Kentucky’s Continuing Controversy Over Medicaid Managed Care

The implementation of Medicaid managed care continues down a rocky road in Kentucky. As we discussed a few months ago, on November 1, 2011, Kentucky turned over most of its Medicaid program to three for-profit managed care organizations (MCOs)—Wellcare, Coventry and Kentucky Spirit, a Centene affiliate. By February, providers complained of late payments, delays and denials of authorizations and general unresponsiveness, and the state’s auditor general began an investigation.

Since then, the MCOs say they are paying claims faster. But there have been lawsuits by providers against at least two of the MCOs. One plan, Coventry, was pressuring hospitals to renegotiate and terminating contracts before six months had passed.  

Appalachian Regional Healthcare (ARH), a nonprofit that operates ten hospitals, home health agencies, clinics and physician practices in eastern Kentucky and southern West Virginia, never contracted with Kentucky Spirit. However, because it is the predominant, and sometimes the only,hospital in the rural areas it serves,it has to serve Kentucky Spirit members with medical emergencies or in active labor despite its out-of-network status.In April, ARH sued Kentucky Spirit for $5.9 million, which it claimed more than 80 percent comprised undisputed claims that remained unpaid after 30 days and 48 percent remained unpaid after 90 days. Federal Medicaid law requires 90 percent of clean claims to be paid within 30 days and 99 percent within 90 days, but Kentucky law is more stringent. PremierTox, Inc., a provider of laboratory services in a network under contract with the plan, also sued Kentucky Spirit in late December, alleging that the plan refused to pay for more than 2,000 tests it performed.

The Louisville Insider reported that Centene/Kentucky Spirit was the low bidder, and the state agency initially assigned it about 180,000 members at $330 per month. However, during the open enrollment period in November and December 2011, about 40,000 of those members switched to Coventry or Wellcare when they learned that their physicians or pharmacies were not in the Centene network. Recently, Kentucky Spirit announced that it was tightening its rules for coverage of emergency department services, newborns in intensive care units, and short stay inpatient admissions; it also advised providers that payments to have been processed on May 31 would be delayed due to a “technical processing issue.”

On another front, Coventry demanded that ARH, Baptist and other hospitals renegotiate their contracts.In late March, Coventry announced that it was terminating the ARH contract effective May 4. ARH sued Coventry in mid-April,alleging about $12 million had not been timely paid for services to Coventry’s members and asking the federal court for an injunction against termination.

Before Coventry responded to the lawsuit, however, Executive Vice President Timothy Nolan sent a letter to ARH’s president and chief executive officer, Jerry Haynes, in which he blamed the entire situation on Kentucky Governor Steve Beshear. Nolan contended that because state officials had insisted that Coventry could not develop an adequate network without ARH, the MCO agreed to pay ARH substantially more than the Medicaid fee-for-service rates. But the state had not held another MCO (presumably Centene/Kentucky Spirit, which never contracted with ARH) to the same requirement. Nolan also claimed the state refused to adjust the capitation rates to account for the higher costs of covering sicker beneficiaries, as the contract required.

Coventry says its members have more health conditions and use more services than the members of the other two plans. Because Coventry was the only plan to offer members prescription drugs without any copayments, House Speaker Greg Stumbo says it should have expected to enroll members with more prescriptions. He questions Coventry’s good faith.

The court ordered Coventry to continue covering its members’ services at ARH for another 30 days. The parties then extended their agreement through June 30th. However, at the end of May, ARH and Coventry reportedly reached an impasse. According to the Harlan Daily Enterprise, state officials have encouraged members who want to continue using ARH to submit their requests to change plans by June 20 to complete processing in time. Coventry has offered to treat ARH as an out-of-network provider, which would allow it to pay less than the former Medicaid fee-for-service rate.

ARH contends that the standard Medicaid rate covers only 75 percent of its costs and that Coventry’s offer is lower still. According to the Lexington Herald Leader, rate appeals by ARH and other hospitals have been pending since October 2007, but the state has not addressed the issue.

Coventry also had notified King’s Daughters Medical Center in Ashland, Kentucky that its contract would be terminated as of May 26, 2012. It later agreed to continue covering KDMC’s services through June 30, 2012. On May 31, the hospital announced major layoffs.