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Medicaid privatization deal called expensive, inefficient

The debate over privatization is currently playing out in a dispute over a contract with a private firm to “scrub” the state’s Medicaid rolls.

In fact, contrary to the privatizers’ claims, it looks like the deal is a huge waste of money.

Last month an arbitrator ordered a $76 million, two-year contract with Maximus Inc. cancelled by the end of the year, finding that it violated subcontracting provisions in state welfare workers’ union contract.  Maximus uses data-mining technology to identify ineligible Medicaid recipients.

Last week, the Alliance for Community Services called on the state to immediately cancel the contract, arguing it has resulted in unjustified disqualification of Medicaid recipients.

The editorial board of the Chicago Tribune, meanwhile, has called on Governor Quinn to appeal the arbitratrator’s ruling — or for the General Assembly to enact a legislative fix — saying the privatization deal is the best way to cut Medicaid costs.

But is it?


In a June 20 ruling, arbitrator Edwin A. Benn found that the Maximus deal violated provisions in the state’s contract with AFSCME restricting the contracting out of bargaining unit work unless there’s a clear advantage in terms of economy and efficiency.  The state hadn’t demonstrated that, he said.

The state had argued it was required by recent Medicaid reform legislation, called the SMART Act, to contract out Medicaid redeterminations to a private firm; Benn writes that the act allows, but does not require, contracting out.  And though that particular question would have to be settled in court, he says, under AFCME’s contract the state can’t override contractual provisions by passing new laws.

In a June 28 editorial, the Tribune argues that “it would be a huge mistake to dump this contract and try to start over with state employees,” saying “state officials argue that the fastest and most effective way to do this work is through Maximus.”

But in arbitration hearings, state officials didn’t argue that.  They argued that their hands were bound by the SMART Act.

Benn quotes the deputy director for planning of the Department of Healthc and Family Services testifying:

“What I would have preferred is that they held off and let us implement the IES [the Integrated Eligibility System, a new computer system to do just what Maximus is doing, scheduled to roll out over the next few months], which is the long-term solution, rather than having to do [the Maximus] redetermination project on top of this, which has really complicated getting the IES in place.”

Just a week before an earlier Trib editorial with glowing claims for Maximus’s accomplishments, the planning director was testifying that without “a huge increment in productivity” on Maximus’s part, “we’ll have a serious problem.”


Benn also notes the state failed to refute the union’s contention moving the work Maximus is doing in-house would save $18 million a year.

Over the two years of the $76 million contract, that’s a savings of $36 million — nearly 50 percent.

You’d think the deficit hawks at the Tribune — arguing that Maximus is needed because “Illinois doesn’t have money to waste” — would take this into account.  They don’t even mention it.

The state has had to hire 200 additional caseworkers to review Maximus’s recommendations for terminating Medicaid clients, according to Anne Irving of AFSCME Council 31.

That’s because federal regulations require decisions about eligibility be made by civil service-protected employees.  (Maximus’s error rate — along with the seriousness of denying someone health care — seems to validate the wisdom of that rule.)

With an additional 100 caseworkers on top of the 200 already on this task, the state could do the whole job itself, AFSCME demonstrated during arbitration.

Maximus has brought less value to the table than state officials might have expected from its sales pitch, Irving said.  The company touted its sophisticated computer algorithms that would mine data to identify ineligible Medicaid beneficiaries.

It turned out that nearly all the data the Maximus used was already available to the state.  In some cases, Irving said, when the company requested birth certificates or citizenship papers, clients turned to their caseworkers, who had the documents on file.

Then, of course, every recommendation from Maximus to cancel, reduce, or maintain Medicaid benefits had to be reviewed by state workers.  That means the redetermination assessment had to be done not once but twice.  In “a substantial number of cases,” Maximus’s recommendations were found to be in error, Irving said.


According to year-to-date numbers reported by the state through mid-June, Maximus recommendations were rejected in 25 percent of cases where they found recipients ineligible; in cases where they recommended changes in benefit levels, fully 50 percent were found to be in error.

(The Tribune was wrong when it wrote in June that Illinois has removed 60,000 people from its Medicaid rolls this year.  That was the number of terminations Maximus had recommended; the number of terminations finalized is significantly lower.)

