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Superintendent of Insurance Alessandro A. Iuppa issues this Decision and Order in this matter.
A. The Law
This adjudicatory proceeding was conducted by the Superintendent pursuant to Public Law 2005, ch. 400, part B; the Maine Administrative Procedure Act, 5 M.R.S.A. chapter 375, subchapter IV; 24-A M.R.S.A. §§ 229 to 236; and Bureau of Insurance Rule Chapter 350. On September 19, 2005, the Board of Directors of the Dirigo Health Agency (the “Board” or “Dirigo”)1 filed with the Superintendent its determination of cost savings (the “Dirigo Filing”) pursuant to P.L. 2005, ch. 400, § B-2(2)(A), which requires the Board to file:
its determination as to the aggregate measurable cost savings in this State, including any reduction or avoidance of bad debt and charity care cost to health care providers as a result of the operation of Dirigo Health and any increased MaineCare enrollment due to an expansion in MaineCare eligibility occurring after June 30, 2004 as well as the supporting information for that determination.
The purpose of this proceeding and hearing is for the Superintendent to review the Dirigo Filing and issue an order approving, in whole or in part, or disapproving the filing. P.L. 2005, ch. 400, § B-2(2)(B). The Superintendent is required to approve the Dirigo Filing upon a determination that the aggregate measurable cost savings filed by the Board are reasonably supported by the evidence in the record of this proceeding as adduced at the hearing. Id.; 24‑A M.R.S.A. § 235(3)(A). Dirigo, as the moving party, has the burden of proving that its determination of aggregate measurable cost savings is reasonably supported by the evidence in the record of this proceeding.
The Superintendent has interpreted “reasonably supported by the evidence” to refer to the totality of the evidence and not to any part of the evidence taken out of context. Second Procedural Order. “Reasonably supported” is not a preponderance-of-the-evidence standard. Id. If more than one alternative for determining aggregate measurable cost savings could be reasonably supported by the evidence, Dirigo does not have to prove that its chosen alternative is more reasonable or better supported than another alternative. Id.
B. Party Intervenors’ Pre-Proceeding Involvement with Dirigo’s Determination of Aggregate Measurable Cost Savings
Pursuant to Public Law 2005, ch. 400, part B, the Legislature directed the Superintendent to convene a working group to advise the Dirigo Board on matters including “the board’s proposed methodology for calculating aggregate measurable cost savings.” P.L. 2005, ch. 400, § B-1(3)(D). By correspondence dated June 24, 2005, the Superintendent confirmed the participation of the 10 working group members.2
The first meeting of the Dirigo Working Group was convened on June 30, 2005. Members of the Working Group made their recommendations to the Board on August 29, 2005. One recommendation on behalf of Dirigo interests was presented by Karynlee Harrington, Dirigo’s Executive Director, supported by an interim report and presentation materials. See Attachments 1 and 3 of the Dirigo Filing. A separate recommendation by the so-called Payor Group was presented by Dan Roet, Director Human Resources Services for Bath Iron Works, and Frank McGinty, Executive Vice President and Treasurer, Maine Health (the corporate organization that comprises Maine Medical Center and its various enterprises), supported by a report. See Attachment 4 of the Dirigo Filing. On September 6, 2005, the Dirigo Group made further presentations to the Board (see Attachment 3 of the Dirigo Filing) and on September 13, 2005, the Payor Group made its further presentation (see Attachment 7 of the Dirigo Filing.) Presentations were also made to the Board on September 14, 2005 (see Payor Group, Attachment 10, and Dirigo Group, Attachments 9 and 10, to the Dirigo Filing.)
Of the five voting members, the Dirigo Board voted 3 in favor, 1 against, and 1 absent on the determination of aggregate measurable cost savings included in the Dirigo Filing. Board member Dana Connors, President of the Maine State Chamber of Commerce, voted against the cost savings determination in the Dirigo Filing.
A review of the Dirigo board membership, members or alternates of the Dirigo Working Group, and others participating in the Working Group process toward the development of a proposed methodology for calculating aggregate measurable cost savings demonstrates a long-standing and significant involvement by the parties to the issues before the Superintendent in this proceeding. Most if not all of these persons also were involved in the underlying legislative process related to the 2003 promulgation of the Dirigo Health Act, and its 2005 amendments.
Dirigo’s involvement speaks for itself. As to the intervenor parties, their long-standing and significant involvement with the issues now before the Superintendent are summarized as follows:
The Dirigo Health Agency, through its Board of Directors, is a party to the proceeding. Other parties to the proceeding, pursuant to grants of intervention, include the Maine Automobile Dealers Association Insurance Trust and the Bankers Health Trust as a single consolidated party (the “Trusts”); the Maine Association of Health Plans (“MEAHP”); Anthem Health Plans of Maine, Inc. d/b/a/ Anthem Blue Cross and Blue Shield (“Anthem”); Consumers for Affordable Health Care (“CAHC”); and the Maine State Chamber of Commerce (the “Chamber”).
Given the responsibility of the Superintendent to have an effective and efficient proceeding and the potential similarity of interests of certain intervenor parties, the Superintendent required some coordination of efforts between and or among certain intervenor parties. Intervenor parties with similar interests were required to coordinate with each other to avoid duplication of efforts, particularly with respect to the service of multiple informational requests when one or two joint requests would accomplish the same goal. Specifically, and not by way of limitation, the Superintendent required MEAHP and its member, Anthem, to consolidate their participation in the proceeding, including but not limited to the consolidation of discovery and the consolidation of presentation of evidence and argument.
Health Insurers. MEAHP is an incorporated association of health plans whose members are entities licensed by the Superintendent, including health insurers, health maintenance organizations, and third-party administrators (TPAs).3 MEAHP has asserted that pursuant to 24‑A M.R.S.A. §§ 6913(2), 6913(3), and 6915, each of its members is required to pay savings offset payments which may be approved in this proceeding. MEAHP further asserts that the imposition of the savings offset payment on paid claims of customers of MEAHP’s member companies will necessitate an increase in prices charged by MEAHP members to customers and may result in loss of business due to such an increase. MEAHP generally opposes the Dirigo Filing.
