One of area’s largest employers prepares for change: What it means to Dayton

The largest check the state of Ohio writes each year goes to Dayton-based CareSource, which rose from humble beginnings into a collossus: employing 2,800 people in Dayton, managing nearly 2 million Medicaid policy holders in five states and serving as a lobbying force.

The nonprofit insurer now finds itself at a critical moment, undergoing its first-ever transition to a new leader and navigating the always uncertain health care environment.

For the first time in nearly three decades, CareSource will navigate that environment without founding CEO Pamela Morris, who is retiring in May.

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Morris' successor is Erhardt Preitauer, former CEO of Horizon NJ Health, the largest Medicaid plan in New Jersey. He takes the reins on Tuesday, leading an anchor institution in downtown Dayton that's currently building a six-story East First Street tower a block away from its Main Street headquarters. The new office building will be named Pamela Morris Center.

No one disputes that Preitauer has big shoes to fill.

“In a lot of ways CareSource is a reflection of Pam Morris,” said John Corlett, former Ohio Medicaid director. “This will be a change and I’m sure everyone will be watching to see how it unfolds.”

Early years

It’s almost hard to imagine now, but CareSource had a rocky start.

Originally called the Dayton Area Health Plan, it was incorporated in the mid 1980s by local hospital CEOs interested in Medicaid management.

The Medicaid program is jointly funded by the state and federal government to provide health insurance for people with low incomes. It covers about a fourth of Ohio’s population, half of all births and most of the care for the state’s elderly residents and people with disabilities.

Morris, then executive director of the Marion County Department of Human Services, was recruited to be the chief executive for the what was started as an experiment.

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"We thought if there was kind of an HMO that would manage the care of patients on Medicaid, we could save the state money and provide better care to the patients," recalled Tom Breitenbach, the retired Premier Health CEO who was one of the original Dayton Area Health Plan organizers.

Ohio, like all states, for years had directly managed the state program and paid fees for medical services, but there was a movement growing to shift management to private insurers that would coordinate care.

In managed care, insurers get paid a fixed rate per patient and then the insurer handles claims and assumes any cost overruns. The goal was to give the state predictable and controlled costs and improve health care through coordination.

The first Medicaid managed care plans were piloted starting in the 1970s, though a lot of these plans fell apart at first. The Ohio Hospital Association had sued the state for years to try to recoup payment from the failed early managed care plans.

“For a while it stymied any effort to move Ohio’s Medicaid into a managed care arrangement,” Corlett said of the early failures.

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A $500,000 grant from the state of Ohio helped launch the local effort, and Morris said they had to work through regulatory hurdles during the early years.

“It was new. Manged care was not an accepted model of health care in the 1980s. It just was not,” she said. “But I knew from my experience working at the county and directly with consumers, seeing their challenges, and also learning manged care, that the model would work.”

In 1989, the Dayton Area Health Plan became the state’s first mandatory Medicaid managed care plan, with permission from a waiver.

But the waiver had an expiration date. Former U.S. Rep Dave Hobson, R-Springfield, asked then President George H.W. Bush and his team on a ride on Air Force One if there was any way to exempt the plan from the federal regulations .

“We knew how serious it was that if we did not get this legislation passed we could no longer operate the Dayton Area Health Plan,” Morris said.

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The bill made it through Congress with the entire Ohio delegation — including not just Hobson but also then Sen. John Glenn, D-Ohio, and Rep. Tony Hall, D-Dayton — on board.

“The bill was like a paragraph long,” Morris said. “We have copies in our archives. I can visualize it as we’re speaking.”

Breitenbach says the insurer’s success has validated the effort.

“They could not only provide better care, but cheaper and more effective care,” he said.

Rapid growth

Ohio has increasingly relied on privately managed Medicaid plans. In 1990, about 11 percent of Ohioans with Medicaid were served by managed care plans. By 2017, that share had risen to about 89 percent.

CareSource, which started as a Dayton region HMO, expanded, in some cases after acquiring other health insurance plans. It is now one of five Medicaid managed care plans in the state, and has 54 percent of the market share in Ohio.

Morris said CareSource’s success in Dayton helped convince state officials to take the managed care model statewide.

