After financial losses, ProMedica's Paramount stops taking new Medicaid clients

Nov. 22--Editor's note: This story was updated to include a statement from ProMedica.

ProMedica's Paramount insurance business is no longer enrolling new Medicaid members as the company has had roughly $103 million in losses tied to reimbursements for the statewide health insurance plan that covers 2.9 million Ohioans.

In June, ProMedica said it would consider dropping Medicaid coverage if providing the service through its Paramount insurance business continued to be financially unsustainable. But during a conference call on Thursday with analysts and bondholders, ProMedica acknowledged it already had instituted a freeze on enrolling new Medicaid clients as losses at Paramount accrue.

"We've instituted a new membership enrollment freeze on Medicaid. We'll keep the freeze until we resolve the [reimbursement] rate issue," Steve Cavanaugh, ProMedica's chief financial officer, said.

The company "has had a very challenging year with Paramount," he added.

In documents filed this week, financial data showed ProMedica has lost $102.8 million in operating income through the first nine months of 2019 because of Paramount. A year ago, Paramount had an operating profit of $26.8 million.

It lost $28.5 million in the first quarter, $21.5 million in the second quarter, and $52.8 million in the third quarter, which ended Sept. 30.

The Ohio Department of Medicaid ensures daily health-care coverage to more than 2.9 million residents. Its statewide plans are administered by Buckeye Health Plan, CareSource, Molina Healthcare, Paramount, and UnitedHealthcare. Those in Ohio who may qualify for Medicaid coverage are individuals with low incomes, pregnant women, infants, and children, older adults, and people with disabilities, according to the state department.

On Thursday, Mr. Cavanaugh restated two of the problems associated with Medicaid that ProMedica identified in June when it first announced it was considering withdrawing from the Medicaid program. But he also spoke of a third problem.

Previously, ProMedica said an improving state economy had reduced Medicaid membership ranks to only those with greater health-care needs and ensuing higher costs.

Also, a lag in reimbursements has continued as cost trends grow. The state sets rates based on historical data, so costs trend upward and outpace reimbursement rates, thereby creating a gap between costs and revenue.

But the CFO also said Paramount, unlike other health insurers in Ohio, has been particularly hit hard by a third factor: At the end of the John Kasich administration, the method by which patients enroll in Medicaid system was changed.

That change resulted in several errors -- instances of dual enrollment and patients placed in Paramount when they should not have been. ProMedica only spotted the error when three members who lived in different parts of the state and all with a specific and rare disease were all placed in Paramount by Medicaid. Mr. Cavanaugh said the odds of that happening were astronomical.

Mr. Cavanaugh said ProMedica has been working with the state of Ohio this year to correct the errors and to provide adequate reimbursement to Paramount from earlier inadequate reimbursement rates.

ProMedica officials in June told The Blade that Paramount served about 240,000 people in the statewide Medicaid plan. Today Paramount serves about 231,000 Medicaid members statewide.

"After Paramount identified enrollment errors stemming from the Ohio Department of Medicaid, it instituted a Medicaid new membership freeze on July 10, 2019, that will remain in effect until the concerns are resolved," ProMedica said in a statement. "The number of Medicaid members served has decreased from July as part of natural attrition and no new members being added."

In September, Paramount got a $36 million retroactive rate adjustment and will get an additional $12 million in the fourth quarter.

But Paramount has identified approximately $65 million in enrollment errors and needs further adjustments to cover that shortfall going forward, Mr. Cavanaugh said. "We are working with the state and I think they are generally in agreement with that figure," the CFO said.

ProMedica received preliminary future rates from the state of Ohio a few days ago and is evaluating them.

"We have a strong desire to remain in the Medicaid program," Mr. Cavanaugh said. "But we would downsized partially or completely exit the business" if the reimbursements are inadequate, he added.

Also on the conference call, Mr. Cavanaugh said ProMedica has been quite pleased with the integration of HCR ManorCare, which it acquired in 2018 in a joint venture with Welltower Inc.

ManorCare has contributed $1.6 billion in operating revenues thus far. More importantly, on a proforma basis (a full-year projection), ManorCare generated $172.9 million in earnings before interest, taxes, depreciation, and amortization in 2018, and has generated $122.3 million so far in 2019.

"It's still a tough and challenging business. But we think we're positioned to do well going forward," Mr. Cavanaugh said. "ManorCare is completely self-sufficient."

The CFO said the nursing home, long-term care, and hospice subsidiary is now able to cover its rents to Welltower, pay interest expenses on loans used to buy ManorCare, and generating enough cash flow to cover costs that ProMedica pledged to reinvest in the nursing ManorCare chain.

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