Anthem is the State’s largest health insurance carrier. It has asserted that pursuant to 24‑A M.R.S.A. § 6913 the savings offset payment determined by the Superintendent in this proceeding must be paid by, among others, health insurance carriers; and that such carriers may include the amount of the savings offset payment in the calculation of rates charged to members. Anthem has further asserted that to reduce to the extent possible the impacts of rate increases, the amount of the savings offset payment must be credible and reasonable, directly attributable to the Dirigo legislation, and no greater than the actual savings that are attributable to the law. Anthem generally opposes the Dirigo Filing.
Employers. The Chamber is a statewide business association representing large and small Maine businesses. Its members include businesses that provide health coverage for their employees through self-funded plans and insured plans, and the Chamber itself has an insured plan for its own employees. The Chamber has asserted that the savings offset payment determined by the Superintendent will result in an assessment made against health insurance carriers, employee benefit excess insurance carriers, and TPAs that will have a tremendous impact on Maine’s business community because every employer in Maine that provides health care coverage to its employees (whether self-funded or insured) will be affected. Although the savings offset payment will be paid directly by health insurance carriers, TPAs, and employee excess benefit insurance carriers, the Chamber has further asserted that it is Maine employers and their employees that will ultimately pay the savings offset payment because carriers will have the ability to pass the savings offset payment on to employers in their premium rates and third party administrators will have the ability to pass the assessment on to self-funded plans directly. The Chamber generally opposes the Dirigo Filing.
Consumers. CAHC is the State’s largest consumer health coalition whose mission is to advocate for affordable, quality health care with a membership of over 77 members, including 33 organizations and businesses, with a collective membership representing the health care and coverage interests of over 200,000 Maine citizens. CAHC has asserted that its members purchase health insurance coverage through DirigoChoice, would purchase DirigoChoice if coverage were expanded at lower rates, purchase insurance from health insurers whose rates will or may be affected by the proceedings, or represent organizations with the foregoing interests. CAHC generally supports the Dirigo Filing.
Multiple Employer Welfare Arrangements (MEWAs). The Trusts are multiple employer welfare arrangements (MEWAs) that secure health insurance for approximately 4,500 employee participants and 10,000 insurable lives. The Trusts asserted that they employ TPAs to manage and administer their health insurance programs. Under 24-A M.R.S.A. §§ 6913(2) and 6913(3), those TPAs are subject to savings offset payments that could result from an approval in this proceeding of Dirigo Health’s determination of aggregate measurable cost savings. The Trusts further asserted that any such savings offset payments will be passed on by the TPAs to the Trusts. The Trusts generally oppose the Dirigo Filing.
III. CONDUCT OF THE PROCEEDING
The Superintendent’s September 19th Procedural Order established in Section II, Schedule of Proceeding, the date for “commencement of discovery” to be “for each party, the date the Superintendent grants the person party status as an intervenor.” Procedural Order, p. 2, Section II. Moreover, each intervening party was instructed in the Order granting intervention that the party “may commence discovery immediately.” Intervention Orders, dated September 22nd and 26th. Despite these repeated directives by the Superintendent, the intervenor parties delayed issuing discovery until nearly two weeks later. Given the parties’ historic involvement with the issues presented in this proceeding, the Superintendent found waiting two weeks to issue discovery in a six week adjudicatory process to appear disruptive. See Orders on Information Requests.
Bureau of Insurance Rule Chapter 350(10)(B)(2), governing the scope of discovery in insurance proceedings, states: “Informational requests shall be relevant to the issues involved in the proceeding, and shall not be unduly burdensome or repetitious.” The parties issued 203 information requests on Dirigo seeking narrative responses and/or document production (exclusive of subparts), of which 17 were either withdrawn by a party or denied by the Superintendent in response to objections.4 The Superintendent also issued 29 information requests on Dirigo (exclusive of subparts). Dirigo, therefore, responded to 215 information requests. Additionally, discovery was conducted between and among other parties.
B. The Hearing
The Superintendent advised the parties that he would exercise his authority liberally to secure the just, speedy, and economic determination of all matters pending before him in this proceeding and to prevent repetition or unreasonable delay in the proceeding. Second Procedural Order, citing Insurance Rule Chapter 350(2)(B), 350(13)(C); 5 M.R.S.A. § 9057(2). The parties were further advised that time limits may be imposed by the Superintendent at hearing as deemed necessary to fulfill his legal and regulatory responsibilities. Id. The parties also were advised to prepare and present their presentations and examinations of evidence and argument at hearing on the basis that time limitations would be imposed by the Superintendent. Id.
IV. PROCEDURAL HISTORY
On June 29, 2005, the Superintendent issued a Notice of Pending Proceeding and Hearing, among other matters setting the intervention deadline and a hearing date. Since that time, all of the filings made by the parties, including the majority of the discovery, and the Superintendent’s interlocutory rulings and orders have been posted throughout the proceeding to the Bureau’s web page at: www.maine.gov/insurance for public access and inspection.
On September 19, 2005, the Dirigo Board, through its counsel, Assistant Attorney General William Laubenstein, submitted the Dirigo Filing.
Intervention applications were granted on September 22, 2005 for the Trusts, represented by Bruce Gerrity; and on September 26, 2005, for MEAHP represented by Michael Frink, Anthem represented by Christopher Roach, the Chamber represented by William Stiles, and CAHC represented by Rufus Brown. Assistant Attorney General Thomas Sturtevant is legal counsel to the Superintendent.
The Superintendent issued a Procedural Order on September 19, 2005 setting deadlines and other conditions for party participation (i.e., Section XI, Consolidation of Presentations). The Procedural Order established a procedure for parties on a weekly basis, as needed, to request a meeting with the Superintendent’s counsel and staff for purposes of obtaining input from Bureau staff during the proceeding and to assist in an efficient adjudication. Procedural Order, section VII. The parties availed themselves to that procedure on one occasion, Wednesday October 5, 2005.
The Trusts filed a motion to dismiss on September 26, 2005; and the Chamber filed a motion to dismiss on September 30, 2005. The Superintendent denied both motions by Order dated October 4, 2005.
