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Medicaid makeover: Can Kansas learn from Kentucky?

Kentucky state auditor says Kansas should avoid the managed care mistakes of the Bluegrass State

By Dave Ranney, Mike Shields | June 11, 2012

Kentucky already has done what Kansas is getting ready to do: It hired three managed care companies to run most of its Medicaid system.

Medicaid is the state and federal program that provides health coverage for the poor and disabled. In Kentucky, there are about 885,000 people enrolled in it. In Kansas, there are about 380,000.

Kentucky Gov. Steve Beshear, a Democrat elected to his second term in 2010, said the for-profit companies’ business-like approaches would save the state and federal governments hundreds of millions of dollars over a three-year period. At the same time, he said, the state’s health outcomes would improve.

Kansas Gov. Sam Brownback, a Republican, said much the same when he announced KanCare, his plan to remake the state Medicaid program.

But Kentucky's transition to a fixed-rate managed care system, which began only a few days before Brownback announced his plan in November, has been plagued by problems during its first seven months of operations.

More states have been shifting to fixed-rate Medicaid managed care plans as policymakers look for ways to contain growing program costs. Kentucky has had more trouble than most. One observer called it "the poster child for managed care growing pains."

Kentucky Auditor Adam Edelen

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Learning from mistakes

Adam Edelen, the Kentucky state auditor, told KHI News Service that Kansas officials should pay close attention to what has happened in his state to perhaps learn from its mistakes.

“Shortly after I came into office (in January), I started getting phone calls from (Medicaid) patients who were frustrated because they couldn’t get in to see the doctors they were used to seeing,” Edelen said. “Then I started hearing from providers who’d gone 90 days without being paid. Kentucky is much like Kansas. We’re a small, rural state, and many of our practitioners and family practices are like small businesses. When their accounts receivable are 90 days in arrears, they’re in a real cash crunch.”

Edelen said when the problems began, he called a “very respected” banker friend to find out if small-town doctors truly were having to borrow money to keep their doors open.

“He said, ‘Adam, that’s all that bankers in Kentucky are talking about.’”

Edelen’s office, Auditor of Public Accounts, is an executive branch agency independent of the governor’s office and the state legislature. Edelen, also a Democrat, launched a quick review of the policies governing the new Medicaid system.

He said he soon learned that the new system relied on telephones, fax machines and paper copies. It was meant to be slow.

“I don’t have a problem with managed care,” he said. “But I have real problem with a system designed to create logjams in order to slow payment (to medical providers). The notion that (payment) authorizations could be denied via the mail is absurd.”

He also found that between November 2011 and February 2012, the managed care companies had “taken $708 million from taxpayers and paid (providers) $420 million. That’s not acceptable.”

Edelen put together a list of 10 recommendations to improve the new system and in February announced that “sweeping audits” of the managed care companies would be completed by year’s end.


Auditor Recommendations

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There are other reasons Kansas officials might want to closely watch Kentucky’s Medicaid experience.

The three insurance companies brought in to run Kentucky’s Medicaid program – WellCare, Centene and Coventry – are among the five bidding on the Kansas Medicaid contracts, which were let in November and are scheduled to be signed by July.

The Brownback administration's plan is to hire three of the companies to operate statewide, providing services to virtually all of the state's Medicaid clients, including long-term services for the elderly, physically disabled and ultimately the developmentally disabled. Those three Medicaid subgroups generally are considered the most expensive and problematic to include in managed care. They were left out of Kentucky's new managed care system.

Some tips

Edelen said he had several bits of advice for Kansas policymakers:

• “Slow down until you know you have it right, because the gaps you have in your system at the time of a premature rollout will only be exacerbated – I promise you that.” He said Kentucky spent less than six months assembling its reform package. In hindsight, it should have spent a year to 18 months.

• “Like President Reagan used to say: Trust but verify.”

• “Unless you have elected representatives who are in a position to provide vigilant oversight, things will get out of control. In fact, it’s their very nature to get out of control.”

Learning from other states

Kari Bruffett is director of the Division of Health Care Finance at the Kansas Department of Health and Environment, the agency that oversees state Medicaid finances and contracting. She said Brownback officials have been watching a number of other states, including Kentucky, as they prepare to remake the Kansas program.

Kari Bruffett

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"Kansas has been following Medicaid developments in many other states; Kentucky has certainly been among those,” she said in an email to KHI News Service. “Many of the protections explicitly in the KanCare (contract proposal), and ultimately in the contracts we'll sign with selected contractors, were designed to address some of the challenges we've seen elsewhere.”

