Law­suits flare over man­aged-care is­sues in Ken­tucky

Providers, health plans chal­leng­ing states over re­im­burse­ment

Modern Healthcare - - EDITORIAL - Beth Kutscher

As states in­creas­ingly turn to man­aged care to con­trol Med­i­caid costs, a pair of law­suits in Ken­tucky shows the grow­ing pains that can com­pli­cate the tran­si­tion. Ap­palachian Re­gional Health­care, Lex­ing­ton, is su­ing the state of Ken­tucky and two Med­i­caid con­trac­tors in a move that speaks to deeper seated con­cerns about the adop­tion of a statewide man­aged-care pro­gram last year.

Ken­tucky im­ple­mented the ex­panded pro­gram Nov. 1, adding three new Med­i­caid con­trac­tors. A pre­vi­ous man­aged-care con­tract cov­ered only 16 of its 120 count ies. The state said at the time that it ex­pected to re­al­ize $1.3 bil­lion in sav­ings over three years.

Yet the pro­gram has suf­fered crit­i­cism from pay­ers and providers—in­clud­ing charges that the state rushed the roll­out of the pro­gram and isn’t ad­e­quately pay­ing for the high risk Med­i­caid pa­tients who are con­cen­trated in the east­ern part of Ken­tucky.

The Cab­i­net for Health and Fam­ily Ser­vices, which over­sees the Med­i­caid pro­gram, did not respond to a re­quest for com­ment.

Ken­tucky’s chal­lenges are not unique. Across the coun­try, states have in­creas­ingly moved to a risk-based, cap­i­tated man­aged­care model, said Ver­non Smith, man­ag­ing prin­ci­pal with con­sult­ing firm Health Man­age­ment As­so­ciates.

“It’s not un­usual to go through a pe­riod of ad­just­ment,” Smith said. “Is­sues like this have come up with other states.”

Mis­souri is await­ing a decision in a suit that al­leges that it il­le­gally changed the rules of its man­aged-care pro­gram by cap­ping the num­ber of health plan con­tracts. Molina Health­care, Long Beach, Calif., sued the state af­ter its con­tract was not re­newed this year.

From 1999 to 2009, na­tional spend­ing on Med­i­caid rose 55%, and the num­ber of en­rollees in­creased 47%, ac­cord­ing to a re­port from John Garen, an eco­nom­ics pro­fes­sor at the Univer­sity of Ken­tucky. “Man­aged care seemed to have shown to save some money,” he said in an in­ter­view.

At the same time, while re­im­burse­ment rates for Med­i­caid pa­tients re­main low, ben­e­fi­cia­ries still lack fi­nan­cial in­cen­tives to con­tain their own health­care spend­ing, Garen noted. “That’s a fun­da­men­tal para­dox that has not been re­solved.”

Still, Smith said fi­nan­cial is­sues are not at the heart of the shift to man­aged care. “The virtue of man­aged care from a Med­i­caid per­spec­tive is ac­count­abil­ity,” he said. “The health plan is re­spon­si­ble for en­sur­ing that an ap­pro­pri­ate level of care can be guar­an­teed.”

Ap­palachian filed its suits in mid-april, al­leg­ing in two com­plaints that the Cab­i­net for Health and Fam­ily Ser­vices il­le­gally set Med­i­caid re­im­burse­ment rates for in­pa­tient and acute- care ser­vices that cov­ered only 75% of its costs. It also charged that the man­aged-care or­ga­ni­za­tions failed to make pay­ments on a timely ba­sis and that it is still owed mil­lions of dol­lars in claims.

The op­er­a­tor of 10 hos­pi­tals in east­ern Ken­tucky and West Virginia filed the suits af­ter it re­ceived no­tice from Coven­try Cares on March 29 that the man­aged-care or­ga­ni­za­tion planned to ter­mi­nate its con­tract with the sys­tem on May 4. A spokesman at par­ent com­pany Coven­try Health Care, Bethesda, Md., was not avail­able for com­ment.

In a let­ter to Ap­palachian, Ti­mothy Nolan, Coven­try’s ex­ec­u­tive vice pres­i­dent, gov­ern­ment pro­gram, high­lighted con­cerns about the pro­gram that led to the con­tract ter­mi­na­tion. Among them, he cited the state’s fail­ure to adopt risk-ad­just­ment method­ol­ogy to take into ac­count higher risk pa­tients such as the ones treated at Ap­palachian. He also claimed that Coven­try was not held to the same stan­dard as an­other man­aged-care or­ga­ni­za­tion that was al­lowed to ex­clude Ap­palachian from its net­work.

The health plan has since no­ti­fied at least two other hospi­tal sys­tems that it in­tends to ter­mi­nate its con­tract un­less it can rene­go­ti­ate the agree­ments—prompt­ing out­cries from state law­mak­ers against its hard bar­gain­ing tac­tics.

Dr. Peter Has­sel­bacher, pres­i­dent of the Ken­tucky Health Pol­icy In­sti­tute, who pre­vi­ously worked on Med­i­caid is­sues for the state, noted that the man­aged-care pro­gram has raised nu­mer­ous con­cerns since its ex­pan­sion, in­clud­ing in­creased claim de­nials, slow pay­ments, in­ad­e­quate pay­ments and a lack of co­op­er­a­tion from health plans.

“This is the ca­nary singing in the cage,” Has­sel­bacher said. “Some­thing is very wrong. I think it’s go­ing to show that the Med­i­caid pro­gram is un­der­funded.” Jerry Haynes, Ap­palachian’s pres­i­dent and CEO, noted in an in­ter­view that other states have al­lowed at least a 12month tran­si­tion pe­riod be­fore mov­ing to a man­aged­care pro­gram. He also noted that his health sys­tem is the largest Med­i­caid provider in Ken­tucky and op­er­ates in “one of the most eco­nom­i­cally de­pressed ar­eas in the coun­try.”

“We have very thin profit mar­gins,” Haynes said. “It’s added pres­sure on the ser­vice providers. This man­aged-care plan has been about man­ag­ing money.”

Ap­palachian filed suit against Coven­try as well as the Cab­i­net for Health and Fam­ily Ser­vices in fed­eral court in Lex­ing­ton on April 16. It also filed suit against Ken­tucky Spirit Health Plan and the agency in Franklin Cir­cuit Court on April 12. The health sys­tem al­leges that it is owed $12.5 mil­lion from Coven­try and $5.7 mil­lion from Ken­tucky Spirit.

Cen­tene Corp., par­ent com­pany of Ken­tucky Spirit, did not respond to a re­quest for com­ment.

On May 4, U. S. Dis­trict Judge Karl Forester or­dered an ex­ten­sion of Ap­palachian’s con­tract with Coven­try un­til June 30 and the two par­ties to ne­go­ti­ate a new agree­ment. He also or­dered state rep­re­sen­ta­tives to meet with Coven­try at least once be­fore the end of June to dis­cuss its risk ad­just­ment con­cerns.

Has­sel­bacher said the state may need to re­visit at least some as­pects of the man­aged-care pro­gram. “No one comes out of this look­ing blame­less,” he said.

“This man­aged-care plan has been about man­ag­ing money.”

—Jerry Haynes Ap­palachian pres­i­dent and CEO

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