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CEO of State’s Largest Medicaid Provider Strongly Opposes Current RCOs

By Bill Britt
Alabama Political Reporter

MONTGOMERY—A letter to Alabama Medicaid Agency Commissioner, Stephanie Azar, dated September 21, of this year, renders a devastating point-by-point analysis of the much-hyped Regional Care Organizations (RCOs).

According to a letter obtained by the Alabama Political Reporter, the current RCO model will not save money, but will cost more than originally stated and deliver fewer services because it strayed far from the plan offered by the Governor’s Task Force on Medicaid Reform.


And that’s merely the beginning of this letter’s withering critique written by Mike Warren, President and CEO of Children’s of Alabama, one of the nation’s leading children’s health care providers.

Children’s of Alabama is our largest Medicaid service provider, and its CEO is one of the State’s top business minds, having risen through the ranks at Energen Corp. to serve as its Chief Executive, prior to taking the helm at Children’s in 2007.

The letter shows the RCO structure currently awaiting implementation will not decrease Medicaid costs or improve services, according to Warren.

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Warren first tackles the myth that the RCO structure will save money, “The numbers are frightening,” he writes. “RCOs will actually cost the State’s General Fund a substantial amount more than keeping the current program funded.”

He further stated that even with the additional funding approved during the Special Session, it “now appears that the FY 2017 total budget allocation leaves the Agency with at least a $30 million shortfall.” But that’s not the worse of it, according to Warren, who says if the RCOs are implemented the full 2017 budget cycle it will require an estimated $52 million in additional funding from the State’s General Fund which is not built into the budget base.

Warren sees the State’s temporary and underfunded RCO program as a big problem, because, as he wrote Azar, “There is simply not enough funding to launch RCOs as currently modeled, much less sustain them in future years.”

He also points out the RCO program Medicaid cobbled together is altogether contrary to the one recommended by the Governor’s Task Force on Medicaid Reform. Warren says by dramatically changing the program plans and by carving out too many services and beneficiaries leaves, “little opportunity for real program savings.” He also notes, “The original plan was to ‘bend the cost curve’ or limit the growth in the future health care spend by reducing utilization of services and improving care, not by paying large new administrative costs at the expense of providers.”

Warren categorizes RCO administrative costs as “exorbitant” and says the actual number are greater than those presented to the joint legislative committee at 8 percent. Warren figures they are more likely to be 10 percent or higher given the CMS allowable limit of 15 percent. He states in the letter, “[I]f RCOs were implemented in FY 2017, the RCO Administrative costs would exceed the anticipated Managed Care Savings by $13.9 million in State dollars and $46.5 in Medicaid Program dollars” also, “the 4 percent Medicaid Agency administrative cost would continue.” The total administrative expenses are exorbitant.

He warns of a conflict of interest that, “will ultimately have an adverse effect on healthcare in Alabama.”

In his analysis, Warren says, “the RCOs as proposed, breach the very promise of managed care (better care at lower cost) by disrupting Alabama’s already fragile care network.” He also stated, “current structure puts primary care physicians and hospitals at significant financial risk and puts overall access to care in jeopardy.”

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As for the real cost of the RCOs, Warren says that unwitting lawmakers will be “shocked as the Medicaid expense soars and access to care is reduced.” He further cautions, “additional financial pressures will be placed on providers, jeopardizing access to primary care and other services, as we have seen recently demonstrated by the reduction of the physician payments.”

He ends by saying, “It is time to consider alternatives to the current RCO model.”


Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.

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