "people often get confused and don't make the distinctions. We don't go to the state and say 'we want a 25% increase or we'll cancel our contract.'" He adds that the company is budgeting for a slight decrease in health plan rates in California based on the governor's budget.
Contact Jerry Flanagan at (415) 633-1320 or call Molina Healthcare's Janice Hopkins at (562) 435-3666.