A Second Procedural Order was issued on October 11, 2005 in response to requests of the parties, thereby also reiterating (i.e., Paragraph 6, Consolidation and Coordination) and establishing detailed procedures. To form the basis of the Second Procedural Order, Anthem, MEAHP, the Chamber, and CAHC (but not the Trusts) made filings on October 7, 2005 regarding the applicable “standard of review” to be applied by the Superintendent in this proceeding. Among other matters, the Second Procedural Order established that “parties shall present witnesses on an individual basis and not in a panel format.” On October 17th Anthem moved for leave to permit four of its five witnesses to testify in a panel format, which was granted by Order of the Superintendent issued October 19, 2005.
The Superintendent issued three information requests to Dirigo on October 5th, 11th, and 18th. The parties completed the issuance of discovery to one another on October 11, 2005 as set by the terms of the September 19th Procedural Order. Various rulings on discovery disputes between the parties were made by the Superintendent by Orders dated October 11th, 12th, 13th, and 14th.5
The parties made witness designation filings on October 14, 2005, thereby identifying 16 witnesses for hearing. Dirigo designated Steven P. Schramm, F. Kevin Russell, and Nancy M. Kane, D.B.A.; CAHC designated Kenneth Thorpe, Ph.D., and the Honorable Rebecca Wyke; the Chamber designated John Sheils, Grady Catterall, F.S.A., Roland P. Mercier, and Maureen Kenney; Anthem designated Sharon Roberts, Jack C. Keane, Daniel McCormack, William Whitmore, and David S. Wakelin; MEAHP designated Daniel Fishbein, M.D., and David A. Tobin, F.S.A. The Trusts did not independently designate any witnesses but joined in the designations of the Chamber, Anthem, and MEAHP.
By motion dated October 19, 2005, the Chamber requested a scheduling accommodation at hearing for the testimony of one of its witnesses, Roland P. Mercier. By motion dated October 20, 2005, MEAHP requested a scheduling accommodation at hearing for the testimony of both of its witnesses, Daniel Fishbein and David Tobin. On October 21, 2005 the Superintendent issued an Order granting the Chamber’s motion, granting MEAHP’s motion for witness Fishbein and denying MEAHP’s motion for witness Tobin.
On October 21, 2005, Dirigo, Anthem, MEAHP, the Chamber, and CAHC pre-filed their witness testimony and exhibits; the Trusts stated that they would not be putting on a direct case in this matter.
CAHC filed its pre-hearing brief on October 21, 2005, with all other parties filing such briefs on October 24, 2005.
Two days of public hearing were held in Augusta, Maine commencing on October 24, 2005, and continuing on the 27th. The hearing was conducted entirely in public session and was attended by numerous members of the public. The hearing was also “web cast” over the Internet.
Testifying under oath at the hearing were witnesses Kane, Schramm, and Russell on behalf of Dirigo; Thorpe and Wyke on behalf of CAHC; Fishbein and Tobin on behalf of MEAHP; a panel of Roberts, Keane, McCormack and Whitmore, and Wakelin individually, on behalf of Anthem; and Mercier, Kenney, and Sheils on behalf of the Chamber. The Trusts did not present any witnesses at hearing.
Offered and admitted into evidence at the hearing were the following exhibits, none of which are designated confidential by any person or party:
In addition to the exhibits identified above, upon request at hearing: (a) the Chamber agreed and provided to the Superintendent and all parties on October 25, 2005 the Excel spreadsheets underlying certain of witness Mercier’s exhibits to his pre-filed testimony regarding “CMAD” (the pre-filed testimony and exhibits being admitted into the record as Chamber Exhibit 1); and (b) Dirigo agreed to provide to the Superintendent and all parties on October 28, 2005 the Excel spreadsheet underlying witness Kane’s revised “CMAD” calculation table (which was admitted into the record as part of DHA Exhibit 10.) However, the electronic document initially provided by Dirigo was not the actual spreadsheet used to make the calculations; it was identical to the paper filing, containing only the results of the calculations with the formulas deleted. Dirigo provided a spreadsheet with formulas on October 29, 2005.
V. DISCUSSION, ANALYSIS, FINDINGS, AND CONCLUSIONS
A. Legal Issues Raised by the Parties
The Superintendent’s statutory responsibility in this proceeding is limited to determining whether the “aggregate measurable cost savings filed by the board are reasonably supported by the evidence in the record.” P.L. 2005, ch. 400, § B-2(2)(B); 24-A M.R.S.A. § 6913(1)(C). In making his decision, the Superintendent has the authority to “issue an order approving, in whole or in part, or disapproving the filing.” Id.
In addition to the factual issues surrounding the reasonableness of Dirigo’s determination of aggregate cost savings, intervenors opposing the filing have argued that several elements of cost savings presented by Dirigo do not fit the statutory description of “aggregate measurable cost savings in this State, including any reduction or avoidance of bad debt and charity care cost to health care providers as a result of the operation of Dirigo Health and any increased MaineCare enrollment due to an expansion in MaineCare eligibility occurring after June 30, 2004.” P.L. 2005, ch. 400, § B-2(2)(A).8
Some of the issues in contention are pure questions of law: Which “cost savings in this State,” if any, beyond “reduction or avoidance of bad debt and charity care” were contemplated by the Legislature? Does “as a result of the operation ...” modify “cost savings” or “reduction or avoidance of bad debt”? Which cost savings initiatives are properly regarded as “a result of the operation of Dirigo Health”? These decisions were made by the Dirigo Board, and do not raise any factual disputes within the Superintendent’s statutory jurisdiction. Dirigo has clearly laid out in its filing which legislative initiatives support which components of the claimed savings, and the Superintendent’s role in this adjudicatory proceeding has been limited by the Legislature to determining whether measurable cost savings have been realized and whether the amount of savings identified “are reasonably supported by the evidence in the record.”
However, there are also two mixed questions of fact and law which the Superintendent must consider in evaluating the reasonableness of the Dirigo Filing. First, some intervenors contend that the statutory reference to “aggregate” cost savings is a word of limitation, placing a restriction on the type of cost savings that may be considered by Dirigo and thus on the methodology that it may employ in evaluating the savings. To the contrary, this adjective simply underscores the need to consider the totality of the cost savings available. Whether a component-by-component-based methodology is appropriate or a more global methodology is necessary goes to the reasonableness of the specific measurement at issue and could be different for different types of measurements.
