Milking Medicaid: Health program riddled with industry ties, conflicts of interestBy David Jackson Better Government Association — November 29, 2021
The upper echelon of the state agency charged with overseeing Medicaid is peppered with representatives of the for-profit insurance industry state officials are supposed to be policing, a Better Government Association investigation has found.
An examination of state contracts, salary data, pension statements, court records and internal correspondence identified more than a dozen top-level Medicaid officials in Illinois who have current or recent financial ties to the giant insurance companies now managing the $16 billion per year taxpayers spend to provide medical care to people who cannot afford health coverage.
Officials such as the state deputy administrator who runs Medicaid after a 20-year career as an Aetna senior executive, or the state’s “expert adviser” on Medicaid policy, who is also an Aetna lobbyist, or the consultant who advises state officials while taking fees from the insurance companies.
The BGA disclosures about potential dual loyalties come at a time when struggling health care providers complain the state’s faulty oversight of Medicaid brings record-level profits to insurance companies, even as they deny and delay claims.
The state’s top health care official rejects the suggestion that taxpayer money is being mismanaged or that conflicts of interest are undermining the agency’s objectivity at a time when the COVID-19 pandemic is putting the state’s health care system under stress.
Illinois Department of Healthcare and Family Services Director Theresa Eagleson said all potential conflicts are disclosed and vetted, and officials with dual financial interests are required to recuse themselves from agency decisions that affect their bottom line.
“This is a really big, complex agency, and we’re proud to employ a diverse array of people who bring a lot of experience with Medicaid, with clinical care, with finance, with insurance,” Eagleson said. “We are very careful to follow all the rules.”
HFS officials told the BGA they talk to a wide array of stakeholders, including lawmakers, frontline medical providers and consultants from every industry that is involved in Medicaid. In some cases, they said, state statute requires HFS to talk to industry representatives and their private consultants.
While public records reveal no overt acts where these conflicts led to personal financial gain, ethics experts said a bigger concern centers on how the insurance companies have access at the highest levels of government when Medicaid patients do not.
State ethics laws require a one-year “cooling-off period” before former state employees can procure state contracts. But in general, the walls preventing ethical conflicts or their appearance are flimsy, experts say.
“When the relationships between the government and industry are so cozy, when there are so many financial entanglements, that necessary wall starts to look like Swiss cheese,” said Alisa Kaplan, executive director of the watchdog group Reform for Illinois. “How is the public supposed to look at that and trust that the government is putting their interests first?”
Lawmaker blasts ‘interbreeding’
Revolving doors and conflicts of interest have emerged at virtually every level of American government, from municipal offices to federal agencies. State governments, including Illinois, impose an array of financial disclosure rules and cooling-off periods to stop private interests from co-opting the public sector.
The Illinois Medicaid merry-go-round has been whirling under three successive governors — Democrat Pat Quinn, Republican Bruce Rauner and current Gov. J.B. Pritzker, a Democrat.
“It’s like interbreeding here,” said state Rep. Fred Crespo, a Democrat from Hoffman Estates. “How can they have their hands out to the insurance companies and at the same time be making Medicaid policy?”
In the Illinois Medicaid program, officials and industry executives say they carefully vet potential conflicts through frank, top-level discussions. But the BGA found little public disclosure as program leaders toggle between government appointments and top jobs at the for-profit insurance firms.
“The revolving door and apparent conflicts of interest raise ethical concerns about corruption that damage the public’s support for state government in general and the state’s Medicaid program,’’ said Kent Redfield, a professor emeritus of political science at the University of Illinois at Springfield, who reviewed the BGA’s findings.
“Clearly, the appearance of bias is there, and that reduces the effectiveness of the Medicaid program,” Redfield said. “The overall picture assembled by the BGA is that the state’s process for managing Medicaid payments is heavily influenced by people and organizations with an insurance industry perspective.”
Howard A. Peters III
Since 2017, Howard A. Peters III has earned $105,000 per year through the state Office of Medicaid Innovation as an “expert adviser” to HFS. He also sits on the HFS Medicaid Advisory Committee, as well as the Illinois Medicaid Telemedicine Task Force.
At the same time, Peters lobbied the agency and lawmakers on behalf of insurance giant Aetna, one of the four companies hired by the state to run the Medicaid program.
His lobbying firm, HAP Inc., which counts Aetna among its handful of clients, also contributed $70,000 to state politicians since Peters joined the state payroll.
Contacted by the BGA, Peters said his dual roles were fully disclosed and discussed with former HFS Director Felicia Norwood and current director Eagleson before he accepted the state job.
