Julie Sells
ALEC
Washington, D.C.

Dear Ms. Sells,

Thank you for visiting with me recently by phone. I think that the resolution on which you are working regarding foundational activity with state legislatures is critically important, and I appreciate your willingness to allow me to provide for you a summary of information which I have accumulated over the last several years related to this issue.

Foundations which enjoy the privilege of tax exemption and which attempt to aid state legislatures in developing policies and legislation in areas such as health care are supposed to be providing their services as a public service rather than in a way that would be promoting a particular agenda that would favor a particular industry or a particular corporation. A foundation that provides its resources to promote policies that are favorable toward a particular industry or corporation is actually functioning as a lobbying organization, and should, therefore, be regarded by the IRS and any other relevant agency as such.

I have been concerned with the activity of the Robert Wood Johnson Foundation in the state of Oklahoma since the early 1990's during the administration of then Governor David Walters in the development and implementation of a plan to establish universal health care coverage through H.M.O.'s under the control of a newly created government agency, the Oklahoma Health Care Authority. Their provision of over $800,000 in grant money occurred at approximately the same time period that United Health Care, increased its activity in our state in the form of purchasing a managed care company and obtaining a very important contract to administer the health insurance program of state employees. A member of the Board of the Foundation is also a member of the Board of United Health Care, and the circumstances surrounding United Health Care's entrance into the health care market in our state was very concerning.

The plan that the Foundation promoted was very similar to the Clinton Health Care Plan which emphasized managed care controlled by government agencies, and therefore, would have been very favorable to the HMO industry in general. There seems to be a concerted effort, however, to portray their involvement as more generic rather than as activity that was promoting any particulr agenda. I asume their efforts along these lines were motivated to prevent putting their favorable tax exemption in jeopardy.

The activities of the RWJF have been very effective in helping states implement Medicaid managed care programs. Of the twelve states that received grants, six ultimately implemented programs, one state had their program approved but it was not implemented, and one state's program was passed by the state legislature and then repealed the next year. Four of the states which received grants apparently did not receive approval by HCFA, however, at least one of those states has implemented a Medicaid managed care program anyway. Two states that did not receive official help from the RWJF did receive HCFA approval and did implement a RWJF type of plan, and the foundations help in those two states was suspected to be somewhat clandestine in nature. So eight of the eighteen states that have implemented Medicaid managed care programs under the official 1115 HCFA waiver were aided by the RWJF officially or apparently unofficially, and those were Oregon,Oklahoma, Arkansas, Minnesota, New York, Vermont, and, unofficially Kentucky and (presumed) Tennessee. Florida received a grant and approval, but has not implemented the program, and Washington received a grant, successfully passed legislation, but the very next year, 1994, the legislation was repealed(Heritage Foundation, State Backgrounder, June 11,1997, No. 1121/S). The New England Journal of Medicine(vol.330. No. 1) in the Jan. 6,1994 issue reported that the RWJF had awarded approximately $100 million to states over the previous five years in their effort to help in this project.

Several states have experienced significant problems related to their Medicaid managed care program. The Foster Higgins survey published in 1997 predicted health care cost inflation in the private sector as a result of HMO's attemptiing to recover from the losses as a result of the participation in managed care Medicaid and Medicare programs. The Novemebr 30,1997 issue of the Sunday Oklahoman confirmed that Oklahoma HMO's were anticipating premium increases and tighter utilization controls because of significant losses they had experienced. The Wall Street Journal's May 19,1998 issue reported that that HMO premiums in Minnesota increased 15% to 22% in 1998 and were expected to be higher in 1999. It was interesting that neither report mentioned the Foster Higgins survey to explain the source of inflation, but focused on other reasons.

A problem that can not be easily explained by spin control is that many states have experienced HMO's that originally were participating in the Medicaid managed care program simply ending their participation. Oklahoma has experienced a significant number of HMO withdrawals, as has New York and Florida. States that had not received RWJF grants also have experienced this problem, as well. Connecticut. Arizona Massachussetts, Pennsylvania, New Jersey, California, Ohio and Missouri have all experienced HMO withdrawal from their Medicaid managed care programs. The reason. as reported in the AMA News on June 1,1998 was that, in one executive's words. "the state didn't give us much hope that reimbursements would improve". The New York legislature ordered an actuarial study of Medicaid rates and found that the 1997 rates were, indeed, too low. Some legislatures are trying to address the issue. but many commercial HMO's have made strategic decisions to leave the program and won't return. Since 1996, ten large commercial plans have left Medicaid programs in fifteen states.

Problems linger in the state of Washington, as reported in the Wall Street Journal on April 5,1996. Insurance rates were soaring, 30 insurers had notified the state they were not going to do business there, anymore. and one company had lost $72 million in the previous two years. New Mexico was the recipient of a RWJF grant, and although a 1115 HCFA waiver was not approved, a Medicaid managed care program was implemented beginning in 1996. The AMA News reported on March 15,1999 that the Medicaid managed care program was responsible for significantly increasing the number of patients in the two most powerful HMO's which has apparently resulted in reimbursement to providers being decreased so much that physicians are closing their practices and leaving the state. In Oklahoma, the Oklahoma State Medical Association published a detailed article in their state medical journal which identified a significant number of very significant problems with the Oklahoma program. The Legislature responded by creating the Advisory Task Force on SoonerCare, but greatly limited its ability to explore any issues except for the three or four issues for which they were given a mandate to evaluate and make recommendations. Recently, problems have surfaced with having enough dentists to provide pediatric dental care through the Oklahoma Medicaid managed care program, SoonerCare.