Second, some intervenors contend that “cost savings” refers to actual cost savings to payors, while Dirigo has evaluated cost savings to the health care system as a whole without regard to whether they have actually been passed through to payors in the form of reduced fees and charges. Because the evidence on the record does not allow a meaningful separation of realized and unrealized savings, it is necessary for the Superintendent to decide whether the Board’s interpretation provides a reasonable measure of cost savings. The Superintendent concludes that it does. Measurable reductions in the overall cost of health care constitute recoverable savings, and pursuant to 24‑A M.R.S.A. § 6913(7), it is the responsibility of payors and providers to negotiate in good faith to pass these savings through to consumers, regardless of whether or not they would do so in the absence of the Dirigo Act.
B. Dirigo’s Determination of Aggregate Measurable Cost Savings
To assist it in developing a methodology for calculating aggregate measurable cost savings, Dirigo retained Nancy Kane, Doctor of Business Administration, Harvard School of Public Health, to compose the primary calculations for the two hospital savings initiatives, and the consulting firm of Mercer Government Human Services Consulting (“Mercer”) was engaged to develop the remainder of the savings calculations and to ensure that all of the methodologies were consistent, reasonable, and adequately measured the impact of the initiatives on the rate of growth in the health care system in Maine. Mercer’s undertaking culminated in a Final Report, dated September 19, 2005, entitled Dirigo Health Savings Offset Payment (SOP): Methodology and Calculations (the “Mercer Report”), Attachment 11 to the Dirigo Filing. Mercer determined the savings from all Dirigo initiatives to total $233.2 million. The Board adopted all but one of Dr. Kane’s and Mercer’s determinations, thereby adopting an initial savings amount of $136.8 million.9 Dirigo (through its consultant Dr. Kane) subsequently reduced its aggregate savings calculation by $10.8 million due to a spreadsheet error discovered by Mercer, by $6.4 million due to an error revealed on cross-examination by the Chamber at hearing, and by another $9 million in response to Chamber witness Mercier’s CMAD calculations, thereby resulting in a revised aggregate savings calculation of $110.6 million. See DHA Exhibits 4 and 10.
1. Hospital Savings Initiatives, including consolidated operating margins (COM) and cost per case-mix adjusted discharge (CMAD). See pp. 2-3, 10-14 of the Mercer Report.
Nancy Kane was retained by Dirigo to develop the calculations and savings from the State’s hospitals’ COM and CMAD savings. Mercer was engaged to perform peer review on Dr. Kane’s calculations.
Mercer explains that COM measures the profitability of hospitals and, in this case, their subsidiaries. Hospitals that voluntarily decrease their COM can do so by reducing their rate increases to payors, particularly when they also are reducing their costs. Savings can result to the health care system when hospitals voluntarily agree to limit their operating margins. The savings across Maine’s 36 acute care hospitals and their subsidiaries was determined by Dr. Kane to be $8.8 million for State Fiscal Year (“SFY”) 2004. Mercer Report at pp. 2, 10-14. The Dirigo Board adopted this determination. Dr. Kane subsequently agreed in testimony at hearing that the COM savings determination should be reduced by $6.4 million due to an error discovered by Chamber witness Mercier, resulting in a revised savings calculation of $2.4 million for this initiative.
Mercer further explains that cost per Case-Mix Adjusted Discharge (CMAD) measures the unit cost of inpatient and outpatient services provided by hospitals and their subsidiaries. Reducing the rate of increase in the cost of services reduces the need for payor rate increase and results in savings to the entire health care system. The savings across hospitals and their subsidiaries initially were determined by Dr. Kane to be $75 million for SFY 2004. Mercer Report at p. 3, 10-14. The Dirigo Board adopted this determination. The CMAD savings determination was subsequently reduced by $10.8 million due to a spreadsheet error discovered by Mercer, resulting in a revised savings calculation of $64.2 million for this initiative. See Attachment C to Kane pre-filed testimony, designated DHA Exhibit 4. At the hearing, Dr. Kane further reduced her CMAD savings calculation by $9 million in response to Chamber witness Mercier’s CMAD calculations, resulting in a revised Dirigo CMAD savings calculation of $55.2 million. See DHA Exhibit 10.Testimony at hearing on COM and CMAD was provided by Dirigo witnesses Kane and Schramm; CAHC witness Thorpe; Chamber witnesses Mercier, Kenney, and Sheils; MEAHP witnesses Fishbein and Tobin; and Anthem witnesses Wakelin and panel of Roberts, Keane, McCormack, and Whitmore.
(a) CMAD. Given that operating expenses per CMAD for any hospital fluctuate from year to year for a wide variety of reasons, it is unreasonable to assume that any decrease over the base period is due to the voluntary cost control while ignoring increases over the base period. While the increases cannot be attributed to voluntary cost control, including both increases and decreases will help to cancel out the random fluctuations. Based on the data in the CMAD calculation spreadsheet filed by Dirigo on October 29, 2005, adjusting the calculation to include all hospitals; i.e., including those with decreases as well as those with increases, would result in a decrease to the savings estimate of approximately $14.2 million.
The calculations contained in the spreadsheet calculate the total value of the savings by multiplying three numbers together: (i) estimated cost per case-mix adjusted discharge; (ii) estimated inflation-adjusted reduction in cost growth relative to the three-year historical baseline; and (iii) the total number of 2004 case-mix adjusted discharges. The spreadsheet provided to document the calculation adjusted items (i) and (ii) to be on a state fiscal year basis; however, item (iii) was left on a hospital fiscal year basis, which is not reasonable. Applying an adjustment to case-mix adjusted discharges to place them on a state fiscal year basis using a method parallel to that applied to item (i) would result in an increase in the total CMAD savings of approximately $0.3 million.