“They understood that I had Aetna as a client,” Peters said. “There is no secret here.”
“I wouldn’t say (it was) what you might call a formal process, but it certainly was a very conscious discussion and a conscious decision about how this would work and the importance of not mixing and mingling, if you will — not having conflicts,” Peters said. “The department certainly doesn’t want the very issue that you’re raising, and I don’t, either.”
Peters said he sees no conflict between his dual roles. State officials are scrupulous about guarding against potential conflicts, he said.
“I don’t think there’s a revolving-door concern,” Peters said. “I think that the state has stringent regulations about what you can do when you leave state government. From what I see in terms of how they conduct their business and what I know about the leadership and their character, I don’t have a reason to be concerned as a citizen and as a person who cares about the quality of the government.”
Eagleson, in a separate interview, said Peters is deliberately excluded from discussions involving the four MCOs, including Aetna.
Eagleson said Peters’ longtime involvement in state government, including Cabinet posts, make him “eminently qualified to be a senior adviser” at her agency.
“Everybody is transparent, following the rules,” she said. “He never participates in any meeting that has anything to do with regulating the managed care companies.”
“The work that I advise the department on is not involved with Aetna or the managed care organizations,” Peters said, adding that he advises HFS on a long-term project called health care transformation and on the department’s effort to increase staffing and improve conditions in nursing homes.
Peters said he has not been paid in his roles as current member and former chairman of the Illinois Medicaid Advisory Committee, a panel that includes insurance industry leaders and counsels HFS with respect to Medicaid policy and planning. Rauner in 2018 appointed Peters as the unpaid co-chair of the state’s Medicaid telehealth task force.
Peters’ state salary is paid through the University of Illinois’ Office of Medicaid Innovation, or OMI, an organizational unit within the university that is funded by HFS.
The university office operates under HFS’ direct guidance and through HFS Project Orders, according to records provided to the BGA by the university.
Peters was hired at OMI when it was run by Eagleson, who served as OMI’s $198,000-per-year executive director at the time.
“Theresa was head of the Office of Medicaid Innovations, Director Norwood was director of the Department of Healthcare and Family Services at the time, so they both were aware of my work, and asked me if I was willing to serve them as part-time capacity,” Peters told the BGA.
Peters declined to provide details about his lobbying for Aetna.
“I care about my reputation, and I care about the reputations of the people I’m working with,” Peters told the BGA. “If there’s an issue that remotely looks like I can have an interest that’s not theirs, I’m not involved in that issue.”
Robert Mendonsa Jr.
As deputy administrator at HFS, Robert Mendonsa Jr. has been in charge of managing the state’s Medicaid contracts with the MCOs since 2015. That state appointment came after his 20-year career as a senior executive at the insurance company Aetna.
Mendonsa’s wife, Kelli, is also a senior project coordinator at Blue Cross, and has held similar positions at two other MCOs.
“I’m responsible for managing the MCO contracts,” Mendonsa said in a court deposition last year. “It’s making sure they are complying with the contract, and we are monitoring their performance, and we are driving continual quality improvement.”
Mendonsa was the CEO of Aetna Better Health, the company’s Illinois MCO, until November 2012, records show. Before that, he was president of the company’s 16-state region that included Illinois.
Mendonsa declined comment, but in the deposition, he explained why he left his lucrative corporate job for state government service.
“I was just very intrigued by what I could do working for the state. And I did very well in my prior life, so I was able to not care about the money and do what I really wanted to do,” he testified. “I believe in managed care. And I think that we can improve quality and improve the quality of life and save money at the same time.”
Mendonsa also for several years was president of the board of the Illinois Association of Health Plans, an insurance industry advocacy group.
Mendonsa first joined the state payroll at HFS in March 2013, records show. Two years later, he was appointed to manage the MCO contracts, his current job.
Redfield said Mendonsa’s extensive background with Aetna prior to joining HFS creates the appearance of “a professional bias,” and Mendonsa’s wife working for the MCOs while Mendonsa oversaw the MCO program “would appear to create a personal conflict of interest for Mendonsa.”
HFS officials told the BGA that Mendonsa’s insurance industry tenure gives him unique expertise and helps HFS hold the MCOs accountable for meeting their contract requirements. He disclosed his wife’s current MCO position to the HFS ethics officer, agency officials said, and she does not directly interact with HFS and did not help negotiate the state’s current contracts.
Through an HFS spokesman, Mendonsa told the BGA he emptied his Aetna retirement account before joining the state agency, taking half as a lump sum and placing half in an account unaffected by Aetna’s bottom line. Those funds were later divided with a family member, court records show.
