Insiders are telling Insider Louisville Gov. Steve Beshear’s big plan to switch to managed care from fee for services – announced last spring during the gubenitorial race as a way to to close Kentucky’s $1 billion Medicaid budget gap – is looking like it will add to the pain on every possible level from personal to financial.

Those insiders are telling Insider Louisville Kentucky’s managed care system is in chaos after a rushed implementation, a situation that may take years to fix.

“If you’ve ever been in the military … you’ll know the term ‘FUBAR’ (fouled up beyond all repair). That comes as close to describing this as anything,” said one source who represents health care providers and pharmacies.

The Lexington Herald-Leader has reported on problems Medicaid members are having getting care, as well as on the problems providers are having getting paid by the managed-care insurers.

Insiders are telling us the story from the other side – the insurer side – and it’s not pretty, with one company shedding customers after its executives low-balled a bid under a state request for proposal last April.

Here’s the crucial information no one else is reporting:

A huge number of Medicaid-covered patients have dumped the low-ball bidder, St. Louis-based Centene Corp., after they figured out the cut-rate provider network means their doctors aren’t included in their coverage.

Insider Louisville’s sources say about 40,000 Medicaid members in Kentucky who’d been assigned to Centene have bolted because they noticed their local docs or pharmacies AREN’T part of their plan.

One stock analyst who covers Centene said Centene officials confirmed during a Tuesday earnings conference call that the insurer’s managed care membership in Kentucky dropped by 40,000 – to 140,000 from 180,000 members – during a two-month open period in November and December, “and they didn’t give a good reason.

“They said it was a ‘benefit design adjustment,’ which makes no sense at all.”

A well-placed insider said Centene executives approached top Health & Family Services Cabinet officials last month, essentially asking for an adjustment on their contract.

“They were asking for more money,” the source said. “(The request) was not well received.”

The reason it’s not well received is in the grade-school math: Those 40,000 Medicaid Members who were going to cost the state $12 million per month at Centene’s $330 per member, per month bid now could cost as much as $17.2 million per month if they all went to Coventry, which is getting 30 percent more per member, per month.

Times 12 months, times the three year life of the contracts.

Ouch!

But the request for an adjustment also raises the specter of Centene walking away from its managed-care contract, willing to take a chance that a legal fight would be less expensive than sticking out the contract.

A report this morning by investment services giant Morgan Stanley raises questions about how the contract implementation in Kentucky will affect Centene.

KY enrollment lowered: Given the dynamics of year-1 margins, lower KY enrollment actually helps our ’12E EPS. However, from a longer-term perspective, a smaller KY market share implies a lower long-term return on this contract. KY is one of the first new contract implementations and enrollment is tracking >20% below initial expectation while it is unclear that margins will come in better than CNC’s initial plans.

But as Centene bleeds Kentucky Medicaid membership, it’s Bethesda, Md.-based Coventry Health Care that’s getting the negative publicity for not paying providers.

Sources confirm officials from Kentucky’s Director of Medicaid Services – part of Kentucky’s Department of Health and Family Services – descended on Coventry Health Care’s offices in Louisville yesterday in an unannounced visit related to Coventry’s failure to reimburse health care providers treating Medicaid patients.

State officials did not return Insider Louisville’s calls, which came just as Health & Family Services Cabinet Secretary Janie Miller resigned yesterday.

The Herald-Leader and other state newspapers– though not so much the Courier-Journal – have documented the big flaw in Beshear’s plan: Health care providers, pharmacies and others report they aren’t getting paid by Coventry and other health insurers that won billions worth of state contracts.

Those who are getting paid are having to negotiate long waits to get procedures approved, or to get denials of care reversed, according to media reports.

All of which are threatening to put providers out of business is a state that already is woefully short of docs and health care professionals.

Now, sources tell us CJ reporter Deborah Yetter is playing catch-up with a series of articles:

Her focus will be on the impact of the changes on providers and patients, but will miss an important point … whether the approach will generate the savings the Governor and Secretary of Health and Family Services Cabinet Janie Miller have touted.

Our sources say the answer is, “No.”

Here’s why:
So, the much-touted plan cut Medicaid costs by $375 million is on track to lose an additional $43. 2 million.
(Editor’s note: Miller resigned yesterday, though it’s not clear if her departure is related to the medicaid changes, or to the controversy growing out of the state’s refusal to release information related to the deaths of abused children.)

Back in April, Centene, Tampa-based WellCare and Coventry were among a number of health insurers bidding on about $6 billion in annual Medicaid managed care contracts for about 800,000 Medicaid members as Kentucky switched to managed care from a fees-for-services system.

Beshear’s plan was, critics say, grandstanding – a way to claim to be closing the state’s Medicaid funding gap during a campaign against Sen. David Williams, who called Beshear’s budget schemes “smoke and mirrors.”

Centene, WellCare and Coventry are all publicly traded companies. Passport Health Plan, a Louisville-based non-profit controlled by providers, is the managed care insurer for Jefferson County and 17 surrounding counties.

Each bid was based on per-member, per-month health care costs projections. Low-bidder Centene bid $330 per member, per month, according to documents submitted to Insider Louisville. WellCare bid was based on $400 per member per month and Coventry bid $436 per member, per month.

The algorithm state officials used to choose the winners favored the low-cost plans, obviously, because therein lies the savings Beshear was touting.

The state methodology initially assigned members to a plan, with the two lowest cost plans getting more members than the highest.

If Centene’s manged care system, for example, could actually get each member to spend less than $330 per month, they’d make a profit. But crucial to getting costs that low would mean lowering reimbursements to health care providers such as doctors and pharmacies, which meant losing some.

Sources in the meeting or with direct knowledge of events confirm state officials were congratulating themselves on implementation until a January meeting betwwen Kentucky Hospital Association members and Miller.

Instead, “agitated” KHA members told Miller the implementation was a disaster, with providers from doctors groups to pharmacies not getting paid, said a source.

“What you’re seeing is, they slammed this thing through, and now it’s coming home to roost,” said an insider. “Any complex business transaction … when you rush it, you’re going to have a bunch of stuff happen that you didn’t anticipate.”

The back story on Medicaid changes in Kentucky: In April, 2011, state officials asked health insurers to submit managed-care proposals for the $6 billion worth of care 800,000 poor and elderly Kentuckians receive annually under the federal/state Medicaid program. At the time, Beshear touted the switch to managed care from fee-for-services as saving the state $375 million over the life of the initial three-year contracts. Insiders said officials in other states such as Georgia took as long as 18 months to make the change while Kentucky tried to do it in less than six months.

Terry Boyd
Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.

5 thoughts on “‘Smoke and mirrors’: Sources predict Beshear’s rushed Medicaid managed care plan ‘will hurt everyone’

  1. Looking at the numbers presented, the plan won’t lose an additional 43.2M – the savings will just be 43.2M less than projected earlier.    Current costs are presented as $2.895B, and actual costs under the MC plan are shown as $2.593B – a savings of ~ $302M. However, it remains to be seen if the MC costs hold up and actually result in any savings after the full year.

  2. Looking at the numbers presented, the plan won’t lose an additional 43.2M – the savings will just be 43.2M less than projected earlier.    Current costs are presented as $2.895B, and actual costs under the MC plan are shown as $2.593B – a savings of ~ $302M. However, it remains to be seen if the MC costs hold up and actually result in any savings after the full year.

  3. Pingback: Who would have thought that privatizing Medicaid would lead to problems? | Barefoot and Progressive

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