The CMAD analysis uses the hospital market basket index (HMBI) to inflation adjust the annual cost growth for each hospital. The market basket chosen was the 1992-based HMBI, which CMS now considers outdated, which is not reasonable. See Hearing Officer Exhibit 1. Replacing the 1992-based index with the 1997-based index, and retaining the same methods of calculating the average growth rate for the analysis, increases the three year average inflation rate from 11.2% to 12.5%, which in turn would reduce the estimated savings by approximately $7.6 million. Combining the estimated reductions described above produces an estimate of $33.7 million for CMAD, which is reasonably supported by the evidence.
(b) COM. The Superintendent finds that the filed COM savings were not reasonably supported by the evidence because Dr. Kane’s methodology did not consider the results of all hospitals, but rather selectively counted only the three hospitals with operating margins that, according to Dr. Kane’s calculations, were above 3% in the base period of 2001-2003 and declined in 2004. Given that operating margins for any hospital fluctuate from year to year for a wide variety of reasons, it is not reasonable to assume that any decrease over the base period is due to the voluntary restraint pursuant to the Dirigo law while ignoring increases over the base period. While the increases cannot be attributed to the Dirigo law, including both increases and decreases will help to cancel out upward and downward fluctuations that are unrelated to the Dirigo law. Based on the evidence in the record, adjusting the calculation to include both increases and decreases would result in apparent negative savings. See Chamber Exhibit 3. Therefore, the Superintendent finds that the filed savings are due to random fluctuations and that it is not reasonable to include any savings for COM.
Dirigo’s determination on the hospital savings initiatives is therefore deemed reasonably supported in part. A determination of $33.7 million for savings attributable to the reductions in hospital costs per case-mix adjusted discharge is deemed reasonably supported; the determination of savings attributable to the reductions in consolidated operating margins is not reasonably supported.
2. Uninsured Savings Initiatives, including uninsured reduction of bad debt (BD) and charity care (CC), and woodwork (WW) effect. See pp. 4, 19-22 of the Mercer Report.
Mercer explains that savings from the uninsured and under-insured was measured by determining the amount of Bad Debt (BD) and Charity Care (CC) costs attributable to previously uninsured and under-insured that are now enrolled in DirigoChoice. The total savings from BD and CC due to reduced need for cost-shifting resulting directly from a reduction in previously uninsured and under-insured BD and CC was determined by Mercer to be $2.7 million. Mercer Report at pp. 4, 19-22. The Dirigo Board adopted this determination.
Mercer further explains that the Woodwork (WW) Effect measurement refers to those MaineCare members that were previously uninsured and under-insured and came “out of the woodwork” to be enrolled in MaineCare through the Dirigo process that allocated Dirigo applicants to the correct public assistance program. The savings from reduced cost shifting resulting directly from the MaineCare WW Effect was determined by Mercer to be $3.0 million. Mercer Report at p. 4, 19-22.10 The Dirigo Board adopted this determination.
Testimony at hearing on BD / CC and WW Effect was provided by Dirigo witness Russell; CAHC witness Thorpe; Chamber witness Sheils; Anthem witness panel of Roberts, Keane, McCormack, and Whitmore.
It is undisputed that the savings from reduced bad debt and charity care are properly included in aggregate measurable cost savings, as expressly provided pursuant to 24-A M.R.S.A. § 6913(1)(A) and P.L. 2005, ch. 400, § B-2(2)(A). However, the intervenors opposing the filing contend that Dirigo has overstated the amount of savings because the filed BD/CC figures are based on provider charges rather than the actual cost of care and because the filed BD/CC figures overstate, in their view, the amount of BD/CC avoided, since DirigoChoice enrollees remain responsible for some costs and therefore pose some continuing risk of bad debt. Questions were also raised regarding the appropriate definition of “under-insured” and the degree to which DirigoChoice is reducing the level of under-insurance.
The Superintendent finds that the BD/CC savings as filed by Dirigo are reasonably supported by the evidence. Providers already incur the costs of providing care for the uninsured. The introduction of insurance coverage does not change those costs; however, it does introduce additional revenue received as payment from the insurer. As a result, the amount of additional resources available to the provider, and therefore the amount by which the need to cost-shift is reduced, is the amount of payment received from the insurer. Although a charge-based measure does overstate the savings somewhat when the full nominal charges are not actually realized due to discounting, and Dirigo should correct for this error in future filings, the discrepancy is within the range of estimation for the uninsured initiatives taken as a whole, and the overall savings figures have been corroborated by Professor Thorpe’s analysis using other methods. The Superintendent finds that the figures on the underinsured were reasonably based upon available survey results, and that Mercer appropriately assumed that consumers needing health care would be disproportionately represented in the initial cohort of Dirigo enrollees, the natural corollary to what is considered “adverse selection” when viewed from an insurance perspective. The $2.7 million BD/CC savings figure is, therefore, deemed reasonably supported.
The claimed $3 million figure for the WW Effect, however, is not reasonably supported by the evidence. The WW Effect is created by new participants brought into both MaineCare and the commercial insurance markets as the result of the Dirigo initiatives. The Mercer Report only identified cost savings from the MaineCare WW Effect, concluding that it was premature to identify measurable cost savings from the private insurance WW Effect and recommending that the Dirigo Board revisit this issue in future years when more data becomes available. The Superintendent finds that it is likewise premature to conclude that any measurable savings have yet resulted from the MaineCare WW Effect.
Mercer based its calculations on the assumption that half of the 2.5% increase in MaineCare enrollment between Fiscal Years 2003–04 and 2004–05 results from the WW Effect. In other words, Mercer determined that in the absence of Dirigo Health, MaineCare enrollment would most likely have risen only by 1.25%. However, Dirigo was unable to provide any factual support for this conclusion, and it is not reasonable to conclude, without such support, that the increase was twice what it would have been when the record shows that the 2.5% increase was actually lower than the 3.5% average annual increase over the previous three years.
Dirigo’s determination on the uninsured savings initiatives is therefore deemed reasonably supported in part. The $2.7 million savings attributable to reduced bad debt and charity care is deemed reasonably supported; the $3.0 million attributable to the MaineCare “woodwork effect” is not reasonably supported.
3. Health Care Provider Fee Savings Initiatives, including hospital fee initiatives and physician fee initiatives. See pp. 5-6, 26-28 of the Mercer Report.
