Amerigroup expands into its own back yard

by Marjolijn Bijlefeld
Virginia Business
September 2005

Amerigroup Corp. finally has a chance to show its home state what it can do to control Medicaid costs. After 10 years of operating in other states, Virginia Beach-based Ameri-group began enrolling Northern Virginia Medicaid patients in its managed-care program this month. The opportunity came because Virginia is expanding its 9-year-old Medicaid managed-care enrollment.

Amerigroup and UniCare Health Plan will both serve the Northern Virginia market. Later this year, when the state enrolls residents in the Winchester and surrounding areas, Amerigroup will be among four providers. The others are Anthem, Optima Family Care and Virginia Premier.

In serving more than 1 million people in eight states and the District of Columbia, Amerigroup has been able to save money for state governments with its emphasis on preventive care (treating ailments before a health crisis) rather than on simply paying the bills for more costly urgent care.

In a July 2004 report to America’s Health Insurance Plans, the Lewin Group — a health-care policy consulting firm in Falls Church — analyzed states with Medicaid managed-care programs. In Ohio, for example, inpatient costs decreased 27 percent under Medicaid managed care. In Wisconsin, the savings were estimated at nearly 11 percent. In Maryland, where demonstration projects must not increase state spending, the savings from Medicaid managed care were used to expand enrollment, which grew from 355,000 in 1999 to almost 470,000 as of January 2004. Similar cost savings would certainly be welcome in Virginia, where Medicaid consumes nearly $4 billion of the state’s budget every year.

Heading Amerigroup’s Virginia program is Dr. Sandra Nichols, a family physician by training. She practiced medicine in rural Arkansas and was the state health commissioner under two governors there before becoming medical director for the Mid-Atlantic region of United Healthcare. She joined Amerigroup in June 2004 as CEO of Amerigroup District of Columbia, a position she still holds. “I was totally impressed by what Amerigroup was doing for the Medicaid population,” she says.

In Northern Virginia, 24,000 Medicaid patients, mostly young mothers and children, have been assigned to Amerigroup. They will be getting phone calls, most likely from the 450 workers in Ameri-group’s call center in Virginia Beach. (There’s a second call center with 100 people in Tampa, Fla.) “We’ll do health evaluations on the phone,” explains Nichols. “We’ll ask whether they have a health problem or whether their children have been immunized. We’ll ask when they last saw a doctor. We’ll help them make appointments, and we’ll work with them on transportation.”

Open-ended questions such as “Are you feeling well right now?” can begin to identify conditions that patients may not even know they have. If the patients don’t speak English, Amerigroup will arrange for interpreters to go with them to doctor’s appointments. “When we get in with these early case findings, we have remarkable outcomes,” says Nichols. For example, 12 percent of all births nationwide were premature last year. Among African Americans, that rate was higher than 17 percent. Premature infants require more intensive and costly hospital treatment at birth, and they often continue to have severe health problems. By providing more hands-on support and encouraging women on Medicaid to get regular prenatal care, Amerigroup was able to record a premature birth rate of just 7.6 percent for 36,000 childbirths last year.

Similarly, Amerigroup has shown its effectiveness in working with asthma patients. In a six-month period working with 777 patients with asthma, Amerigroup made sure that they received at-home counseling and access to medications. As a result, the company paid more for prescriptions and doctor visits, but the overall cost of treating these patients was 27 percent lower than it was before they became part of Amerigroup’s asthma control program. “The number of hospital admissions and emergency room visits go way down,” says Kent Jenkins, the company’s vice president for communications.

With its North-ern Virginia program, Amerigroup has introduced some unusual preventive care concepts. Enrolled children between the ages of 6 and 18 get free memberships at a local Boys & Girls Club, and older children are entitled to free sports physicals. The idea is to keep children engaged and active, not only to avoid obesity but also to steer them away from poor lifestyle choices.

Amerigroup and similar Medicaid managed-care companies make money by contracting with states to provide health care at a certain cost. Health-care providers who treat Medicaid patients enrolled in these programs bill the company directly at contracted fees rather than billing the state through Medicaid. Inova Health System anchors the Northern Virginia provider panel. Jenkins says that Amerigroup pays providers at rates equal to or greater than Medicaid fees. “We’re not about shifting costs; we’re about changing behaviors,” he says.

As a publicly traded company for the past four years (NYSE: AGP), Amerigroup has had to show its mettle on Wall Street as well as at state capitols. Chairman and CEO Jeffrey L. McWaters encountered skepticism to the company’s approach when he founded it 10 years ago. McWaters was raised in Paducah, Ky., by parents who taught him that not everyone was as lucky as he was. He spent his early career creating managed health programs in senior leadership positions at CIGNA and Options Mental Health, now ValueOptions. It frustrated him that so many challenges seemed to stand between the needy and health care. He wanted to stop the cycle of too little health care, too late.

Amerigroup, he says, provides a “win-win-win. Members are getting better care. We’re accountable to states and taxpayers. We’re providing jobs in our communities and profit for our shareholders.” Company revenues topped $1.8 billion last year, netting $86 million in profit.

But health care is a volatile industry. In July, the company had to revise its annual earnings guidance down to $1.73 to $1.78 per diluted share from its previous guidance of $1.90 to $1.98. The causes included the company’s startup costs in expanded regions and extra expense from a flu season last winter that was longer and more severe than predicted. Still, Amerigroup’s stock, which opened at $17 in November 2001, began bouncing back into the mid $30s shortly after the announcement.

Managed care can strike a balance between the rising health-care needs of low-income people and increasing pressures to hold down state spending and taxes, says McWaters. “Our members get better access to care, more appropriate care with the integration of social and behavioral health services and transportation,” he observes. “It’s better than the 1960s version of Medicaid that held no one accountable.”

With only a few states as clients, there is plenty of room for Amerigroup to grow. It recently signed a contract with Georgia to begin serving low-income residents in January. McWaters also expects the company to continue to boost enrollment from the Medicaid populations of Virginia and other states. In addition, Amerigroup offers three other insurance programs. One new product is for low-income, uninsured working people. Another program is for children and the third is for aged, blind or disabled people, many of whom are eligible for both Medicaid and Medicare. “We’re pleased that we’re now operating in our home state. It was just a matter of timing,” McWaters says.