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Why one of the biggest Medicaid insurers in Illinois is on life support

Thursday, April 06, 2017
Crain's Chicago Business
by Kristin Schorsch

Why one of the biggest Medicaid insurers in Illinois is on life support

Photo by Bloomberg

The board chairman













The board chairman of one of the largest private Medicaid health plans in Illinois fears the Rauner administration is locking the nonprofit out of a lucrative state contract.

If so, the health plan, Chicago-based Family Health Network, likely will dissolve, forcing its more than 200,000 members to find health insurance and doctors alike elsewhere, said Jose Sanchez. He's board chairman of the plan, known as FHN, and CEO of Norwegian American Hospital, one of five hospitals that founded the plan 22 years ago.

A group of state lawmakers are taking it one step further, suggesting in a letter to Illinois Gov. Bruce Rauner that the hospitals would close without revenue generated from the health plan. Many of the facilities are anchors of impoverished neighborhoods.

"The healthcare delivery infrastructure for Latino and African-American communities are in grave danger of collapse," the lawmakers wrote in the March 28 letter to Rauner.

"We understand the need for more cost certainty in the Medicaid program," the letter continued. "We fear that the needs of the poor in Cook County, especially in the minority community, are not being adequately considered when policy decisions are being made."


As the Rauner administration overhauls a main Medicaid program, the state lawmakers alleged that FHN is being excluded from vying for a new contract that would begin Jan. 1. FHN's exclusion would create a "health crisis" for the plan's members and an economic one for communities "from the closing of these hospitals …" the letter said. Medicaid revenue makes up the bulk of FHN's total revenue.

State senators Mattie Hunter and Martin Sandoval and state representatives Fred Crespo and Art Turner authored the letter. In an interview, Hunter elaborated that moving FHN members to a new health plan would be disruptive, and it's not clear what would happen to the health plan's employees.

Felicia Norwood, director of the Illinois Department of Healthcare and Family Services, which oversees the Medicaid health insurance program for the poor and disabled, said the bidding process for the new contract was designed to be in the best interest of the state and of the beneficiaries who would be receiving medical services.

"We didn't design anything to be specific for FHN or to exclude FHN," Norwood said.

The fate of FHN underscores the plight health plans face asthe Rauner administration revamps the Medicaid managed care programto squeeze out savings. Health care is a huge piece of the state budget, making up about 57 percent of the proposed 2018 financial roadmap. (Thestate hasn't had a budget for two yearsas Rauner and the state Legislature lock horns.)

About 2 million people, or 65 percent of all Medicaid enrollees in Illinois, are in managed care. In the program, the state contracts with 12 insurers, including FHN, with the goal of saving money by focusing on prevention for Medicaid recipients.

Rauner wants these insurers to do better. In February, he announced that he'srebidding the managed care program, giving FHN and rivals a chance to compete for an estimated $15 billion in contracts.

There will be losers. Only four to seven insurers will be awarded contracts. Far more appear to be interested. Nearly 30 carriers attended a mandatory meeting last month for potential bidders, including Blue Cross & Blue Shield of Illinois and national carriers UnitedHealthcare, Aetna and Cigna, state records show.


Besides Norwegian American Hospital in Humboldt Park, FHN also is owned by St. Bernard Hospital in Englewood, Sinai Health System in Lawndale, St. Anthony Hospital (down the block from Sinai), and Loop-based Presence Health, the largest Catholic hospital network in Illinois.

?Here's why Sanchez thinks FHN could collapse. In the new managed care program, insurers must provide access to patients statewide. To operate in Cook County only, the insurer must either be owned by a government entity, like the Cook County Health and Hospital System's CountyCare Medicaid program, or be minority-owned.

FHN doesn't have the financial resources to go statewide, and it's neither minority or government owned, Sanchez said. He wants the state to exempt FHN from having to re-bid. Norwood said that's not possible.

"At the end of the day, we understand our own limitations," Sanchez said when explaining why FHN would not be able to operate statewide. "We don't have the personnel. We don't have the experience. We don't have the capital. … The state is really forcing us to dissolve."

FHN grew rapidly as the managed care program expanded in Illinois, and more people qualified for Medicaid under the Affordable Care Act. Take the last few years. Revenue grew four-fold from 2013-2015, totaling $588 million as of Dec. 31, 2015, according to tax returns.

As membership swelled, FHN sought an investment partner. Sanchez said FHN was in talks with Delaware Life, which likely was going to infuse more than $150 million into the health plan for a 60 percent ownership stake. The potential deal ended when the state revealed its new terms for managed care companies, and Delaware Life realized that FHN likely wouldn't be a player, Sanchez said.

A spokesperson for Delaware Life did not return a message to comment.

FHN also is going through a management shuffle. In February, Keith Kudla, FHN's CEO for seven years, resigned. He confirmed his resignation, but declined further comment.

Representatives of FHN's other hospital owners either referred questions to Sanchez or did not provide comment.

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