Gov. Steve Beshear and departed Health and Family Services Secretary Janie Miller announce they’ve fixed Kentucky’s Medicaid problems. Hold your applause.

Welcome to the April 23 top secret, always confidential Monday Business Briefing.

These are biz tips Insider Louisville staff and contributors have collected during the past few days, some of which are NOT double-verified like Insider Louisville’s daily reporting.

But as we always say, this is inside dope from insider sources with direct knowledge of events.

We’re going to start with a brief that’s not exactly brief, but is potentially the biggest health care story of the year.

• As if the impending implosion of indigent care funding isn’t enough to keep state officials up at night, health care insiders say the Beshear Administration is facing what could be its biggest embarrassment in five years: The botched switch to a Medicaid managed care system blowing up in its face. Last week, Insider Louisville broke the story that Appalachian Regional Healthcare was suing two Medicaid managed care organizations – Centene Corp. and Coventry Cares – and the state over $5 million in late payments on uncontested claims. ARH also is suing over what its executive claim are reimbursement rates that violate federal regulations.

Centene, the St. Louis-based MCO that operates as “Kentucky Spirit,” Coventry Cares, based in Bethesda, Md., and WellCare Health Plans, based in Tampa,  received three-year contracts last July as the Beshear administration pushed switching to managed care from fees for services last November 1.

The Lexington-Herald Leader sees our reporting and advances the story. So, to up the ante, we conferred with insiders over the weekend, and here’s the shocking worst-case scenario they laid out:

When Steve Beshear was running for reelection against Sen. David Williams, the one issue Williams had going for him was Medicaid. Costs were out of control, and Kentucky was facing a $500 million shortfall. Federal stimulus funds were expiring and Kentucky politicians on both sides of the ailse had essentially done nothing for years even though everyone knew fiscal disaster was looming. So Beshear comes up with a scheme to switch to private Medicaid managed care organizations from simple fee for services contracts. “We will balance the Medicaid budget without using general funds!” Beshear and Company proclaimed! Yippee. By getting these MCOs to bid, they got the best price and balanced the budget.

Except.

Except they had to slam it through with exactly one person who knew anything about – soon-to-be-fired Health and Family Services Cabinet Secretary Janie Miller. And Miller had never done anything like this before. Not unexpectedly, Kentucky officials made many tactical errors along the way. Kentucky’s Department of Medicaid Services may have knowingly certified readiness to the federal oversight agency when they were not ready. In the case of ARH, state officials told Coventry that ARH had to be in its network. BUT, they didnt tell that to Centene (Kentucky Spirit), which had the lowest rates. So, guess what happened … all of the high-cost patients enrolled with Coventry (which was unaware of the state’s duplicity with its competitors), and they are hemorrhaging cash.

Coventry becomes very aggressive with the state in an effort to fix the problem (with its executives writing a letter to Beshear himself.) The state responds by getting Coventry’s local CEO, Barb Witte, fired. Coventry, the evil MCO, decides they have no choice but to terminate ARH to force the issue.

In central Appalachia, one of the poorest areas in the United States, ARH essentially has no margin for error. Perhaps 85 percent of it’s revenue comes from Medicare and Medicaid, with an estimated 5 percent from commercial payers. The typical hospital might get 50 percent of its revenues from Medicare and Medicaid. Because neither program pay full cost, hospitals shift the shortfall to commercial plans. ARH simply can’t do that.
Why does all this matter? 

Because:

1 – The hundreds of millions in savings that are assumed in the  just-passed Kentucky budget don’t exist (or at least are very much at risk). And, because two thirds of the bucks come from the Feds, that funding hole could be huge. Which means a tax hike to resolve the deficit could be huge just as Kentucky comes out of recession. From a source: “I’ll bet you a steak dinner the state will have to increase the amount it pays the MCOs and the savings will vanish. Next January, (Beshear) will be asking the general assembly to solve the problem.”

2 – The slow-pay/low-pay results of the switch to managed care is hurting docs, pharmacies and all Medicaid providers. Hospitals and health care providers such as ARH are having to reduce staff and turn away patients.

