Modern Counsel: How did Molina become the insurer of the financially vulnerable?
Jeff Barlow: We were founded by the father of our current CEO, an emergency room physician who saw what Medicaid patients went through to get access to medical care.
MC: And it’s possible to be a profitable company in that segment of the industry?
JB: It’s possible, but our profit margins are very slim—often less than 1 percent. We try to negotiate contracts with each state that allow us to stay in the black.
MC: What’s your role in those contracts?
“We were founded by the father of our current CEO, an emergency room physician who saw what Medicaid patients went through to get access to medical care.”
JB: I am not the principal negotiator. I get involved when the rates are not actuarially sound. The rates should be set according to historical claims data, but there are a lot of things that change quickly in health-care delivery.
MC: Could you provide an example?
JB: Our rates are generally fixed in advance for a full year, but unanticipated new medical costs can arise during the course of the year. For example, in December 2013 the FDA approved an important new drug, Sovaldi, to treat hepatitis C. It added $84,000 in costs per patient for a 12-week course in 2014. We can see drugs in the FDA approval pipeline, but we don’t know how a drug will be priced until it is released. Another example is when a flu strain is particularly virulent one year, causing above-average outpatient costs and hospitalizations.
MC: Is there a way to make up for those times of extraordinary expenses?
JB: There are various possibilities. We sometimes try to negotiate exemptions from the capitation rates in a stop-loss type of agreement, or get compensated on a fee-for-service basis.
MC: The Affordable Care Act (ACA) has expanded the population of people on Medicaid, but many patients still rely on the expensive ER for primary care.
JB: We have about a half-million new Medicaid expansion members as a result of the ACA. They are in a transitional phase; it takes about a year and a half for patients to learn about having a primary care physician.
MC: How is it beneficial that you also work in the Medicare segment?
JB: These are two programs that previously never coordinated with each other. When a person is dually eligible for both programs, we can help coordinate their benefits, thereby providing better quality care at less cost to taxpayers. The Center for Medicare and Medicaid Services is now encouraging states to work on this, and we are participating in pilot programs in six states.
MC: And you have marketplace insurance plans also?
JB: Yes, this is primarily to serve what is called the “churn,” for when a patient’s income rises above or below the level required for Medicaid eligibility. We have commercial marketplace policies available now in nine states.
MC: You have been involved in Molina’s growth. From your position, what advice do you offer other health-care insurers?
JB: It is generally better to do asset deals than stock deals. When you acquire an entire company, there is a need for much more due diligence, and you have to be comfortable with its liabilities. When we negotiate simply to assume a single Medicaid contract, it’s quicker and more efficient. We have also found it’s more cost-effective to expand within a state where we already have some presence.
MC: How does growth for the company benefit patients?
JB: The bigger we are, the larger our provider networks are and the more integrated high-quality care we can provide. Scale also contributes to better capital adequacy [the amount of capital required by regulators to balance against risk].