State awards Medicaid managed-care contracts to 4 firms, including Passport; networks to be established by Oct. 1

In an effort to save $1 billion in the next three years, and fill a hole in the current state budget, Gov. Steve Beshear announced Thursday that Kentucky's Medicaid program will be run by four companies, including the beleaguered Passport Health Plan. (Associated Press photo by Ed Reinke)

The move will affect 815,000 Kentuckians who qualify for Medicaid, a program for the poor and disabled. Despite the changes, they will not see a cut in services, and the moves are expected to create nearly 550 jobs, Beshear said. For his press release, click here. For audio of his press conference, go here. He plans to fly around the state Friday to get the word out about the changes, the Lexington Herald-Leader reports.

The companies are Coventry Health Care, based in Bethesda, Md.; WellCare Health Plans of Illinois; and Centene Corp. of St. Louis. As it has been doing already, Passport will serve Jefferson and 15 neighboring counties, but its contract was renewed for only one year. The other companies were awarded three-year contracts. Passport was the subject of a scathing audit earlier this year by state auditor Crit Luallen, who uncovered unnecessary spending. The other organizations operate in at least seven states each.

Now that the contracts have been awarded, the companies will start establishing provider networks, which they have until Oct. 1 to do, Jill Midkiff, spokeswoman for the Kentucky Cabinet for Health and Family Services, told Kentucky Health News. Initially, Medicaid recipients will be matched with a company based on what network their doctor is part of. "But if they don't want to stay with that company, they can change immediately or change after they've been with them for a little while," Midkiff said.

Unlike with Passport, Midkiff said, Coventry, WellCare and Centene will not be responsible for a specific number of counties; they will simply serve their in-network doctors, wherever they happen to be. "Which doctors are in which networks in which counties is not a question I can answer," Midkiff said. "It will be something the companies will be working to establish."

Moving to managed care is the Beshear's administration's answer to fill a $166 million hole in the Medicaid budget, created by a lack of expected federal funding. The federal government pays more than 70 percent of Medicaid costs, bringing the expected savings to $1.3 billion over three years.

Lawmakers vigorously butted heads over how to resolve the issue, making it the most contentious of this year's legislative sessions. The Democratic House sided with Beshear's plan, but the Republican-led Senate fought it, saying managed care would not save the money Beshear promised. They instead proposed making across-the-board cuts, even to the basic school-funding formula. The issue went to a special session, with Beshear warning that, without a compromise, Medicaid reimbursement to hospitals and providers would have to be cut 35 percent. When he promised House Democrats that he would line-item-veto the Senate's spending cuts, the House passed the bill and he made the vetoes.

The bill gave state officials had until July 1 to get contracts in place, a deadline they missed by almost a week. The plan must now be approved by the federal Centers for Medicare and Medicaid Services. The waiver was submitted to CMS June 11. CMS officials have 90 days to review and approve or disapprove the submission.

WHAT IS MANAGED CARE?

A managed care organization "in the broadest context is an organization that is responsible for managing patient care as opposed to just paying the bills that come in," explained Robert Slaton, who was executive vice president of University Healthcare, now known as Passport, from 1998 to 2006. In the traditional Medicaid setup, the doctor or hospital bills the state and the state pays the bills. "With an MCO, the doctor or hospital bills the managed care company and they have a lump sum from Medicaid and they pay the bills," Slaton explains.

Before the contracts were signed, Slaton said the MCOs likely studied Kentucky demographics carefully and came up with a lump sum they would like to be paid per patient based on the Medicaid members in the state. "Our experience was they had a very sophisticated information system and over time they were able to drill down to understand exactly where expenses were being incurred, more so than a total statewide system," Slaton said.

Because the lump sum it receives for each patient stays static, unlike in the fee-for-service model in which the state pays for whatever bills are incurred, there is incentive for the MCO to keep costs down. That can mean requiring more preventive care, like screenings or dental checkups, in order to save money in the long run; and analyzing care to prevent duplication of services. And it can involve sending case managers to visit repeatedly ill patients to help them get their health issues in check. "It's the kind of thing where it's doing the right thing and also, in the long run, saves money," Slaton said. "If someone who is a diabetic gets sick, you don't want to just pay for them to go to the doctor. You want somebody to help them figure out how to live a healthier lifestyle."

Because there is incentive for MCOs to keep costs down, does that also create incentive to deny care? Slaton said no. "It used to be probably true that there was too much emphasis on denying care," he said. "Now what they try to do is provide appropriate and necessary care, but eliminate duplication ... The old ways of cutting fees and denying care just won't fly. You'll have such a political backlash that you end up losing your contract."