“I think a testament to the model that we created right here in Dayton,” she said.

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CareSource’s growth in market share has also come with tensions with the providers, including disputes over contracts, claim denials and claims processing. Hospitals say Medicaid underpays, and health systems are always pushing for better reimbursements.

An appeals court in 2017 upheld a $2.8 million award to Kettering Health Network stemming from allegations that CareSource underpaid it for nearly 600 surgeries. Premier Health and CareSource in 2016 ended their in-network contract for ACA plans after the two couldn't agree on terms.

Similar tensions occurred in other states as CareSource rapidly expanded. Beacon Health Systems, a South Bend, Ind. health network, dropped CareSource’s marketplace plan last year and said in a statement, “Much like these customers, we are disappointed in CareSource, for not living up to their promise and contractual obligations.”

Morris said CareSource wasn’t always in the position to pay providers the rates they wanted to be paid.

“We worked diligently to avoid contract terminations,” she said.

CareSource also agreed to pay $26 million to settle a whistleblower lawsuit in 2012, though it admitted no wrongdoing. Two nurses who had worked for CareSource had claimed the insurer failed to provide required screening, assessment and case management for children with special health care needs and adults.

“Any business faces adversity,” Morris said of the legal action. “That was an adverse event for us. I contend that you learn more through times of adversity than in the good times. There was a lot of learning and it made CareSource a much stronger company.”

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‘It doesn’t rely on me’

During her college years at West Virginia University, Morris recalled her father kept quizzing her on what she would do with a political science degree.

Turns out, she has put that baseline of political knowledge to work. CareSource couldn’t have gotten started without policy changes and its leaders have continued to weigh in on changes in government funding and policy. Morris was recently elected to the board of America’s Health Insurance Plans, which is the national lobbying group for the health insurance industry.

“I would say to my dad afterwards, ‘it paid off,’” she said.

Bryan Bucklew, president and CEO of the Greater Dayton Area Hospital Association, said Morris deserves credit for making CareSource not only a local health care leader, but also a state and national leader.

“Her passion and vision on trying to provide health care services to under-served and vulnerable populations is very commendable,” Bucklew said.

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She’s been well-compensated for those efforts. Her total compensation was $2.8 million in 2016, according to the latest financial disclosure filed by CareSource.

In the past five years, CareSource’s annual revenue has grown from $3.7 billion to $8.9 billion, including a significant boost from Medicaid expansion under the Affordable Care Act.

The Republican governor hopefuls could both change Medicaid expansion if elected to succeed Gov. John Kasich. Lt. Gov Mary Taylor is opposed to Medicaid expansion. Attorney General Mike DeWine has called Medicaid expansion “not sustainable” in its current form and has voiced support for work requirements.

Ohio Medicaid is seeking permission to create job requirements for people covered through the expansion, following the Trump administration opening door to states adding the first ever work requirements in the history of the 50-year-old public insurance program.

CareSource’s growth is visible to anyone who drives through downtown Dayton.

Dayton City Manager Shelley Dickstein said in 1999 after she was promoted to work in economic development, she made the case for the city to give CareSource a $100,000 grant to expand its office in what is now Fifth Third Center in downtown Dayton.

“I can remember having to make my case because CareSource was a nonprofit and we did not provide necessarily grants to nonprofits,” she said.

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But CareSource has continued to invest back in the city with its payroll and growth. It doesn’t just have a large office in town, Dickstein said, but also has its headquarters and C-suite talent.

“When they were building their first headquarters building, plenty of people were trying to woo (Morris) out of the city and trying to get her to build elsewhere,” Dickstein said. “There were plenty of options that were probably less expensive options. But her commitment to downtown was stellar.”

Morris said she doesn’t worry about what will happen after she retires.

“It doesn’t rely on me. We have a tremendous team at CareSource,” she said. “I don’t worry for two minutes that that won’t continue without me here.” she said.

By the Numbers: CareSource

$8.9 billion: 2017 revenue

92.5 percent: 2017 revenue spent on claims

2 million: Insurance enrollees

90,000: ACA marketplace enrollees

4,000: Employees

2,800: Dayton employees

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