In summary. the programs enacted by state legislatures under the direction of the Robert Wood Johnson Foundation resulted in short term benefits for the legislatures by decreasing budgetery pressure. but are inadequate for addressing the problem in the longterm, and have resulted in an assortment of very serious problems which are now facing state governments and for which there are no easy solutions. At this juncture. some are saying, as in New Mexico, the solution is single payer universal coverage like they have in Canada. The March 25th issue of the NEJM published an article that showed that 57.1 % of students, residents, faculty, and deans at US medical schools perceived that single payer, universal health coverage would be better than either fee for service or managed care to provide "the best care for the greatest number of people for a fixed cost"(underline mine), in spite of the reality as reported in the Wall Street Journal's March 5 issue that revealed that Ontario was required to purchase essential cancer treatment for Canadians from private US providers and for the last fifteen years have been purchasing services such as coronary-bypass surgeries in the US because of inadequate services in Canada. The report revealed that Canada's system was the second most expensive in the world, but it has consistently produced shortages. It should be noted that the NEJM article that was promoting single payer. universal health coverage for a fixed cost was financed by the Robert Wood Johnson Foundation, and they also provide a significant amount of grant money to pay the salaries of the faculty of the US medical schools.

In view of the above, it is important, that legislatures know that foundations have agendas in the same way that lobbyists do, and should resist the temptation to find "easy" solutions to their problems. They need to understand the longterm implications of policies that foundations are wanting them to enact, and they need to resist the temptation of thinking that they won't have to deal with those longterm problems because they will be out of the legislature by then. They may be surprised at how quickly those longterm problems begin to surface.

The other issue that should be addressed in any resloution that is attempting to guide the activities of foundations related to state legislatures is the issue of conflict of interest. I mentioned that the Robert Wood Johnson Foundation had a board member who was also on the board of United Health Care. At approximately the same time that the Robert Wood Johnson Foundation was giving Oklahoma an $800.000+ grant to develop the Medicaid managed care plan, United Health Care was being awarded the contract to administer the health insurance claims of the state employee health insurance program. The problem was that state officials had been provided with all expenses paid trips to United Health Care headquarters and that the bid that was accepted was three time higher than the bid submitted by a competitor. After the SoonerCare program was implemented, United Health Care was awarded a contract for running the "nurse triage line" that was required even though they had incorrectly completed the forms needed to submit a proposal. When a competitor that had also submitted a bid. filed a complaint, the Oklahoma Health Care Authority which was the newly created state agency running the Medicaid managed care program, which had awarded the bid to United Health Care was forced to rescind the award of the bid and give it to the competitor. The Oklahoma Health Care Authority awarded the contract for the computer work for the program to Unisys which is a partner of United Health Care. They had previously developed software needed to keep track of Medicaid managed care programs and United Health Care had purchased that software from Unisys. I have attempted to determine if Unisys is utilizing the United Health Care software to run the SoonerCare program, but Unisys has been uncooperative in providing that information.

In view of the above. in an effort to prevent any impression of a possibility of conflict of interest, it should be required for foundations who are engaged in activities that will result in the develpoment of legislation to provide a list of the members of the board of the foundation. And the members of the board of that foundation should be required to disclose any connections they have with any for profit corporations either as being members of the board of a corporation or corporations or of holding stock in a corporation or corporations.

An additional safeguard should be put in place, in my opinion, based on the experience we have had in Oklahoma. The person who applied for the grant from the RWJF was put in charge of the commission which was funded by the grant. He and an assistant received a portion of their salary from the RWJF grant while they worked on the commission which was instrumental in laying the groundwork for the legislation that was ultimately passed by the State Legislature which created the Medicaid managed care program. SoonerCare, and the state agency, the Oklahoma Health Care Authority which would oversee the SoonerCare program. That person was appointed the director of the agency and his assistant was given a high post in the agency. as well. Your resolution should make it clear that any person involved in obtaining grant money from a foundation and or receiving reimbursement for work on a commission funded by the grant money. should be disqualified from holding any salaried position that would ultimately be created by legislation that is related to the work done by that particular commission. Legislators would not feel comfortable, I am sure, after taking campaign contributions from a lobbyist and passing a piece of legislation the lobbyist wanted passed, appointing that lobbyist to a state job that was created by the legislation.

I hope the information I have provided will be helpful. I am not sending all the documentation that supports the information here, but I do have it available if you would like to review it. Please let me know if I can be of further help as you attempt to address this problem, and improve the legislative process in state legislatures in our country. I would very much appreciate receiving a copy of the resolution once it is completed.

Sincerely.

Glenn P. Dewberry, Jr.. M.D.