fidelis-logo-300x200-2355111As the state prepares to collect $2 billion in proceeds from the sale of Fidelis Care, the Cuomo administration has quietly revised its statement on how it will use the money, shifting to an emphasis on service for the needy rather than support for providers.

The new wording came in response to a query from the attorney general’s office, which was reviewing the deal and wanted assurances that the state would spend its share of the proceeds in line with Fidelis’ charitable mission of providing health care to the poor.

In a May 6 letter, Budget Director Robert Mujica wrote:

The State intends to use the Transaction Payments exclusively for the purposes of (a) enhancing access to affordable quality healthcare and healthcare related services for the poor, disabled, disadvantaged, elderly and/or under-served people of New York State, and/or (b) to assist such populations with any unmet healthcare and healthcare related needs including, but not limited to, those associated with the social determinants of health.

That statement differs considerably from budget language approved by the Legislature in March, which said Fidelis proceeds would go “to support health care delivery, including for capital investment, debt retirement or restructuring, housing and other social determinants of health, or transitional operating support to health care providers.”

The two descriptions are broad and not necessarily inconsistent, but the new language would appear to signal a change in focus from providers to patients.

Both plans depart from Governor Cuomo’s original proposal in January, which called for putting part of the Fidelis money in a “shortfall fund,” to hedge against anticipated cuts in federal funding, and spending the rest on Medicaid.

Mujica’s letter was not publicly announced, but emerged from a several-hundred-page trove of documents released by the attorney general’s office when it approved the Fidelis sale on June 14. The sign-off was necessary because Fidelis, a nonprofit company, was selling its assets to for-profit Centene Corp., and the attorney general is charged with protecting the public’s interest when charitable assets are converted or sold.

The attorney general’s office accepted Mujica’s assurances and approved the sale on June 14, and the acquisition was completed early this month.

Fidelis was founded in 1993 as a nonprofit, Catholic Church-affiliated health plan. With 1.6 million members, it’s the state’s largest provider of coverage for low-income consumers through Medicaid managed care, Child Health Plus, the Essential Plan, Medicare Advantage and the Affordable Care Act.

In September, Centene agreed to buy Fidelis’ assets for $3.75 billion. The state’s Catholic bishops, who control Fidelis, announced they would put the proceeds into a charitable foundation to support health care for the poor.

In January, however, Cuomo said he thought the state was entitled to the entire amount, and included an installment of $750 million in his proposed budget for 2018-19. His claim was legally dubious, but he had considerable leverage: Fidelis and Centene needed regulatory approval from two state agencies, and the governor proposed budget language that authorized the state to seize part of Fidelis’ cash reserves if it abandoned the sale.

Cuomo’ s plan also had the backing of the health-care workers union 1199 SEIU and the Greater New York Hospital Association, who supported it with a $2.8 million lobbying and advertising campaign.

In the final hours of budget negotiations, a deal was struck that called for the state to receive $1.5 billion from Fidelis and $500 million from Centene over four years.

Mujica’s letter highlights several unusual features of the transaction: First, the payments are not technically required by law, nor are being made to settle a lawsuit or regulatory action. Instead, they are quasi-voluntary, agreed to under heavy pressure from the governor.

Second, most of the money is effectively coming out of the bishop’s new charity, known as the Mother Cabrini Health Foundationwhich is why the attorney general’s office raised questions about how the state would be using the money.

Third, the budget gives the Cuomo administration—specifically, the budget director—authority to spend the money as it wishes, under vague health-related guidelines, without even notifying the Legislature until 15 days after the fact.

Also among the material posted by the attorney general is the first public documentation of the agreement struck between Fidelis, Centene and the governor in the closing hours of budget negotiations.

In a March 30 letter, an official of the Archdiocese of New York, the Rev. Msgr. Gregory Mustaciuolo, argued that the state had no legitimate claim to any of Fidelis’ money, but that the plan was willing to enter a settlement “in recognition of the value of the transaction and the anticipated benefits to be realized by the population served by Fidelis Care and the citizens of New York.”

On behalf of Fidelis, he agreed to $1.5 billion in payments over four years, but specified that they “shall be conditioned” on completion of the sale, which required approvals from the state departments of Health and Financial Services and the attorney general’s office.

A letter from Centene CEO Michael Neidorff, also dated March 30, said the company would make “contributions” totaling $340 million over five years “as an undertaking predicated on the state of New York’s approval of the Fidelis transaction.”

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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