Managed care in Kentucky: failure or success?

By Melanie Wolkoff Wachsman

State auditor releases review of private, manged care companies.

It started with a seemingly, win-win situation: Kentucky chose to move to a managed care model statewide with the goal of improving the health of Medicaid members while reducing cost.

Beginning in November 2011 Kentucky contracted with three new companies to manage healthcare for a period of three years. The state entered into contracts with CoventryCares of Kentucky (Coventry), Kentucky Spirit Health Plan (KY Spirit) and WellCare of Kentucky (WellCare). The contracts with KY Spirit, Coventry and WellCare for all Kentucky regions (except Region 3) were set to expire July 6, 2014.

What Happened?
Improved health and reduced healthcare cost did not. What transpired instead were widespread complaints from various sources regarding the Cabinet for Health and Family Services’ (CHFS) and managed care organizations’ (MCO) implementation of the Medicaid managed care program.

The managed care companies weren’t so happy either. In October 2012, the Commonwealth acknowledged KY Spirit’s intent to cancel its contract one year early in July 2013 due to lost profits under the managed care structure.

This past February state auditor Adam Edelen heard enough. He created the Medicaid Accountability and Transparency Unit (MATU), which would provide recommendations to the CHFS for ways to improve the system.

Edelen recently released a 97-page report titled Special Report of Certain Policies, Procedures, Controls and Financial Activity Regarding Medicaid Managed Care, which contains a summary of the work MATU performed over the past 16 months. What it found was not pretty.

Not Enough Providers
The report found an eight percent drop in hospitals and other healthcare providers serving Medicaid members. The most significant change was related to general hospitals, which saw a reduction of 586 providers, or 57 percent, since the inception of the program through February.

Only seven of those 586 providers are in Kentucky, but the report found that 310 are in the seven border states. That could affect Medicaid members living in or around border counties.

Issue of Access
The auditor’s office found that although 100 percent of Medicaid members had access to hospitals and primary care providers, concerns remain about how contractual requirements in certain rural areas are met given the challenging geography in many parts of the state. Contracts with the MCOs permit miles to be measured by straight-line distance instead of driving distance, meaning that some members may struggle with adequate access to care.

“This is an issue of access,” Edelensaid. “Managed care is designed to save taxpayer dollars, but it can’t be at the expense of the health of our citizens.”

Currently, Medicaid provides healthcare to roughly 787,000 lowincome Kentuckians. Under Medicaid expansion scheduled for next year that number will increase to an additional 300,000 Kentuckians.

Further, a report titled, “Health Care Workforce Capacity Report” by Deloitte Consulting released May 22, 2013, indicated that Kentucky needs approximately 3,790 additional physicians, 612 additional dentists, 5,635 additional registered nurses, 296 additional physician assistants, and 269 additional optometrists to adequately meet the current demand on the Medicaid program.

How the state will provide healthcare to more patients with fewer providers is yet to be seen.

Rural Hospitals Struggle
One of the most significant and troubling concerns Edelen’s report found is whether Kentucky’s rural hospitals could continue to afford to “float” Medicaid related costs.

One hospital reported a nearly 300 percent increase in the amount of outstanding claim payments due to errors in claim processing, lack of clarity with certain MCO policies, contradictory communication with the MCOs or problems with coding.

Cash flow problems create a strain on finances, making it difficult for hospitals to pay employees, vendors and others. It also can impact the hospital’s debt capacity and/or debt rating, making it more expensive to acquire financing.

It is questionable as to whether these hospitals have access to resources necessary to handle the financial and administrative burdens discussed in the report for a long period of time.

“I am concerned about the long-term viability of some of our rural hospitals, and in turn, even more worried about access to healthcare by all rural Kentuckians,” Edelen said.

Where Trouble Started
The report concluded that some of the issues discovered were the result of the quick transition to managed care. MCOs had four months to establish operations in Kentucky. There were misunderstandings by both the MCOs and the CHFS due to inadequate time allotted for preparation between the Request For Proposal (RFP) approval and the go-live date, the report explained.

This aggressive time schedule caused certain intricacies specific to Kentucky Medicaid not to be disclosed to or fully understood

by the MCOs, which led to inappropriately denied claims, delayed payments and general administrative issues.

Looking Forward
The auditor’s office has made a series of recommendations to the CHFS for improving the system and will continue to do so.

The report concludes stating, “Although it is evident that concerns are still outstanding related to Kentucky’s managed care system, the system continues to evolve, as does the Cabinet’s approach to overseeing the program. However, given the litigation currently on-going, and contract terms set to expire in just over one year, the system is at a critical stage. This will require the Cabinet’s full attention to ensure the system makes it through this
period intact.

“Ultimately, the Cabinet is responsible for ensuring this is a viable program that will succeed in meeting its primary objective of providing improved healthcare to Medicaid members and reduce costs to the Commonwealth.

Edelen remains optimistic. “I have said from the beginning that I believe managed care is the right thing to do, but it has to be a fair deal for providers, members and taxpayers,” he said.


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