Evolent Health to buy 70% of Passport Health Plan; will continue to serve the company's more than 300,000 Medicaid beneficiaries

Evolent Health, a for-profit national health management company, has agreed to purchase Passport Health Plan, the struggling, nonprofit Medicaid insurer based in Louisville.

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Evolent, which has provided services and staff to Passport since 2016, will purchase a 70% share of Passport for $70 million, and invest additional funds to shore up the company's finances.

Passport has struggled since the state cut its Medicaid rates for the Louisville region last year, where it does most of its business, notes Deborah Yetter of the Louisville Courier Journal.

Scott Bowers, Evolent's national Medicaid president, has been named the new CEO of Passport, replacing Mark Carter on June 7, Yetter reports. Carter will remain on for a period as an adviser.

The company will continue to serve the more than 300,000 Kentuckians who get their Medicaid health coverage through Passport and will continue to operate under the same name, it said.

The remaining 30 percent of Passport will remain with its founding members, including the University of Louisville, the U of L Medical Center, University of Louisville Physicians, the Jewish Heritage Fund for Excellence and Norton Healthcare. U of L will get nearly $45 million from Passport's sale to Evolent, Morgan Watkins reports in a separate Courier Journal article.

The university owns 64% of Passport, and 70% of that will be sold for about $44.7 million, U of L President Neeli Bendapudi told reporters. That will leave it with a 19.2% stake in the company.

Bendapudi said $16 million from the sale would be used to retire U of L Physicians' bank debt; $3.5 million to stabilize U of L Physicians' cash position; and $16 million to reduce the School of Medicine's deficits. She declined to provide details on the nature of the deficits, and said the sale wouldn't be enough to resolve financial issues at the school and the physicians' practice.

The deal is subject to approval of state and federal regulatory authorities including the federal Securities and Exchange Commission, a process that is expected to take 60 to 90 days.

Officials with Passport and Evolent told Yetter that they are committed to resuming work on the company's new headquarters in West Louisville, which was suspended in February. Carter and Bowers told Yetter that they are still in discussions about how to revive the stalled project.

Passport is one of five companies that manage most of the state's $11 billion-a-year Medicaid program that serves around 1.3 million people. Passport is the only nonprofit; the others are subsidiaries of for-profit insurance companies.

Passport fell into trouble last year when the Cabinet for Health and Family Services changed its geographic allocation of Medicaid money, cutting the Louisville region that Passport serves by 4.1% while the rest of the state was raised 2.2%. State officials have held firm that the new rates were developed with the aid of an independent actuary and were not aimed at any individual company.

The state recently enacted revised rates that effectively restored Passport to its original, higher rate, Yetter reports, but Carter told her that that wasn't enough to make up for the roughly $100 million it lost since July 1. He said the additional investment by Evolent should make Passport solvent.

This isn't the first time Passport, which was founded in 1997 as a pilot project to control Medicaid costs in the Louisville region at the request of state officials, has found itself in the news.

In 2010, a state auditor's report found "wasteful spending of Medicaid funds" at Passport. Along with a strong reprimand from then-Gov. Steve Beshear, the report resulted in sweeping reforms, including a restructure of Passport's board, hiring new executive leadership, cutting expenses and firing its outside lobbyists, Tom Loftus reported in a 2015 Courier Journal article.

And while Beshear asked Passport to stop spending money on anything not directly related to patient care, he later asked for, and Passport provided in May 2015, a $25,000 contribution to the Democratic Governors Association in May 2015, which had already given "$600,000 to Democratic super PAC supporting the election of Attorney General Jack Conway as governor."

Beshear and Carter told Loftus that the $25,000 was not a political contribution, but for sponsorship of a one-day health policy conference co-hosted by the DGA in Louisville. Senate Republican Leader Damon Thayer, of Georgetown, disagreed, saying, "I'm not saying this is illegal, I'm just saying call this what it is -- a political contribution." Only three states elected governors in 2015.

At the time, Conway was running against Republican Matt Bevin, now governor, and they had starkly different opinions about Beshear expansion of Medicaid to people who earn up to 138% of the federal poverty line, under the 2010 Patient Protection and Affordable Care Act. Conway fully supported the expansion, while Bevin said he would end it if elected. In July, he changed positions, saying he would seek a waiver from federal rules that would make Kentucky Medicaid more like the program in Indiana, in which beneficiaries pay small premiums based on income.

Since being elected, Bevin has sought a waiver that includes premiums and "community engagement" requirements, including work, for "able-bodied" beneficiaries. A federal judge twice rejected the plan, which is now before the U.S. Court of Appeals for the District of Columbia.

Medicaid managed-care firms get new contracts with new rules aimed at resolving health-care providers' issues with program

Kentucky has signed new contracts with five managed-care firms that will manage Medicaid coverage for more than 1.1 million Kentuckians. Contracts were awarded to Anthem, Coventry Cares, Humana, Passport and Wellcare.