Mercer explains that hospitals and other health care providers meet their annual financial requirements using a variety of funding sources. Over the long term, differences between financial requirements and payments by various payors may be shifted to private sector payors, whose rates are negotiable, resulting in higher rate increases to private payors. The State will make additional payments to hospitals as a result of the Dirigo Health Reform Act and its related initiatives, to recognize differences identified by the Maine Hospital Commission in its review of the funding of the Medicaid program. The need for cost increases to other payors will be reduced when this additional cash is received by hospitals and physician providers, resulting in savings to the system. The additional payments to be made through Carrier Fiscal Year (“CFY”) 2006 include the historical hospital settlements, current hospital settlements, and Prospective Interim Payment (PIP) increases. The savings from the hospital fee initiatives, calculated by the sum of the historical settlement amounts ($96.4 million) and the time value of borrowed funds ($14.0 million) was determined by Mercer to be $110.4 million. The State will also make eligible payments to physicians to increase Medicaid reimbursement, which amount was determined by Mercer to be $12.3 million. Savings from the health care provider fee initiatives (hospital and physician) totaled $122.7 million. Mercer Report at pp. 5-6, 26-28. The Dirigo Board rejected the $96.4 million savings determined by Mercer for historical settlement amounts (new money),11 but adopted Mercer’s savings calculations of $14.0 million for the time value of money and $12.3 million for physician fee initiatives. The Board, therefore, adopted a savings determination of $26.3 million.
Testimony at hearing on health care provider fee savings initiatives was provided by Dirigo witness Schramm; and CAHC witness Wyke.
As put forth by Dirigo, there are three components to the health care provider fee savings initiatives: (a) $8.2 million for accelerated payments of hospital settlement amounts; (b) $5.8 million for accelerated PIP payments; and (c) $12.3 million due to increased physician payments.
(a) Accelerated Payments of Hospital Settlement Amounts. According to the Mercer Report, the State will make payments of $96.4 million to hospitals to make up for past underpayments of the Medicaid program. The report further asserts that these payments will be made 36 months earlier than required. According to Mercer, receipt of these payments 36 months early will effectively result in an additional $8.2 million to hospitals due to the time value of money. Mercer used an interest rate of 3% in making this calculation. There was no detail provided in the report as to actual payment dates or the required payment dates.
In question 17 of his Second Discovery Request, the Superintendent requested that Dirigo provide two schedules showing the timing and amounts of payments with and without Dirigo. Dirigo did not provide these schedules. The pre-filed testimony of CAHC witness Wyke helped to clarify this issue. During 2005, the State settled longstanding litigation with hospitals regarding payments by the Medicaid program. The total settlement amount was $96.4 million. The pre-filed testimony included copies of the signed settlement agreements for each participating hospitals, including settlement amounts and required timing of payments. The page of the settlement agreement for Inland Hospital that showed the settlement amount was missing. The amounts shown for the other hospitals added up to $94.6 million, or $1.8 million less than the $96.4 million referred to in the Mercer Report. For the purposes of this analysis, it has been assumed that the amount for Inland Hospital was $1.8 million.
In addition to defining the settlement amounts, the settlement agreements also specified the timing of the settlement payments. With few exceptions, 50% of the payment was required by December 31, 2005 and the other 50% was required by July 31, 2006. The few exceptions to this timing were relatively small hospitals with relatively small settlement amounts.
According to Wyke’s prefiled testimony (CAHC Exhibit 2, p. 2, lines 36-39), the State could have continued to litigate and perhaps delayed payment for 36 months. This is the only evidence in the record that supports the assumption that payments could have been made 36 months later than the actual payment date. According to Wyke’s prefiled testimony (CAHC Exhibit 2, p. 3, line 28), the payments were made in full on September 30, 2005. Therefore, half the settlement payment was made three months earlier than required by the settlement agreements and the remaining half was paid 10 months earlier than required by the settlement agreements. On average, payments were made 6.5 months earlier than required by the settlement agreements.
Testimony at the hearing was provided by Dirigo witness Schramm and CAHC witness Wyke. During the hearing, Anthem raised the issue of interest being applied to any judgment that would have the effect of neutralizing the time value of money savings. Schramm testified to the uncertainty of the outcome of litigation.
The Superintendent finds that the assumption that payments were made 36 months earlier than required not to be reasonable. The settlement agreements clearly stipulated a timeframe for the payments to be made. That timeframe, and whatever economic value it might have, was part of the negotiation of the underlying settlements and was therefore already reflected in the settlement amount. The additional time value resulting from the prepayment stems from the difference between the timeframe established by the settlement and the accelerated timeframe actually implemented, as authorized by the Legislature.
The Superintendent finds that the use of an interest rate of 3% is reasonable. A reasonable estimate of the time value of the early payment is based on interest at 3% for 6.5 months on $96.4 million. This amount is $1.5 million.
(b) Accelerated PIP Payments. PIP payments represent a portion of health care charges that MaineCare pays upfront on an estimated basis rather than on the basis of invoices submitted after the service is complete. Thus, if a greater proportion of charges are paid through PIP, providers are paid earlier and thereby benefit from the time value of money. According to the Mercer Report, the State will be making increased PIP payments of $68.5 million 36 months earlier than required. Based on an interest rate of 3%, this represents a savings of $5.8 million to hospitals due to the time value of money. The increase is calculated as 100% of the increase for SFY 2006 ($39 million) and 50% of the increase for SFY 2007 ($29.5 million).
In question 17 of the Superintendent’s Second Discovery Request, Dirigo was asked to provide two schedules showing the timing and amounts of payments with and without Dirigo. Dirigo did not provide these schedules. Instead, Dirigo provided a schedule that showed proposed weekly payments by hospital for SFY 2006 relative to SFY 2005. The annual increase in payments shown in the Mercer Report was $37.7 million, compared to the $39 million assumed in the Mercer Report. However, there was nothing in the Mercer Report that confirmed the assumed PIP increase for SFY 2007 or the 36 month speedup.