Many of Maximus’s errors resulted when the company requested irrelevant or unavailable information and then cancelled benefits when it wasn’t provided, Irving said.  In a good number of cases, Maximus recommended cancelling children’s medical cards when their grandparents or other caregivers didn’t provide their own income data — though that’s entirely irrelevant to the children’s eligibility.

Sometimes Maximus recommended cancelling cases because it hadn’t received information that turned out to be in state files, she said.

Many errors reflected the complexity of the state’s human services system — and the importance of professionally-trained caseworkers making judgments with serious impact on people’s lives, said Diane Stokes, a caseworker who is president of AFSCME Local 2858.

Job postings for Maximus workers for the project required a high school diploma, according to documents provided during arbitration  The company’s call center reps on the project earn $12.25 an hour.

According to Fran Tobin of ACS, Maximus is recommending cancellation of benefits when they encounter disconnected phone numbers.  “Having a working telephone is not a requirement for Medicaid eligibility,” he said.

“There are all kinds of reasons we’re seeing for Maximus to recommend cancellations that aren’t legitimate, that don’t demonstrate ineligibility,” he said. “They’re just looking for technicalities to kick people off.”

The Tribune notes with a tone of shock — as evidence of Medicaid “waste” — that 75 percent of terminations recommended by Maximus occurred when “the recipients just did not respond” to requests for information.

Many of those cases are people who may have moved, lost phone service, or live in circumstances where mail delivery is problematic.  Many of them will reapply as soon as they need to see a doctor or end up in a hospital.

Tobin argues people’s health coverage should not be placed at the mercy of a company whose profits depend on slashing the caseload.


The Tribune is convinced that “hundreds of millions of dollars” in Medicaid “waste, fraud, and abuse” is at stake if the state doesn’t stick with Maximus.  It’s not clear that’s actually the case.

The great bulk of Medicaid expenditures go to a fairly small number of people with very serious health problems, Irving points out.  They’re probably least likely to get a job or move out of state.

They could have their phone cut off — but if their benefits are cut off on that basis, they’ll be sure to reapply very quickly.

And, of course, people who move out of state aren’t very likely to be using their Illinois medical card.

The state has estimated that “scrubbing” the Medicaid rolls will save $350 million in the first year.  But “no one has ever been able to say where that number comes from or what it’s based on,” Irving said.


The Trib has repeatedly marvelled at the state’s inability to police its Medicaid rolls.  In March the editorial board asked, “If Illinois officials knew, or suspected, that thousands of people were improperly receiving Medicaid coverage, why didn’t they act years ago to save hundreds of millions of taxpayer dollars??”

In an editorial just this week — warning of the costs of expanding Medicaid under Obamacare — it charges that “Illinois has never made much of an effort to check if people getting benefits continued to qualify for them.”

That’s not exactly true.

“Maximus isn’t doing anything we weren’t doing for decades,” says Steve Edwards, a retired caseworker who’s active with ACS.

“The caseworkers’ month revolved around the cutoff date,” said Edwards. “We’d put a notice in the mail, and if they didn’t respond the case was cancelled.”

It wasn’t the best system, he says.  It created a lot of “churn” — people being tossed off the rolls, sometimes due to something as simple as misdelivered mail, and forced to reapply when they needed care. (There’s likely to be a good bit of churn in the numbers highlighted by the Tribune.)

Churn creates inconvenience and anxiety for clients, and it creates administrative inefficiencies when caseworkers have to help people reapply.

In any case, for many years annual redeterminations of eligibility proceeded apace.  But then the state started cutting caseworkers, even as demand for public benefits grew dramatically, with Medicaid expansion early in the last decade, and then the Great Recession.

Caseloads grew to three or four times the size of previous decades, said Stokes.  “When I started I had a caseload of 450,” she says.  “Now it’s 1,700.”

So the backlog in redeterminations of Medicaid eligibility was due to extreme staff shortages.

“The problem was created by the state when it failed to have enough workers,” said Edwards.  “They created this crisis, and now they say there’s no way out except to pay a private company $75 million.”

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Category: human services, Medicaid/Medicare, privatization

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One Response

  1. Bob Hodge says:

    1. Most Medicaid money goes to nursing homes.

    2. Recipients on the SCHIP program are less likely to be terminated than those without kids.

    3. Hospitals and clinics have social workers who help terminated recipients reapply (so they can get paid).

    4. CountyCare — the new County Obamacare medicaid program — is not having the problems the Trib complains about. Too new, or better??

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