Lessons From Kentucky’s First Year of Medicaid Managed Care

For months, Kansas Governor Sam Brownback has planned to implement KanCare, a mandatory, statewide Medicaid managed care program, on January 1, 2013. CMS has not yet approved the waiver request, and on Monday, November 26, 2012, CMS held a listening session via conference call to hear the views of Medicaid beneficiaries. CMS representatives indicated Monday that they hoped to make a decision soon. As recently as November 27, 2012, Kansas officials maintained that KanCare was expected to go live on January 1, and there was no Plan B. The agency has auto-assigned current beneficiaries to plans and mailed notices informing them of the plan to which they were assigned. All beneficiaries were to receive their packets by the end of November, 2012.

Kansas might take a lesson from Kentucky’s experience with the implementation of Medicaid managed care. The Foundation for a Healthy Kentucky recently released a report commissioned from the Urban Institute evaluating the first year under the new system. As we have previously reported, during the first few months, there were complaints from providers and beneficiaries about denials of refills of established prescriptions, delayed authorizations, and failure to pay providers.

The researchers examined several steps that were important to the success of the launch, from the competitive bidding process to the operations of the program as of the summer of 2012; they supplemented with a discussion of developments that occurred up to mid-October, when Kentucky Spirit notified the state of the termination of the contract effective July 1, 2013.

The State’s Contracting Process

Although the state had hired PriceWaterhouseCoopers to determine the rates that would be actuarially sound, the bidders did not have access to that information when they developed their proposed rates. According to the report, the actuary stated that the plans were told during the negotiation process whether their proposed rates were within the appropriate range. One plan claimed never to have received the information, however. The plans also claim that the claims  information they received was not complete and sometimes was inaccurate. In any event, the state contracted to pay significantly different rates to each plan.

 The Start-up and Provider Networks

The state’s contracts with the plans were finalized July 8, 2011, and open enrollment was set to begin November 1st. None of the three plans had previously operated in Kentucky, so they had to find office space, hire and train staff, negotiate rates and contract with providers, adapt their existing systems to Kentucky’s Medicaid program,educate providers about the claims process, and market their services to beneficiaries.  Not many workers in the Kentucky job market had managed care experience, so employees of both the plans and the state agency had a steep learning curve. Some providers stated that the plans’ communication technology was antiquated and relied heavily on “snail mail” and fax transmissions.

Because capitated payments were already set, when they built their networks, the plans’ ability to offer attractive rates was limited. Some providers, notably Appalachian Regional Healthcare (ARH), furnished services without a contract while negotiations continued. Because the networks had not been finalized when enrollment began, the network directories were inaccurate. Beneficiaries were assigned to plans based on letters of intent from their primary care providers (PCPs) chose not to participate. Once assigned to plans, some beneficiaries were assigned to PCPs who were inappropriate to their needs or did not participate in the plan.

The state auto-enrolled beneficiaries into plans and then gave them 90 days to change plans if they chose. Because Kentucky Spirit had the lowest rates, the state assigned it 200,000 of about 520,000 members.  Many beneficiaries changed plans during the 90 day period, some, more than once, as they learned of the different incentives or benefits each plan offered. The Coventry plan required no copayments and had a broader network, so it is logical, as Coventry claims, that a disproportionate number of beneficiaries with chronic illness and heavier utilization changed from other plans to Coventry. By June, 2012, Kentucky Spirit had about 138,000 members, 27.5 percent of the Medicaid beneficiaries in the program, while Coventry had about 233,680, 44.8 percent.

Other Problems

Providers reported that denials of authorization and claims rose sharply under the managed care system, requiring an inordinate number of appeals and time spent on administrative issues. Both the fee-for-service program and the plans used the InterQual criteria for authorization, but providers complained that the plans applied the criteria differently, and, sometimes, incorrectly. The plans were not familiar with the coding system that the agency and providers used previously. The three plans had different formularies for providers to follow.

All three plans lost money during the first two quarters of their contracts. Coventry lost the most. As we’ve reported before, the plan tried to terminate and renegotiate its contracts with many providers.

The report recommends that the agency pay special attention to network adequacy and to the financial losses of both plans and providers. Open communication and accurate data are necessary to the success of the program.  The payment structure could be changed to reward improved health outcomes.

The reporters were encouraged by some recent developments. The agency has a new Medicaid Commissioner with many years of managed care experience. The state has contracted with an external quality review organization, which will help with oversight of the plans. And the plans all have better information to plan for the future.