Legislative audit calls for more scrutiny of HMO administrative spending in Minnesota

A new audit calls for more oversight on administrative spending by the HMOs hired to manage care for people in public health insurance ­programs.

The report from Legislative Auditor James Nobles found that managed-care organizations generally complied with existing financial reporting requirements from the state, although there were exceptions.

For decades, Minnesota has hired HMOs to manage care for people with coverage through the state's Medicaid program, which is called Medical Assistance.

In 2012, the four largest HMOs in the state managed care for about 620,000 people in the program, and administrative costs among the plans was about $278 million.

During a committee meeting in the House on Tuesday to discuss the audit results, Rep. Tina Liebling, DFL-Rochester, called for more scrutiny of HMO finances.

"It's a ton of taxpayer dollars that are going purely to administrative expenses," Liebling said. "This is huge stuff in terms of financial impact."

But in a prepared statement, Jim Schowalter, president of the Minnesota Council of Health Plans, a trade group for HMOs, said the report documented how health plans have held down administrative costs.

The audit looked at administrative expenses for the four largest HMOs in the state's public health insurance programs — Bloomington-based HealthPartners, Minnetonka-based Medica, Minneapolis-based UCare and BluePlus, which is a division of Eagan-based Blue Cross and Blue Shield of Minnesota.

The audit looked at about 100 samples of administrative costs at each health plan, and found a few discrepancies in how HMOs categorized costs.

The problems don't necessarily signal cases where administrative costs were understated, said evaluation coordinator Valerie Bombach. But they could affect how the state sets insurance rates going forward, she said.

The audit also found examples where auditors believe that some transactions were wrongly allocated to Medical Assistance, including the cost of alcoholic beverages, travel, entertainment or activities outside Minnesota. The estimated total cost of these transactions ranged from $376 to $2,144, depending on the HMO.

In his statement, Schowalter said "the findings in the audit do not have a material impact on the overall accuracy of reported administrative expenses." But he added: "The audit does underscore the need for greater clarity in reporting requirements."