3 – The vulnerable Kentuckians Beshear and Kentucky Democrats have always said are their constituencey  are no bertter off than they would have been under Republicans. They may be people with no voice, but they do have a vote. And we’re guessing everyone affected by this – from Medicaid members to docs – are going to have a difficult time pulling the Democrat lever the next state election. Worse, ARH is a union hospital. What happens when the layoffs start? ARH CEO Jerry Haynes,is said to have a good rapport with union leaders. Our guess is he’s already talked to them about who they should be upset with.

• We thought about making this our lead item, but our Cherished Leader got voted down … most insiders heard this last week. Still, GLI Insiders were still tittering this weekend about the final resolution of the Great Greater Louisville Inc. the Chamber of Commerce odyssey. Interim CEO Tracee Troutt and her 45 loyal disciples will not have to spend 40 years wandering in the temp-office desert, staying instead in the Promised Land. Our insiders say they were informed last week GLI ain’t goin’ nowhere. Despite negotiations, feints and head fakes for the last six months, GLI leadership was able to resolve their disputes with Fenley Properties, signing a lease for at least five more years at 614 W. Main St. “Tracee told us back in March there was no mysterious ‘law firm,’ ” said an insider, referring to David Fenley’s tactic of telling GLI execs he had a tenant for GLI’s opulent two-story space. Leaving all the partnerships including The Landmark Building owners who had tried to work a deal with GLI asking themselves, “What the hell was that all about?” Our insiders say it was always about money, which GLI has less of. But someone apparently worked a miracle. More on this as it evolves.

• Speaking of expensive downtown real estate, a giant game of Monopoly is hotting up. We talked to a major real estate mogul Friday who said he made a play for the Stewart’s department store building, the pivotal property at Fourth Street and Muhammad Ali Boulevard, aka Hilliard-Lyons Center. The real estate mogul told Insider Louisville he made an unsolicited offer to  Stonehenge Community Development XIV LLC, which is the lender holding the paper on the building. In 2007, Florida-based developer Eric Batchelor announced a $60 million conversion plan to turn the building into a hotel. Then the recession hit, and you know the rest. Last year, Batchelor settled a suit that had put the giant building, which takes up a quarter-block, into foreclosure. BUT, the courts gave Stonehenge Community Development the right to come back and sue if Batchelor defaulted. In the process of making his bid, which was ignored, our mogul found out Batchelor has local backing from a major local hotelier, backing that allows him to keep control of the Stewart’s building. Something we’d already heard from other real estate sources. A number of entities are interested in buying the building, but apparently, it will sit empty. Interesting, not to mention frustrating.

News you can use, the month’s top story at the CJ. (Click to enlarge.)

* After dumping its veteran reporters and editors a few days ago, look for the Courier-Journal to shift sharply to the digital side. We hear from several sources McLean, Va.-based parent Gannett Co. Inc. has a total newsroom re-org plan, a plan that includes a corporate-wide directive to each of its 80 U.S. properties to create new blogs and websites separate from the main newspaper websites. Ah, we remember the fun we had a year ago with CJ execs when they notified Insider Louisville we were going to be incorporated into their  502 Blogs. The question we have is, how is an reporting staff reduced by multiple rounds of cuts going to get out newspapers and tend to new websites? A partial answer from sources is, “Don’t be surprised if Gannett dumps Monday and Tuesday print products.” You heard it here first.

* Axxis, Inc., one of Louisville’s more unusual creative and technical production firms, is doing lighting, sound, video and, well, everything for Dove Awards, the national gospel music awards. The show was taped last week at the Fox Theatre in Atlanta, with award ceremony scheduled to be broadcast tomorrow at 8 p.m. Nearly 25 percent of the company’s Louisville based work force was dedicated to working on the Dove Awards project full-time, according to a news release. Axxis employees built the Dove Awards stage at their warehouse in downtown Louisville before it was disassembled and shipped on two semi trucks and a box truck to Atlanta, Ga. The set design created by Axxis includes an Austrian drape, two 10-foot-tall LED displays, band risers, technical equipment, lighting, rigging and speakers. We have no idea what an Austrian drape is, but all this sounds impressive. Who knew anyone was doing work on this level here!

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