Michigan denies Henry Ford's health plan Medicaid contract in two major regions

The State of Michigan on Tuesday denied a request by Henry Ford Health System's health plan to allow it to keep two regions, including Detroit, to its approved contract for the state's Medicaid program.

The contract would have allowed Health Alliance Plan's Midwest Health Plan to continue to serve 88,000 Medicaid beneficiaries, HAP Midwest Board Chair James Connelly and Mary Ann Tournoux, interim President and CEO, said in a Monday letter to the Michigan Administrative Board.

If the state does not reverse its decision, HAP Midwest will sell its Medicaid membership in the denied areas to another health insurer, it said.

"In the event that the state's decision is not reversed, MHP intends on selling its Medicaid membership for affected regions to another health plan," it said in a financial report.

[Also: Health Alliance Plan bails out HealthPlus of Michigan, will merge with insurer]

In October, the state awarded managed care contracts and notified HAP Midwest that effective January 1, 2016, it would not be a participating Medicaid plan for the two key regions that reflected the majority of its membership.

The health plan requested a reconsideration, as did six other  contractors. The state on Tuesday denied all but one request, that of Molina Healthcare of Michigan.

Losing appeals of a six-year, $42 billion state contract were HAP Midwest Health Plan, Sparrow PHP, Meridian Health Plan of Michigan, Fidelis SecureCare of Michigan and Total Health Care, according to a published report.

Since Medicaid expansion in Michigan went into effect in April 2014, bidding for the contracts has become more competitive.

Henry Ford Health System President Wright Lassiter said the state awarded no points for integrated care.

"It's ironic, given that one of the 'pillars' identified by the state as important in the bidding process was integration," Lassiter said in a statement. "In other words, health plans owned by integrated health systems like ours were not given any points for providing coordinated care to members that can't be delivered by insurance companies alone."

Henry Ford takes issue with the procurement process itself and the initial RFP by design, which didn't allow for the inclusion of information regarding integration.

"We brought all of this up on appeal, but obviously weren't successful," Lassiter said. "We are extremely disappointed in the state's decision. We believe this is a huge disservice to the 88,000 HAP Midwest members whose healthcare will soon be disrupted with no substantial reason. HAP Midwest has had an exemplary record of service to its members for the last 35 years. We are considering every available option because we remain committed to serving this population."

[Also: Henry Ford Health System to build $110 million cancer center]

The state's denial means the loss of $500 million of HAP Midwest revenue, according to CFO Ed Chadwick.

While the state's decision will obviously have an effect, he said, Henry Ford Health System has been having a strong financial year and is well-positioned moving forward.

"The recent announcements regarding Allegiance Health joining our health system and last week's definitive agreement between HAP and Flint-based HealthPlus to merge are important strategic steps," Chadwick said. "The addition of HealthPlus with $410 million of revenue and Allegiance with $500 million of revenue, coupled with the loss of $500 million of HAP Midwest revenue, means Henry Ford Health System will grow from being a $5 billion integrated health system to a $5.5 billion system in 2016."

Henry Ford purchased HAP Midwest in 2011. HAP Midwest will not close. There is still a contract for Region 6 and an agreement with the state and the Centers for Medicare and Medicaid Services to insure dual-eligibles, according to the health system.

However, the 88,000 HAP Midwest Medicaid members will have very little time to find a new plan by the state's fast-approaching January 1 deadline.

"We are working on multiple options to mitigate the impact on our members as well as our 150 HAP Midwest employees," according to a statement from Henry Ford.

Henry Ford Health System has an extensive integrated provider network, including five hospitals and 1,200 employed physicians.

Two mergers will increase the system's geographic reach for both provider and insurance operations.

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Henry Ford announced plans to build a $110 million cancer center as part of a longer term $500 million expansion and neighborhood improvement initiative on 300 acres in Detroit, marking a key development in the city's revitalization and growth, it said.

The planned five-story, 144,000 square-foot cancer center is expected to open in summer 2018.

On November 9, the Board of the Allegiance Health System voted to enter into a non-binding letter of intent to merge into the Henry Ford system. AHS is a 480-bed health system in south central Michigan. The merger, anticipated to be effective January 1, 2016, is expected to increase HAP's Medicare Advantage population from about 50,000 to 67,000.

Twitter: @SusanJMorse