We started hearing hints this morning from insiders about an announcement coming out of Frankfort this afternoon related to an audit of Passport Health Plan.

Our sources told us Passport, which had multiple problems in 2010 under its now-departed management, will get the all clear from the Kentucky Cabinet for Health and Family Services.

BUT, CHFS officials also will announce they’re soliciting requests for proposals for Passport’s region, which includes Jefferson County and 14 surrounding counties, and 170,000 Medicaid members.

Which is all confirmed in a news release sent minutes ago. (See below.)

This is – to say the very least – an interesting turn of events because so far, Kentucky’s switch to Medicaid managed care organizations from fees for services has been nothing short of a cock-up.

Passport, which is an MCO, was already in place in Region 3, and was unaffected by the switch.

In the rest of Kentucky, Medicaid contracts were awarded to three other bidders – St. Louis-based Centene Corp., Tampa-based WellCare Health Plan and Bethesda, Md.-based Coventry Health Care – in the other seven regions.

The result has been that outside Passport’s area, doctors and other providers have gone unpaid and docs groups and clinics have been getting kicked out of insurer networks in the poorest parts of Kentucky.

Multiple suits.

Medicaid patients denied legitimate treatment and medications until doctors or attorneys intervened with the managed care insurers.

Showdown after showdown between MCOs and health care systems. And all this within six months since the new system was implemented last November 1.

Even warring executives at the MCOs and at the hospital networks agree on one thing – the Beshear Administration’s rush to implement the switch largely is responsible for all the problems.

Now, it’s time to punish Region 3.

Passport is eligible to bid, according to the release. But will the local not-for-profit be able to maintain its acknowledged quality of service while competing against out-of-state, for-profit insurers likely including WellCare, Centene and Coventry?

State officials have set an implementation date of January 1, 2013. That’s seven months from now.

The last time they did this, Kentucky solicited bids on April 7, 2011 and implemented a completely revamped system on November 1, 2011 – just a week short of seven months. And, we know what that created. I guess they figure an extra week will make all the difference this time.

Our sources tell us Beshear and Co. plan to blame the first round of MCO transition problems on the Centers for Medicare and Medicaid Services, the federal agency overseeing the state’s Medicaid efforts.

Here’s the back story on Medicaid managed care: 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, Gov. Steve 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.

Here’s the CHFS release in full:

New Audit of Passport Health Plan Shows Significant Improvements

Cabinet to extend current Passport contract for six months; solicit proposals for Managed Care in Region 3

 FRANKFORT, Ky. (May 29, 2012) –The Cabinet for Health and Family Services today released findings of a comprehensive financial audit of Passport Health Plan that show the program has made significant improvements in accountability and financial record-keeping since its last audit, and that patient satisfaction with the health care provider remains high.

“During the last 18 months, many improvements have been made and changes have occurred with regard to the operations and management of Passport,” said Cabinet Secretary Audrey Tayse Haynes. “In addition, the Cabinet’s Department for Medicaid Services has strengthened the oversight and monitoring requirements of Passport Health Plan through changes to the contract and is working collaboratively with the management of Passport to ensure the plan’s ongoing compliance.”

The new audit was ordered by Governor Steve Beshear after a November 2010 report by former Auditor of Public Accounts (APA) Crit Luallen found a lack of internal controls and transparency, governance issues, and excessive spending and conflicts of interest by former Passport officials.

In response to the APA’s findings, the Cabinet and Passport immediately put into place a corrective action plan to address these deficiencies. Included in Passport’s response to the corrective action plan, Passport appointed a new board chair and CEO, eliminated lobbying contracts, hired a chief compliance officer and an internal auditor, and instituted targeted financial examinations.

In early 2011, the Cabinet’s Department for Medicaid Services authorized a new, comprehensive assessment of Passport, including an examination of the efficiency and appropriateness of Passport’s expenditures to support its mission of providing quality, managed health care services to Medicaid members in Region 3. 

That recently completed audit examined Passport and its major subcontractors to ensure taxpayer dollars used to provide Medicaid services in the 16-county Passport region are being spent to provide health care to Medicaid beneficiaries in an efficient, cost-effective manner.

Overall, the audit found that Passport has met or taken significant steps toward satisfying the requirements outlined in the Cabinet’s corrective action plan issued in December 2010.  

About the Audit

The Department contracted with Myers and Stauffer CPAs to perform the comprehensive audit and report their findings and observations to the Department.

Specifically, Myers and Stauffer examined the business plans of Passport and its third party administrator, AmeriHealth Mercy; Passport’s business operations, practices, compensation and expenditures; complaints and concerns regarding Passport and its subcontractors; business relationships between Passport board members and their employers; supplemental payments to and lines of business conducted by AmeriHealth Mercy and other Passport subcontractors; selection of and payments and incentives offered to subcontractors; as well as a detailed analysis of expenditures, grant awards and utilization practices of Passport.

Significant findings of the audit include:

  • Passport members’ satisfaction with the services they receive has consistently remained high.
  • Passport did not properly oversee its subcontractors.
  • AmeriHealth Mercy had significant influence over the daily operations and organization of Passport, including negotiating agreements with subcontracts that may have benefited AmeriHealth subsidiaries.
  • Supplemental payments made by Passport were not well documented.
  • Providers appear pleased with performance, and Passport seems to have few problems with denials, authorizations, or appeals processes for patients
  • Issues with the University of Louisville’s Practice Office Building should be thoroughly evaluated by the University’s Audit Services group to include rental rates and ongoing funding of building operations.

Future Plans

Since 1997, the Cabinet’s Department for Medicaid Services has contracted with Passport, a managed care organization, to provide Medicaid-covered services to approximately 180,000 Medicaid eligible members in Region 3, which includes Jefferson and 15 surrounding counties. 

Earlier this year, the Centers for Medicaid and Medicare Services (CMS) advised the Cabinet that it will not renew the federal waiver under which Passport is the single managed care provider in Region 3. Beginning Jan. 1, 2013, CMS will require that there be competition, and that Medicaid recipients have a choice of managed care organizations in the 16 counties of Region 3.  Medicaid recipients in the remaining 104 counties in the Commonwealth have a choice of three managed care organizations currently operating.

Passport’s contract with the Cabinet expires on June 30, 2012. The current Passport waiver will expire on Dec. 31, 2012. The Cabinet intends to extend by six months the current Passport contract until Dec. 31, 2012, to coincide with the sunset of the waiver and provide a smooth transition to multiple providers as required by CMS. As required by state procurement law, the Cabinet plans to solicit proposals from managed care companies interested in offering services in Region 3 beginning Jan. 1, 2013. Passport could compete for participation in Region 3 along with other managed care organizations. The Cabinet plans to award contracts to the successful bidders in ample time to transition Region 3 to allow members to have a choice of providers and maintain continuity of care for members.

A copy of the audit may be found here: http://chfs.ky.gov/dms.

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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.

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