When Kansas Gov. Sam Brownback privatized management of the state's Medicaid program, he predicted savings of $1.2 billion were possible within five years.
Precisely how Amerigroup, UnitedHealthCare and Sunflower State Health Plan were going to achieve that goal was up to them. Amid much skepticism regarding those details in addition to the state's high financial hopes, the three organizations launched their health-care management operations Jan. 1, 2013.
A draft of the first annual report unveiled recently gave the Brownback administration much to crow about. Officials claim the savings from the first year of privatization were somewhere between $55 million and $250 million.
"KanCare has outperformed in its first year the estimates for savings that were made when the original KanCare proposal went in," Kari Bruffett, director of the Division of Health Care Finance at Kansas Department of Health and Environment, told KHI News Service.
The governor immediately announced plans to use part of the savings to reduce the waiting list for in-home Medicaid services. All in all, it appears privatization is working and everybody is happy.
Well, until one examines the report a little closer.
Turns out, the three companies lost a collective $110 million for the first year. Were it not for the deep pockets of all three organizations, Year 1 would have been declared a disaster.
"Although each health plan experienced net operating losses ... each plan's parent entity contributed adequate capital to ensure each health plan met or exceeded capital requirements as outlined in state of Kansas solvency statutes and requirements," the report stated.
While the picture appears rosy from the state's perspective, such business plans don't work in private industry where profits are necessary. That $110 million will be recovered by Amerigroup, UnitedHealthCare and Sunflower State Health Plan -- of that we are confident. The "savings" the administration already has plans to spend are somewhat fictitious.
We understand the majority of the $1.2 billion was expected to be realized toward the end of the five-year pilot program. But with Year 1 posting a loss, that $110 million will need to be added to the $1.2 billion simply to break even. With one year down, the pressure increases for the remaining four years.
Are there enough efficiencies available to drive down costs that much? Efficiencies that neither the state nor federal governments could realize? We hope so.
Otherwise, budget-neutral savings of this magnitude are somewhat limited. Past efforts in Kansas and elsewhere have centered on reducing benefits, limiting eligibility and decreasing reimbursements to providers. Such efforts are short-term in nature, but so is the business cycle. There will be a limit to how long the management firms will post losses in order for Kansas to achieve "savings."
For the sake of Kansans who rely on Medicaid to survive and the providers that serve them, we only can hope the privatization experiment known as KanCare works out. It is too early to say it isn't, but the first year was less than promising.
Editorial by Patrick Lowry