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County health system to award $1.8 billion contract to run CountyCare

Thursday, March 27, 2014
Crain's Chicago Business
by Andrew L. Wang

The Cook County Health & Hospitals System is seeking approval for a $1.80 billion contract with a St. Louis-based insurer to run the day-to-day operations of its Medicaid managed care initiative, CountyCare.

The mammoth deal with IlliniCare Health Plan Inc. comes as CountyCare's architect, Dr. Ramanathan Raju, the CEO for Cook County Hospital, leaves Chicago to become head of the New York City Health and Hospitals Corp. County officials are trying to transform CountyCare from a temporary demonstration project into a permanent part of how the cash-strapped system does business.

Often the Chicago area's provider of last resort, the health system is trying become an insurer, too. The move is designed both at administering care more effectively and to ensure its financial stability.

In the long term, county officials hope CountyCare will serve as the template for other managed care plans for patients who have too much income to qualify for Medicaid and, someday, perhaps Medicare beneficiaries. Both potentially are more generous revenue sources than Medicaid.

“It provides the foundation to get us there,” said Steven Glass, the health system's executive director of managed care.
To take effect, the five-year contract with IlliniCare, part of the insurer Centene Corp., needs approval by the health system's 11-member board, which will consider it a meeting Friday. That is also Dr. Raju's last with Cook County. The county solicited bids in the fall. IlliniCare CEO Jeffrey Joy declined to comment on the contract before it has been finalized.


President Obama's Affordable Care Act allows states to expand Medicaid eligibility to adults at 138 percent of the federal poverty level. The federal government covers the entire cost of new enrollees for the first three years, tapering to 90 percent by 2020. Dr. Raju started CountyCare in November 2012 under a federal waiver that allowed the health system to start enrolling the newly eligible a year early.

Currently, the federal Centers for Medicare and Medicaid Services pays the health system $632 per month for each member of the plan. If the health system can keep patients healthy while holding costs below that amount, it keeps the savings. If costs exceed the federal payment, the system eats the loss.

With the demonstration phase of the CountyCare program set to end on June 30, the system is applying to the state Department of Healthcare and Family Services to operate CountyCare as a "managed care community network," in which the state -- starting on July 1 -- would distribute federal money to pay the per member-per month fees. County officials are still in negotiations with the state over that contract.

At the moment, operations of the program are being handled by a handful of contractors, including Pittsburgh-based Automated Health Systems Inc., which is providing administrative and support services, and Schaumburg-based Catamaran Corp., which is managing pharmacy benefits. The new deal would combine those services under IlliniCare, officials said.
As part of the agreement, IlliniCare would be paid up to $1.20 billion to distribute to doctors and other providers such as community health clinics for medical treatment of CountyCare members. The total dollar amount spent will depend on how many services are claimed.

Other parts of the contract -- totaling $600 million -- are to be paid on a per-member, per-month basis. The health system would pay $37.34 per member per month for managed care services that IlliniCare would provide, such as coordinating care across facilities and providers. The total contract amount, up to $257.6 million, assumes 115,000 members in the program.
It would also pay $18.72 as a flat per member fee, up to $129.2 million, that IlliniCare would pay to subcontractors for behavioral health, pharmacy and optometry services. The system would pay $30.38 per member per month to cover IlliniCare's administrative costs, or up to $212.7 million for the contract term.


County officials said administrative expenses make up only 11 percent of the total $1.80 billion, with the balance for patient services and other clinical purposes.

“This is not billions of dollars going to a private company,” said Dr. John Jay Shannon, the health system's chief of clinical integration who will become interim CEO next week, replacing Dr. Raju. “It's money going to a huge population of people who didn't have a payer source before.”

When Dr. Raju started CountyCare, the first-year goal for membership was 115,000, though enrollment hasn't reached that level in part due to a backlog of applications at the state Department of Human Services. There are currently about 87,000 members in CountyCare, with 15,000 applications pending.

The program generated $132 million in fiscal 2013, which ended Nov. 30. County officials are estimating it will bring in $468.2 million in 2014, about half of the projected $950.7 million in revenue from the health system.
County officials said they were not concerned that IlliniCare, which already runs a local managed care plan for 36,000 elderly, blind and disabled Medicaid beneficiaries, didn't meet certain quality benchmarks in its first year of operation, 2012.
“We believe that's more reflective of the nature of a startup,” Mr. Glass said.

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