Witness Wyke in her prefiled testimony (CAHC Exhibit 2, p. 3, line 43) testified about legislative appropriations, but provided no further detail about the amounts or timing of these payments. At hearing, Wyke testified that to the best of her knowledge, the increased PIP payments had commenced in July 2005 as planned. The Superintendent finds Wyke’s testimony concerning the magnitude and timing of the increase PIP payments to be convincing, as well as the estimate that these incremental payments to hospitals will be made 36 months earlier than in the absence of the applicable Dirigo initiative. No evidence has been offered that is contradictory to her estimates.
The Superintendent does not consider the inclusion of increased PIP payments during calendar year (CY) 2006 to be reasonable. The savings offset payments will be levied during CY 2006 and should correspond to savings that have already been achieved and measured. Therefore, the only portion of this proposed savings that is deemed reasonably supported by the evidence is the portion attributable to the increased PIP payments up to and including December 31, 2005. The amount of increased PIP is 50% of the increase in SFY 2006 relative to SFY 2005, or $19.5 million. Based on 3% interest, the time value of money savings deemed to be reasonably supported is $1.7 million.
(c) Increased Physician Payments. According to the Mercer Report, the State will be increasing physician payments by $8.2 million in SFY 2006 and SFY 2007. The Mercer Report attributes all of these increases to Dirigo. The estimated savings are the full amount of these payments for SFY 2006 and half the amount for SFY 2007. The total estimated savings are $12.3 million.
Wyke’s prefiled testimony confirmed these estimates (CAHC Exhibit 2, p. 4, lines 19-22). At hearing, Wyke testified that these payments had commenced at the start of SFY 2006. The Superintendent accepts witness Wyke’s testimony concerning the magnitude and timing of the increased physician payments. No evidence has been offered that is contradictory to her estimates.
However, as is the case with the PIP payments, the Superintendent does not consider the inclusion of increased physician payments during CY 2006 to be reasonable. The savings offset payments will be levied during CY 2006 and should correspond to savings that have already been achieved and measured. Therefore, the only portion of this proposed savings that is considered reasonably supported by the evidence is the portion attributable to the increased physician payments up to and including December 31, 2005. The amount of increased physician payment is 50% of the increase in SFY 2006 relative to SFY 2005, or $4.1 million, which is deemed to be reasonably supported.
Dirigo’s determination on the health care provider fee savings initiatives is therefore deemed reasonably supported in part. $1.5 million of savings attributable to the accelerated payments of hospital settlement amounts is deemed reasonably supported; $1.7 million of savings attributable to increased prospective interim payments is deemed reasonably supported; and $4.1 million of savings attributable to increased physician payments is deemed reasonably supported. The total amount deemed reasonably supported for these initiatives is $7.3 million.
4. Certificate of Need and Capital Investment Fund Savings Initiatives, including certificate of need (CON) moratorium and capital investment fund (CIF). See pp. 5, 23-25 of the Mercer Report.
Mercer explains that Certificate of Need (CON) and Capital Investment Fund (CIF) are measures of spending for hospital and non-hospital providers. As this spending is reduced, the need for payor rate increases is reduced. The State imposed a moratorium on spending for new buildings and equipment for one year, starting May 1, 2003, and imposed a limit to all subsequent new spending to an annually adjusted amount within the CIF. The savings that accrue to the system result from the reduced spending associated with fewer large-cost capital projects due directly to the CON moratorium and the CIF annual limits. Reduced spending requires less revenue increases to private payors and results in savings to the system. Hospital savings from the CON and CIF initiatives totaled $4.1 million and non-hospital savings totaling $5.7 million, resulting in total savings determined by Mercer to be $9.8 million. Mercer Report at pp. 5, 23-25. The Dirigo Board adopted this determination.
Testimony at hearing on CON and CIF was provided by Dirigo witness Schramm.
The Chamber and the Trusts argue that CON and CIF should not be included because they cannot be attributed to the operations of Dirigo Health. However, the Superintendent’s role is not to determine whether the Dirigo board interpreted the law correctly in deciding which initiatives qualify for consideration, but only to determine whether the amount of savings measured by the Board for those initiatives is reasonably supported by the evidence in the record.
The Chamber and MEAHP argue that Dirigo’s methodology is flawed because it recognizes only three years of operating costs for each approval and assumes costs begin the year of approval. A related issue raised at hearing is that savings are attributed based on operating costs in the years being measured even though they result from approvals in earlier years. For example, costs in SFY 2004 include costs from approvals in SFY 2002, 2003, and 2004. Only one of these years could have been affected by the moratorium in SFY 2004. The unreasonable result can be alleviated by attributing the present value of the operating costs for a project to the year in which it is approved. Making this adjustment results in no savings for hospital CON or CIF, indicating that the method used by the Board was not reasonable. For non-hospital projects, the adjusted savings are similar to those in the filing. However, this must be viewed as coincidental given the result for hospital projects. Furthermore, the amount of approved non-hospital CON costs approved varies so much from year to year that it is impossible to conclude that the difference between 2004 or 2005 spending and the average for 2001-2003 is indicative of anything other than random fluctuation.
Dirigo’s determination on the certificate of need and capital investment fund savings initiatives is therefore deemed not reasonably supported.
5. Insurance Carrier Savings Initiatives, including voluntary underwriting gain (VUG). See pp. 3, 15-18 of the Mercer Report.
Mercer explains that Voluntary Underwriting Gain (VUG) measures the savings from carriers that voluntarily agreed to limit underwriting gain. Mercer relied on information from the State health insurers that responded affirmatively to the State’s request to limit underwriting gain voluntarily, and from those with lines of business with health care coverage that were expected to be affected by the Dirigo initiatives. Only Maine-derived premium revenue and expenses were used. The total savings was determined by Mercer to be $11.2 million for carrier fiscal year 2004 (CY04). Mercer Report at pp. 3, 15-18. The Dirigo Board adopted this determination.
Testimony at hearing on VUG was provided by Dirigo witness Russell; and Anthem witnesses Roberts, Keane, McCormack and Whitmore.
