Examining the 2011 Commerce Dept. MCO audit

February 25, 2013

Over the course of the past year, Public Record Media (PRM) has chronicled the public controversy over the management of Minnesota’s public health care programs. These programs are paid for with state and federal funds, but are administered by non-profit managed care organizations (MCOs). Reaction to this controversy has spurred a variety of policy initiatives, including the passage of legislation establishing third-party audits for MCOs.

In 2011, Governor Mark Dayton also signed Executive Order 11-06, which directed the Minnesota Department of Commerce (DOC) to review the financial positions of the MCOs that participate in Minnesota’s public health care programs. Such reviews were intended to include examinations of MCO expense allocations, as well as details regarding MCO reserves.

At the end of last year, the DOC completed its initial batch of audits under EO 11-06, which examined MCO activity for fiscal year 2011. The Minnesota Department of Human Services (DHS) commented on DOC’s findings on December 6, 2012.

DHS comments
According to a DHS press release, DHS Commissioner Lucinda Jesson characterized MCO financial management of public programs as “generally sound,” but also identified “several issues … that deserve further attention.” DHS described those issues as follows:

• MCOs did not limit executive salaries before allocating those expenses to public programs;

• MCOs allocated advertising and marketing expenses to public programs, despite contractual restrictions on such activity;

• MCOs retained unnecessarily high reserves;

• MCO administrative expenses were not always documented in sufficient detail;

• One MCO (Blue Plus) inappropriately allocated lobbying expenses to public programs.

In many ways, the issues identified by the Commerce Department (including matters related to reserves, marketing, and administrative expenses) correlate with concerns raised by MCO critics over the past three years. David Feinwachs – former counsel for the Minnesota Hospital Association – went public with his criticism of MCO administrative spending and financial management in 2010. The Greater Minnesota Health Care Coalition also raised related concerns during this same timeframe.

MCO comments
The MCOs examined in the Commerce Department’s audit were allowed to review the department’s findings and to issue their own comments in response. MCO comments are appended to the DOC review of each organization.

In general, the MCOs raised similar issues. Many objected to DOC/DHS comments about executive compensation, noting that no statutory salary caps exist for MCO executives by virtue of their organization’s participation in public program activity. Virtually all of the MCOs defended their documentation of administrative expenses. In addition, Blue Plus contended that its lobbying expenses were properly allocated.

Prior year MCO examinations
Executive Order 11-06 is not the first authority to task the DOC with the examination of MCO activity. Minnesota Statute 62D – which governs the operation of MCOs in Minnesota – allows the Commissioner of Health to contract with the DOC to evaluate whether the MCOs that participate in public programs are in compliance with the rules – financial and otherwise – that govern their operation.

Public Record Media (PRM) currently has a data request pending with the DOC regarding documents relating to MCO administration of public health care programs. Through its request, PRM hopes to gather additional information about state oversight of MCO management of such programs.