(Editor’s note: Terry Boyd and Oscar Bryant III contributed to this post.)

Kentucky officials appear ready to completely revamp the state’s Medicaid program including terminating its contract with beleaguered Passport Health Plan.

This afternoon, Cabinet for Health & Family Services officials posted a request for proposal on the cabinet’s website, advertising for a “qualified” managed care organization to manage all the contracts that make possible the health care poor and elderly Kentuckians receive under the federa/statel Medicaid program.

And that raises the possibility of a revamp because Kentucky already has a managed care organization in Passport, albeit one that’s become a political hot potato for the Beshear Administration.

State officials declined to comment on whether the proposal signals their intent to dump Passport and KenPAC, which manages fee-for-services reimbursement in sections of Kentucky not under Passport.

Don Speer, executive director,  Finance and Administration Cabinet Office of Procurement Services, declined to comment on the RFP: “The RFP speaks for itself.”

Passport, which was created by local hospital groups including the University of Louisville and Norton Healthcare, currently has a $740 million contract to manage Medicaid in Jefferson County and 15 surrounding counties, with about 165,000 people covered. That contract ends June 30.

The organization is in the process of being restructured and reformed after an investigation released last November by Crit Luallen, state auditor, turned up irregularities. Now, the RFP opens the door to large managed care organizations such as Thousand Oaks, Calif.-based Anthem Blue Cross/Blue Shield and United HealthCare, based in Minneapolis, two of the largest health care organizations in the world.

A tremendous amount of money is at stake. Medicaid funding for Kentucky totals about $4 billion per year, according to insiders with direct knowledge of the situation.

Could Passport, a tiny organization with 250 employees, get the contract again? Maybe.

But the door is opening to larger competitors at an ominous time.

Last December, Gov. Steve Beshear threatened to terminate the contract unless top management was replaced after Luallen found myriad problems at Passport. Those problems included conflicts of interest, alleged lavish spending and the questionable transfer of millions of dollars in surpluses to the care providers including U of L, Norton and Jewish Hospital & St. Mary’s Healthcare.

Passport Executive Vice President Shannon Turner and Associate Vice President Nici Gaines both were forced out.

Shortly after Turner and Gaines departed, Dr. Larry Cook, Passport CEO and board chairman, was replaced by former Jewish Hospital CFO Mark Carter, who was then managing partner at the Louisville office of Dean Dorton Ford, a large  Lexington, Ky.-based accounting and consulting firm.

“This is a milestone in our efforts to bring greater efficiency and innovation to the management of Kentucky’s Medicaid program,” stated Janie Miller, Health and Family Services cabinet secretary, in a news release. “As we continue to meet the needs of the more than 800,000 Kentuckians who depend on the program, we must aggressively pursue ways to better manage health care services and control rising costs. Managed care is a proven strategy that has been tested in both the public and private sectors.”

The RFP states that a master agreement would provide and manage health care services for members enrolled in Medicaid. Services would include physical health, mental health and dental.

It would also establish a provider network along with all the management structures and systems needed to manage federal Medicaid funds as they flow into the state. The transition must be complete no later than early 2012, according to the RFP.

And our sources with direct knowledge of the situation say such a complete system transformation would require a transition period of at least a year.

More as we know more.

More on Medicaid from Oscar Bryant III, Insider Louisville health editor:

Here’s what’s going on in Kentucky with Medicaid.

The Patient Protection and Affordable Care Act (PPACA), often referred to as “Obamacare,” established a goal to dramatically expand health care coverage.

According to the Kaiser Family Foundation, states have two primary roles in implementing the health care law: Medicaid expansion and the private insurance industry, including health care exchanges in 2014.

According to a study by The Heritage Foundation (a conservative think tank), PPACA will explode Kentucky’s Medicaid costs.

Heritage analysts estimate that in Kentucky, Kentucky Medicaid/CHIP (Children’s Health Insurance Program) enrollment will increase by 31.4 percent to 1.23 million people in 2014 from 938,237 people now.

That translates to $324.7 million in benefits and $183 million in administrative costs for a total more than $507 million to expand Kentucky’s Medicaid program.

This is a fiscal broadside to a state budget that has been nearly impossible to balance for the last several legislative sessions.

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