Eagleson told the BGA she was the Medicaid administrator when Mendonsa was hired. “It was my understanding, when Robert was hired, that he had no retirement benefits that were contingent on the performance of Aetna,” she said.
Mendonsa’s 2015 HFS promotion came when Norwood led the agency. Norwood headed Aetna before Rauner appointed her as the HFS director. As the HFS director, Norwood oversaw an acceleration in the privatization of Illinois’ Medicaid program.
A 2017 investigation by the state executive inspector general’s office found Norwood engaged in improper communication with a lobbyist when Norwood ran HFS. Norwood and Norwood’s deputy, Teresa Hursey, discussed a large Medicaid contract sought by one of the lobbyist’s clients, that report states.
Months later, in 2018, Norwood returned to the MCO industry and by last year earned nearly $8 million as executive vice president and president for insurance provider Anthem Inc.’s government business division. Hursey also joined Anthem.
A former Illinois Medicaid administrator, Douglas Elwell remains an unpaid adviser to HFS Director Eagleson, even as he runs the for-profit national consulting firm Health Management Associates (HMA).
Elwell is one of at least 10 top Illinois Medicaid officials who have come from or gone to HMA in recent years.
Emails obtained under the Illinois Freedom of Information Act over a yearlong period reveal more than 50 conversations between Eagleson and Elwell ranging from Medicaid provider billing disputes to policy questions.
As CEO of HMA, Elwell heads one of the blurriest players in the Illinois Medicaid money game: HMA’s clients include the Medicaid MCOs, but it also holds its own state contracts for services to HFS and the state prison system, the BGA found.
The correspondence suggests familiarity and professional trust.
When Eagleson wanted to gather a team of dependable advisers in August 2020, she invited her chief of staff, a state Medicaid deputy and a top state researcher. Eagleson also included Elwell, according to emails obtained by the BGA through an open-records request.
“Doug and I were just talking. Could the five of us spend some socially distanced quality time together for a longer dinner and brainstorming in Springfield next Wednesday or Thursday evening?” Eagleson’s email began.
Eagleson suggested an upscale contemporary American restaurant with a Napa Valley-style tasting room.
“I honestly haven’t dined out inside yet but am willing to try to find the right place,” Eagleson wrote.
Elwell has been back and forth through Illinois’ revolving door. He spent 12 years as a principal, managing principal and interim CFO of HMA. Then Elwell led the Cook County Health and Hospital System from November 2014 through early 2019. He came to HFS for one year as state Medicaid administrator, then in February 2020 rejoined HMA, first as COO and now as CEO of the consulting firm.
HMA does not publicly disclose its industry clients, but the BGA found it has included some of the top MCOs operating in Illinois and nationally: Centene Corp., Blue Cross, Aetna Health and, in recent years, Molina Health.
In state contract filings, HMA reported that 45 percent of its corporate stock is owned by funds connected to the Chicago private equity firm Beecken Petty O’Keefe — also called BPOC — which offers health-care-focused investment funds. In Illinois contract disclosures HMA listed 2019 sales revenue of $94.7 million from all sources nationwide.
While serving for-profit clients and investors, HMA also wins government contracts in Illinois and numerous other states, as well as in Cook County. HMA since 2018 has held state of Illinois consulting contracts worth $1.3 million with HFS, the Department of Corrections and the Department of Human Services.
Redfield called it a “troublesome economic conflict of interest” that HMA had contracts with state MCO regulators and also with the individual MCOs.
Elwell told the BGA that HMA had a “very elaborate firewall system” to avoid ethical conflicts. “We basically train all of our people, we test them, and we are very transparent with the managed care companies, as well as with the Medicaid agencies,” Elwell said.
“We care very deeply about our reputation, and we care very deeply about the reputations of people who work with us. So I understand the appearance, but I can tell you, in fact, we spend a lot of time and a lot of money to make sure we’re avoiding that conflict and are very transparent.”
Elwell said HMA has a contract to help Illinois establish its health information exchange and simultaneously advises the MCOs on unrelated issues, such as how to meet quality assurance standards in Illinois or how to team up with local organizations that assist Medicaid patients.
“I don’t feel I have special status, other than as part of a sounding board,” he said. “These are pretty independent people. They’re good at it without me.”
“I care what happens to Medicaid in Illinois, and I’m always going to care, and sometimes I am sure I am giving them my advice when it’s not wanted and not followed,” Elwell said. “But I care enough that, when asked, I am going to give them my best idea.”
This story was produced by the Better Government Association, a nonprofit news organization based in Chicago.
Milking Medicaid: Insurance firms reap in billions while doctors get stiffed