Health insurer Humana is laying off 329 employees in Puerto Rico, nearly half of its local staff, after losing its contract to run part of the island government’s Mi Salud (Medicaid) program.
The Puerto Rico Health Insurance Administration (ASES by its Spanish acronym) announced in late June that Triple-S had landed new contracts to manage all eight Mi Salud regions. Previously, Triple-S managed five regions and Humana three regions.
Humana had been in talks to retain three regions, but those negotiations broke down, costing the company some 547,000 beneficiaries on the island.
The loss of the three regions represented some 70 percent of Humana’s business in Puerto Rico. Humana continues to have a significant presence on the island, serving 34,000 Medicare Advantage beneficiaries, as well as 72,000 employer group commercial members.
The layoffs, first reported by CARIBBEAN BUSINESS in the July 25 edition, were carried out with the distribution of hundreds of dismissal notices on Thursday.
“As a result of the Mi Salud contracts not being renewed are announcing the elimination of 329 posts from our Puerto Rico operation,” Humana Health Plans of Puerto Rico President Earl Harper said in a statement.
“This is a normal process against the backdrop of the elimination of a business line we had successfully managed for 16 years as the only insurer involved in Mi Salud since its inception,” Harper added.
“This was a difficult decision for our business because we have high-caliber professionals who are committed to the health of the Puerto Rican people,” the Humana executive said, adding that the compnay would take steps to find spots for laid off employees in other areas where the Kentucky-based company operates.
Humana stressed that affiliates and providers would continue receiving the “best service and attention.”
The federal Centers for Medicare & Medicaid Services (CMS) extensions made by ASES and must approve them before they can take effect. Officials from CMS, a unit of the U.S. Department of Health & Human Services, are also looking into complaints by Humana Insurance of Puerto Rico regarding the contract-extension process that knocked it out of the Mi Salud healthcare program for some 1.6 million medically indigent beneficiaries, industry sources told CARIBBEAN BUSINESS.
Humana recorded expenses of expenses of $31 million, or $0.12 per share, during the second quarter in connection with the wind down of non-renewed Mi Salud contracts and related administrative costs in Puerto Rico.
Contractual transition provisions require the continuation of Humana coverage for beneficiaries through September 30, 2013, as well as the processing of runout claims for the terminated contracts.
“Though we sought to renew these contracts, we were unwilling to accept the inadequate returns that would have resulted from their retention,” Humana’s Chief Financial Officer James H. Bloem said in an earnings conference call on Wednesday.
ASES Executive Director Ricardo Rivera Cardona said the new contracts will save the government some $46 million a year. A three-month transition period started with the new fiscal year (July 1) in the Mi Salud regions that are changing hands. Besides Triple-S, MC-21 will manage all pharmacy benefits, and APS Healthcare Puerto Rico will continue to handle mental health services for the entire island.
However, CMS must still approve the changes before the contract extensions take effect. Humana has complained that it was never given an opportunity to submit a bid for the entire region.
ASES had told both parties that it had decided to extend current contracts for a year, and Humana pushed for a 7% to 8% increase in premiums, which was based on an actuarial analysis of medical costs in its three regions over the past two years, according to industry sources.
ASES rejected the bid, and gave Humana 12 hours to counter with a proposal based on a third-party administrator (TPA) model, rather than as a full-risk insurer, which had to be between $4 and $6 per member per month. The company submitted the bid for its regions at $6 per member, and was never given the opportunity to bid on the entire island because “this was a contract-extension process, not a competitive bid,” one source said.
San Juan-based Triple-S, which had been earning about $8 per member per month under the TPA model, lowered its bid stronger in favor of the patient, and in favor of ASES to continue its work of overseeing services.”
“For the administration of Gov. Alejandro García Padilla and ASES, the well-being of all Puerto Ricans is primordial, and we are working in a transparent manner, in compliance with all federal and local requisites, so patients continue to receive firstclass coverage,” Rivera said.
Resident Commissioner Pedro Pierluisi said the federal government has warned the administration it won’t be able to draw down millions in federal healthcare funds until it reviews the new Mi Salud contracts to ensure they comply with federal regulations.
The resident commissioner, who is president of the New Progressive Party and a main political rival of the governor, said that even though the federal government funds most of the Mi Salud program, the Puerto Rico government went ahead and signed these contracts without providing any notice to CMS, and CMS wasn’t even aware of these contracts.
Rivera has said that despite the CMS review, the federal government hasn’t frozen Medicaid funds that finance Mi Salud and added that the program would continue to provide services without interruption.
The ASES chief said the local government has provided the majority of the documents requested by CMS officials. Rivera said the new Mi Salud contract extensions contain more rigorous oversight mechanisms of insurers that guarantee services to beneficiaries.
Louisville-based Humana Inc. on Wednesday raised its 2013 earnings forecast despite losing the Puerto Rico government health insurance contracts.
The health insurer said its second-quarter profit rose by 18 percent, beating Wall Street forecasts, as the company reported broad performance gains led by climbing enrollment in its Medicare Advantage and prescription drug plans.
Humana’s hike in its full-year earnings target reflect its better-than-expected performance in the three months that ended June 30. Humana said it now expects full-year earnings to range from $8.65 to $8.75 per share, up from its previous forecast of $8.40 to $8.60 per share. Analysts expect $8.57 per share, on average.
“Our strategy is on track,” Humana President and CEO Bruce D. Broussard said in a conference call with industry analysts. “Our business segments are delivering solid performance and our execution focus is high. Despite near-term industry challenges, we believe Humana continues to have a bright growth future ahead.”
For the second quarter, Humana reported net income of $420 million, or $2.63 per share. That’s up from $356 million, or $2.16 per share, in the same period a year ago. Analysts polled by FactSet expected $2.47 per share in the most recent quarter.
Revenue rose 6.4 percent to $10.3 billion, essentially matching analysts’ forecasts.