The Superintendent finds that the filed VUG savings were not reasonably supported by the evidence because Mercer’s methodology did not consider the results of all carriers participating in the VUG program, but rather selectively counted only those carriers that had 2004 underwriting gains that, according to Mercer’s calculations, were a smaller percentage of premium than during the base period of 2000-2003. Given that underwriting gains for any carrier fluctuate from year to year for a wide variety of reasons, it is unreasonable to assume that any decrease over the base period is due to VUG while ignoring increases over the base period. While the increases cannot be attributed to VUG, including both increases and decreases will help to cancel out the random fluctuations. Based on the data in the Dirigo Filing (see Attachment 11, Appendix G), adjusting the calculation to include both increases and decreases would result in apparent negative savings.
Dirigo’s determination on the voluntary underwriting gain limitation initiative is therefore deemed not reasonably supported.
By reason of the foregoing, the Superintendent ORDERS that the Dirigo Board’s determination of aggregate measurable cost savings is APPROVED IN PART and that $43.7 million of aggregate measurable cost savings determined by the Dirigo Board is reasonably supported by the evidence in the record.
VII. NOTICE OF APPEAL RIGHTS
This Decision and Order is final agency action of the Superintendent of Insurance within the meaning of the Maine Administrative Procedure Act. Any party may appeal this Decision and Order to the Superior Court as provided by 24-A M.R.S.A. § 236, 5 M.R.S.A. § 11001, et seq., and M.R. Civ. P. 80C. Any such party must initiate an appeal within thirty days after receiving this notice. Any aggrieved non-party whose interests are substantially and directly affected by this Decision and Order may initiate an appeal within forty days after the issuance of this decision. There is no automatic stay pending appeal; application for stay may be made as provided in 5 M.R.S.A. § 11004.
PER ORDER OF THE SUPERINTENDENT OF INSURANCE
Dated: October 29, 2005 ________________________________
ALESSANDRO A. IUPPA
Superintendent of Insurance
1The eight members of the Dirigo Board are: Robert McAfee, M.D., Chair, former President of the American Medical Association; Dana Connors, President of the Maine State Chamber of Commerce; Mary Henderson, Executive Director of Maine Equal Justice Partners; Carl Leinonen, former Executive Director of the Maine State Employees’ Association; Charlene Rydell, Policy Advisor to Congressman Tom Allen; Trish Riley ex officio, Director of the Governor’s Office of Health Policy & Finance; Rebecca Wyke ex officio, Commissioner of the Maine Department of Administrative & Financial Services; and Christine Bruenn ex officio, Commissioner of the Maine Department of Professional & Financial Regulation. The ex officio Board members do not have voting power.
2 The 10 members of the Dirigo Working Group are: Elizabeth Kilbreth, Associate Research Professor at the Muskie School of Public Service; Dan Roet, Director Human Resources Services for Bath Iron Works; Patrick Ende, Senior Policy Advisor to the Governor; Frank McGinty, Executive Vice President and Treasurer, Maine Health (the corporate organization that comprises Maine Medical Center and its various enterprises); Karynlee Harrington, Executive Director of the Dirigo Health Agency; James Reid, Northeast General Manager for Aetna, Inc.; John Benoit, President of Employee Benefit Solutions; Joseph Ditré, Executive Director of Consumers for Affordable Health Care; Geoffrey Green, Deputy Commissioner of the Maine Department of Health and Human Services; Sharon Roberts, Director of Stakeholder Relations for Anthem Health Plans of Maine, Inc. Alternate members of the Dirigo Working Group are: Robert Downs, Director of Development and Operations, Maine, for Harvard Pilgrim Health Care; Kristine Ossenfort, Senior Governmental Affairs Specialist for the Maine State Chamber of Commerce; Kirsten Figueroa, Director of Budgeting and Fiscal Operations for the Dirigo Health Agency; and Jack Comart, Esq., Litigation Director for Maine Equal Justice Partners.
Generally, the alternates attended all of the Working Group meetings as observers as well as participants in their respective caucuses. Other individuals who regularly attended Working Group meetings include but are not limited to Bruce Gerrity, Trish Riley, Lisa Lumbra representing Eastern Maine Health, David Winslow on behalf of the Maine Hospital Association, Katherine Pelletreau Executive Director of the Maine Association of Health Plans, and Katie Fulham-Harris on behalf of Anthem. Sometimes Joe Mackey would attend also on behalf of the Maine Association of Health Plans. Other persons that did not represent a particular interest also attended Working Group meetings.
3 MEAHP identifies in its application Anthem as one of its members.
4 The Trusts issued 85 inquiries, the Chamber issued 61 inquiries, and Anthem/MEAHP jointly issued 57 inquiries.
5 The Superintendent, through legal counsel AAG Sturtevant, also made several rulings granting requests for discovery deadline extensions. See e-mail rulings dated October 12th, 17th, and 18th.
6 At hearing, CAHC withdrew that portion of Dr. Thorpe’s pre-filed testimony that addressed voluntary underwriting gain (VUG) because Dr. Thorpe was not present and available for cross-examination when the subject was addressed at hearing in accordance with the schedule previously established by the Superintendent in the Second Procedural Order.
7 By motion filed October 26, 2005, the Chamber offered certain exhibits for admission into the record. The motion was addressed by the Superintendent at the hearing on October 27, 2005, and the identified exhibits were offered and admitted into the record as Chamber Exhibit 4.
8 24-A M.R.S.A. § 6913(1)(A), also enacted by P.L. 2005, ch. 400, phrases this criterion in similar, but not identical, language: “aggregate measurable cost savings, including any reduction or avoidance of bad debt and charity care costs to health care providers in this State as a result of the operation of Dirigo Health and any increased MaineCare enrollment due to an expansion in MaineCare eligibility occurring after June 30, 2004.”
9 The Board rejected Mercer’s determination of $96.4 million in savings from the “historical settlement amount” derived from hospital fee initiatives, as discussed below in this Decision and Order.
10 Mercer found that at this point in time there is not sufficient data to calculate the impact of reduced cost-shifting resulting directly from the private insurance WW Effect. It was recommended, however, that the Board revisit the impact of the private insurance WW Effect for the Year 2 savings calculations. Mercer Report at p. 4.
11 This is the only savings initiative determination by Mercer which Dirigo did not adopt in its entirety.
Last Updated: August 22, 2012
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