Kentucky changed Medicaid to managed care from a traditional fee-for-service model in 2011 to save money, and officials say it has worked. Health-care providers remain unhappy about denial and delay of claims by the managed-care organizations (MCOs).

“Statistics confirm that moving to a managed-care model has saved Kentucky taxpayers more than $1.3 billion in state and federal funds while simultaneously improving the delivery of health-care services to our Medicaid population," Health Secretary Audrey Haynes said in a news release.

At the same time, managed care has been a good deal for the companies, except Humana. "Last year, [they] cleared more than $500 million in income above expenses, according to statements companies must file with the Kentucky Department of Insurance," Debby Yetter reports for The Courier-Journal. "Some of the profits ranged from 7 percent to nearly 18 percent in 2014," but the new contracts limit that to about 6 percent.

They also require 82 to 87 percent of the payments to the MCOs to be spent on direct services to its members. The payments are per-person fees, based on the number of people whose care is being managed.

Haynes said the contract improvements "should please consumers, advocates and our health care providers" and "will translate into more options and improved services from our managed care companies."

The new contracts also address many of the issues about which hospitals and other providers have been unhappy, such as slow and reduced payments, complicated paperwork and other procedural differences among the companies.

The new contracts require a standardized contract and standardized forms for prior-authorization requests, grievances, appeals and claims.

Two passionately debated bills in the recent legislative session challenged some of the practices of the current MCOs: one seeking an appeals process for denial of payment and the other removing a cap of "triage fees" for emergency room services that MCOs later deem not to be emergencies.

Both issues were addressed in the new contracts. Now, MCOs must make sure they are using appropriate medical specialist to determine "medical necessity," initially and in any review process, and the cabinet will be responsible for reviewing denials of "medical necessity" appeals and denials of payment for emergency-room use.

Sen. Ralph Alvarado, R-Winchester, co-chair of the joint House-Senate Medicaid Oversight Committee, told Yetter that "he hopes the new contracts will clear up the problems" and he also hopes "the state succeeds in controlling profits of the managed-care companies, calling it an outrage that some companies are reaping millions off the program while denying care or delaying payment."

The new contracts also include incentives for MCOs and Medicaid members to decrease use of emergency rooms, and encourage the expansion of behavioral health services.

They offer incentives to to MCOs to continue to improve health outcomes for their members, and spells out new, stringent standards for companies that don't comply with their contracts.

The contracts are for one year beginning July 1, with the option of four annual renewals.

Kentucky, insurance companies are applying lessons learned in state's hurried transition to managed-care Medicaid

By Molly Burchett
Kentucky Health News

Gov. Steve Beshear rushed to transplant Medicaid into a new bed called managed care, hoping the new medium would save money and improve health, but his administration didn't take time to condition the soil, fertilize the ground or oil the machinery in 2011. This month, managed-care company Kentucky Spirit proved to be the self-plucking bad weed, fleeing the state as it cited unbearable costs.

Kentucky’s hurried transition to Medicaid managed care has been anything but smooth for many doctors, hospitals and other health-care providers. They have complained about late payments and burdensome reimbursement processes.

It's also not been smooth for the state or the managed-care firms, which are subsidiaries of insurance companies. There have been court battles, tension-filled negotiations, dropped contracts, allegations of a contract breach and now the departure of Kentucky Spirit, pushing its 125,000 clients to one of the other two companies operating outside the Louisville region.

Most important, patients have suffered from the rapid switch and ensuing wrangles.  They complain that prescriptions previously covered by the old "fee for service" system are now denied as not being"medically necessary" by managed-care firms, which the state pays a set fee per person. Patients in rural areas complain because they must drive long distances to find providers in their Medicaid company's network.

But there have been improvements in delivery of health care, particularly in the areas of vaccinations and other preventive services, says the state Cabinet for Health and Family Services. Those include a 33 percent increase in flu vaccinations and an increase in immunizations for children, more well-child visits, increased smoking-cessation consultation, and more than a 50 percent increase in diabetes testing, cabinet spokeswoman Jill Midkiff said.

State and companies made some missteps

Amid those encouraging signs for the future, most of the news about managed care in the past 10 months has been about Kentucky Spirit's potential departure  which occurred July 6. The cabinet is preparing legal action to seek damages from Kentucky Spirit for abandoning its contract; the company, a subsidiary of St. Louis-based Centene Corp., says it didn't break the contract and took every step possible to make a smooth and orderly transition. The state Court of Appeals ruled that Kentucky Spirit could end its contract without a two-month transition period for patients because the state had plenty of time to make arrangements for the company's departure.

It's not clear that the state can recoup damages, or lost taxpayer money, from Kentucky Spirit, though it is having to pay the other two companies more because Kentucky Spirit was initially the low bidder for a managed-care contract. CoventryCares and WellCare of Kentucky are paid an average of about $100 more per month per Medicaid patient.

