The state has broken off a $7 million-a-year MaineCare contract with a subsidiary of the Aetna insurance company, which told employees Tuesday that it would have to eliminate 34 jobs in South Portland.

State officials plan to drop some of the administrative services provided under the contract and transfer other duties — such as managing care of high-cost patients — to state workers.

MaineCare, the state’s Medicaid program, is reviewing all of its contracts because of “fiscal struggles,” said acting director Stefanie Nadeau. The decision on the $7 million contract also reflects a long-term plan to manage Maine- Care more efficiently, she said.

“The contract was up for renewal at the end of the fiscal year anyway. We were not going to continue with that service past the end of the contract,” Nadeau said.

Aetna hopes to find other work for many of the 34 employees who are affected.

“We’ve already begun talking to them about alternatives,” said Tom Kelly, president and chief executive officer of Schaller Anderson, which is owned by Aetna. “We’re hopeful we’ll get a bunch of them something else to do.”

Schaller Anderson, which helps to manage Medicaid programs in 11 states, is in the third year of its MaineCare contract. The company handles pre-authorization of MaineCare claims and provides care management for more than 7,000 of MaineCare’s sickest low-income patients. The care management clients account for about 2 percent of MaineCare patients and 20 percent of MaineCare’s spending, according to Schaller Anderson.

“Their needs are pretty dramatic,” Kelly said.

Aetna’s nurse care managers in South Portland work with those patients and their doctors to improve the patients’ health habits, manage medications and appointments, and coordinate medical care so the patients spend less time in emergency rooms and hospitals.

Kelly said the service has clearly reduced costs, saving about $5 for every dollar spent, and reduced depression, which often contributes to patients’ health problems.

“We were taken aback by the decision.” But, he said, “it’s not unusual when states find themselves in dramatic fiscal distress.”

New Hampshire and Indiana have also scaled back contracts in recent years, he said.

Aetna’s prior-authorization work will end March 31. “Some of the services will be eliminated altogether and some of them will be done internally” at MaineCare, Nadeau said.

The contractor will continue care management through April 30. “The care management is going to be preserved. We are bringing that” into the department, Nadeau said.

It is clear that care management can save the state money, Nadeau said, and MaineCare’s ability to do care management internally will expand over time because of a new computer system.

The LePage administration also is evaluating a new management structure for Maine- Care that will include expanded care management, she said.

MaineCare is a division of the state Department of Health and Human Services, which had been preparing to hire managed care companies to start running MaineCare as soon as next year.

Now, the new management structure is expected to take effect within the next two years, Nadeau said, and it’s not clear how much of the operation will be contracted out. “We haven’t settled on an exact model.”

Nadeau said the $7 million contract with Schaller Anderson was MaineCare’s largest, but cutting it off a few months before it was set to expire will produce only “minimal” savings in the fiscal year that ends June 30.

“Every $100,000, $200,000 or $1 million helps,” Nadeau said.

Staff Writer John Richardson can be contacted at 791-6324 or at: [email protected]