Bruffett said the administration has been working with the consulting firm Mercer to assess the readiness of the managed care companies prior to KanCare’s launch. Mercer is an international firm that specializes in human resources and outsourcing. It has a regional office in Kansas City, Mo.

“The state agencies involved with Medicaid are working with Mercer to develop readiness review tools, to include desk audits and on-site reviews,” she said. “The reviews will be used to determine compliance with state and federal requirements, as well as operational readiness. … We will not implement if reviews indicate the plans aren't ready.”

‘Tails kicked’

Edelen also said Kansas policymakers should monitor the ongoing legal dispute between the managed care company, Coventry Cares, and Appalachian Regional Healthcare (ARH), a nonprofit group that operates eight hospitals in southeast Kentucky, a hardscrabble region known for its coal mining and its rankings among the nation’s worst for some health care measures.

The lawsuit could serve as a case study of what can go wrong between managed care companies and medical providers.

In March, Coventry Cares let AHR know that it planned to drop its contract with the hospital chain to provide services because Coventry was losing money on its state Medicaid contract and needed to cut costs. Hospital officials, in turn, sued Coventry Cares, accusing the company of not paying its bills.

In late April, Coventry Chief Executive Allen Wise was quoted in the Wall Street Journal saying, "We are getting our tails kicked" in Kentucky. The company reportedly was spending $1.21 on medical care for each $1 it was getting from its state contract.

The Appalachian case is in U.S District Court in Lexington, Ky. The Coventry contract with the hospital group expires June 30.

The AHR hospitals are the only hospitals in each of their communities. According to hospital officials, if the contract were not renewed, the hospitals’ Medicaid patients would be forced to drive one to two hours for care.

About 25,000 Medicaid clients in the hospitals’ catchment areas are covered by Coventry.

ARH also has filed a similar lawsuit against Kentucky Spirit Plan Inc., a Centene subsidiary.

'It's capitalism, I support that'

“I’m a believer in managed care,” Edelen said. “There are benefits to having entities come in that have a profit motive that’s based on efficiency, elimination of fraud and taking on some of the long-term wellness issues. But it has to be done correctly and there has to be oversight that’s vigilant. When there isn’t, that’s when the bottom-line orientation takes over and that’s when you get in trouble. It’s OK for these companies to make money – it’s capitalism, I support that. But when you outsource the administrative function of a public mission, you have to double down on accountability so that more than the bottom line is taken care of."

Bruffett said Brownback officials would continue to be involved with KanCare after the program is launched.

“Lt. Gov. (Jeff) Colyer and the Health and Human Services Working Group, including the secretaries of the agencies responsible for Medicaid, will continue to be very involved in KanCare moving forward,” she said. “We also know there is great interest among legislators, so we look forward to having a very transparent program that keeps all legislators and particularly the relevant committees informed. The state will be responsible for enforcing the terms of the contract, and we'll be working with our EQRO (External Quality Review Organization) and other partners on validating performance measures. We're also requiring the KanCare contractors to have an ongoing quality assessment and performance improvement program.”

The state’s External Quality Review Organization is the Kansas Foundation for Medical Care Inc., a Topeka-based nonprofit group that has had the state contract since 1995, when Kansas implemented its first managed care program. The current contract with the foundation extends to Dec. 31, 2014.


Edelen said it was too soon to say whether the managed care companies have improved Kentucky’s Medicaid program. But he said there had been some gains in the timeliness of payments to providers since the initial wave of problems.

"We have seen an improvement in speeding payments to providers of billing," he said. "But let’s be clear: Improvement doesn’t mean we are where we need to be. We’ll be drawing more thorough conclusions as our audits and investigations continue through the end of the year."

Kansas worries

Anna Lambertson, executive director of the Kansas Health Consumer Coalition, said she was worried that Kansas might run into the same types of problems Kentucky has experienced.

“We’ve said from the get-go that the timeline for having KanCare up and running in six months is incredibly rushed,” Lambertson said. “Here we are, it’s summer and we don’t have our MCOs (managed care organizations) selected. We’re saying (KanCare) is going to start Jan. 1, and we don’t have a clear picture of what the legislative oversight is going to look like or if there’s even going to be any.”

Lambertson said she was glad the Brownback administration had formed a 20-member KanCare Advisory Group, which met March 29 and May 21. But she said it was too soon to know if the group would provide meaningful oversight.

“We really haven’t seen how it’s going to work yet and if it’s going to be structured in a way that provides substantive feedback throughout the implementation of KanCare,” she said. “So is there going to be sufficient oversight? I’d say we don’t know yet.”

A bill that would have created a special KanCare oversight committee failed to pass during the recent legislative session after members of the House and Senate couldn't agree whether the proposed joint committee's first chairperson should be a House member or a senator.

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