When Kentucky Spirit first threatened to leave in October 2012, it said it was losing money due to "faulty data" the state provided during the bid process. The two other companies received the same information.

"There were no flaws in the state's data book," CoventryCares CEO Michael Murphy told Kentucky Health News. But he said the companies miscalculated because the data book didn't refer to retroactive payments. That led to a loss of $50 million for Coventry in the first quarter of 2012, he said. Now, he added, the company has a greater understanding of the system.

WellCare, asked if the state provided faulty data, did not answer as definitively. "Medicaid programs are expansive and complex, and it is not unusual for any state to provide data during a RFP [request for proposals] process that may have anomalies or other issues that could negatively impact rates if left unaddressed over time," said Mike Minor, president of the firm.

Schedule seemed politically influenced

Both companies said the state's transition to managed care was rapid and taught difficult lessons. That raises questions about whether haste made waste. Kentucky Spirit blames the state for its losses, and providers blame managed care companies for reimbursement issues, but evidence continues to clearly indicate two problems: too little time and money.

The state has been using managed care in the Louisville region through the not-for-profit Passport Health Plan since the late 1990s, and had long considered expanding it to other parts or all of the state to save money as Medicaid costs burgeoned, especially during the Great Recession.

Gov. Steve Beshear proposed statewide managed care in the budget he gave the General Assembly in early 2011, called a special legislative session to authorize it in March 2011, and signed the legislation on March 25 of that year. The state requested proposals from managed-care companies two weeks later, and bids were due less than two months later.

Contracts were finalized July 8 but implementation was not scheduled until Oct. 1. It was delayed until Nov. 1 "at the insistence of the Kentucky Hospital Association," which "asserted more time was needed for hospitals to negotiate contracts with plans," says a University of Kentucky report published last year and funded by the Foundation for a Healthy Kentucky.

"Several informants told us that they believed that the upcoming election for Kentucky’s race for governor was a primary contributing factor in the rapid implementation timeline," the report says. "Beshear’s office saw the closing of this gap as a major issue that needed to be addressed before the November election," which was held Nov. 8. That effectively delayed most publicity about complaints regarding implementation until after the election.

"There is no doubt that the commonwealth’s rapid transition from a Medicaid fee-for-service program to a managed-care program raised a number of unforeseen challenges," said Minor, of WellCare.

"Certainly, the short timeframe . . . made for a difficult transition," said Midkiff. "Despite the negative portrayal of the managed-care companies, much progress has been made . . . and we expect that progress will continue."

Implementation timeline from UK's Medicaid managed care report

In October 2012, the managed-care companies continued to be dissatisfied with their fees, claiming they were inadequate to provide quality care, says the UK report. In January 2013, the state gave CoventryCares and WellCare 3 to 5 percent rate increases.; Kentucky Spirit asked for 21 percent, Murphy said, but got only 1 percent.

Murphy said the state had reduced rates below those established by the federal Centers for Medicare and Medicaid Services. "We want to establish base rates for primary care services that we hope the state will continue," he said.

Minor said, "While there were legitimate prompt-pay issues during the first six months of implementation of Medicaid managed care, we are now well past those issues."

Looking ahead

Murphy said some of CoventryCares' initial failures were due to the company's lack of understanding, and it has found Health and Family Services Secretary Audrey Haynes and her actuaries very cooperative and transparent, helping improve the system. "CoventryCares had to first figure out the problems going on with providers and payments. We had to understand the risks we had, and things have settled down quite a bit, especially regarding the pre-authorization process," he said. "We've stopped the bleeding."

Murphy said health-care providers will bear the burden of Kentucky Spirit's departure. To resolve issues faced by providers even before that, the cabinet has held regional forums across the state. Reception at the forums has been positive, and providers have been grateful for the opportunity to address any problems or complaints they have with the cabinet and Medicaid staff, said Midkiff.

Some providers still complain, saying that they should not have to meet with managed-care and state officials to receive payment for services already provided to Medicaid patients.

Starting in January 2013, primary care providers were supposed to be paid Medicare rates for Medicaid services over a two-year period, but some providers have yet to see that rate increase. Murphy said Coventry is planning to pay the increased rates as soon as the state's application is approved by federal officials.

Murphy said managed care should not be about the money, but about the member. He said primary care is at the core of improved health outcomes. Minor said WellCare has also made it a goal to establish relationships with primary-care providers.

But for those primary-care providers facing financial difficulties in wake of payment cuts, it is about the money because they need it to keep their practices open.

One of providers' latest complaints is CoventryCares' recent limit on dispensing certain prescription pain killers, to a 15-day supply. The move was made "to curb the manipulations going on with opioid painkillers," said Russell Harper, the company's director of government relations.

Murphy said, "It's not everybody, but there are physicians that don't want to engage in health care." He acknowledged that the prior-authorization process between doctors and pharmacists can be a hassle, but it's just another facet of managing the health care of Medicaid patients. That, and saving money, are what managed care is all about.