From Bad to Really Bad.
Lawsuit reveals soft underbelly of low payments for Medicaid services.
Our friends at Insider Louisville brought to our attention a lawsuit just filed by Appalachian Regional Healthcare Inc. (ARH) against Kentucky Spirit Health Plan, one of the three new Medicaid managed care networks in the state. As they say, such a lawsuit presents only one side of the case, but in a system cloaked in secrecy and muddled by incomprehensible financing, the information revealed is of great interest. Included as a codefendant with Kentucky Spirit is the Kentucky Cabinet for Health and Family Services! If even half of what ARH claims is mostly correct, our state Medicaid structure sits on very shaky ground. It’s going to take more than the theoretical savings from managed care to fix things. For more background from these pages, see posts of Feb 2, 2012, Feb 11, 2102, Feb 24, 2012, and March 2, 2012 or click the “Medicaid” button in the Categories list.
Terry Boyd of Insider Louisville had done a nice job of outlining the nuts and bolts of the lawsuit and specific problems faced by Kentucky Spirit. Anecdotal information previously available to the public included complaints that the new managed care networks were paying low and slow. This lawsuit provides some real numbers that indicate, if true, that payments to providers are lower and slower. According to both federal and Kentucky Medicaid law, medical insurers are supposed to pay “clean claims” [bills that have been filled out completely and properly] within a specified period. Ninety percent of clean claims must be paid within 30 days, and 99% within 90 days. If the insurer believes the bill is faulty in some way, or plans to pay only a portion of the claim, it is required by statute to notify the provider within 30 days (two days if the claim was filed electronically).
ARH alleges that as of March 19, 2012, they still have 1609 clean claims unpaid totaling $5,871,813 for an average of $3649 per claim. Of these, 83% have been in limbo for more than 30 days, and 48% for more than 90 days. These numbers are for only one of four managed care plans, for only one provider system, and perhaps mostly for inpatient services! Imagine what the statewide totals are. I pointed out earlier, that such delays allow insurance companies to invest the unspent premiums thus increasing their own profit. ARH claims this is “unjust enrichment” and includes it in its lawsuit.
It occurs to me that if Kentucky Spirit or the other insurers do not have their act together well enough to pay people on time, they are probably also failing in the quality and prevention requirements of their contract with the Commonwealth. If this were the case, it is more than just providers who are being injured.
I do not know if ARH, or any other provider has sued other of the Medicaid managed care companies. Given the issues highlighted in this lawsuit, it is clear to me that this will not be the last. In fact, I suggest that the vulnerabilities in the structure of Kentucky Medicaid exposed by this lawsuit have the capability of bringing the whole Medicaid system to its knees. The two law firms involved in the present lawsuit are among the biggest and best in the state. Much legal talent and many dollars will be put into the action.
ARH is an out-of-network provider for Kentucky Spirit.
Complicating this dispute is the fact that ARH did not sign a provider contract with Kentucky Spirit. Presumably ARH was demanding more money than Kentucky spirit was willing to pay. Since ARH controls most of the healthcare delivery system in eastern Kentucky, Kentucky Spirit was stuck between a rock and a hard place. It is required by the state to have a statewide provider network but was essentially placed at the mercy of ARH. At present, I have no way of knowing whether the bills from ARH were reasonable or not. [I can find this out.] Even if ARH is out-of-network, Kentucky Spirit is obligated to pay for emergency services, for family planning, for children in foster care, and for individual services that were officially preauthorized by Kentucky Spirit. There are apparently a lot of such charges.
The implications of this are that any hospital system or medical provider that controls its market can effectively thumb its nose at Medicaid and refuse to cooperate in Kentucky’s efforts to make its healthcare system more efficient. Only chumps and the very committed would participate in a deal that takes money out of their pockets. We have seen how such disputes between hospitals and insurers in Louisville have disrupted even the private insurance market. It’s going to get worse. Now that hospitals also control most of the physicians in many communities, insurers have lost the upper hand they used to have. Potential patients like you and me are going to get beat up in these intensifying disputes.
Commonwealth of Kentucky Also Being Sued:
ARH is suing the state and its deeper pockets for several reasons. The hospital is claiming that even though it chose not to contract with Kentucky Spirit, that its existing Medicaid contracts with the Commonwealth obligate the state to pay them anyway for all Medicaid beneficiaries, even for non-emergency and non-authorized services. That would certainly be a spectacular deal for ARH.
Does the Commonwealth and Its Medicaid Contractors Pay Providers Enough?
ARH is suing not only over the speed of payment and who is responsible for making the payment, but it is arguing that the amount of payment is both legally and practically inadequate. It is in this latter claim that I think the lawsuit will have the greater long-term impact.
Things get complicated here because healthcare financing itself is complicated and, because by virtue of its rural and other special status, ARH is likely benefiting from payment systems not available to most other hospital providers. For example, it is my understanding that ARH and some of its hospitals may still be receiving federal and state funding linked in some way to its costs. (If anyone knows differently, please help us in the comments section.) In most of the country, this approach was abandoned because it gave hospitals and other medical providers free rein to bill as much as their consciences would allow, and was a potent disincentive for any attempts at cost control. (Remember, it is you and me who ultimately pay these bills.)
Despite the above reservations, it appears that Medicaid has historically paid Kentucky hospitals (and probably other providers) less than it costs to provide those services. That is the kind of loss a hospital can not make up on volume! Even after reading the lawsuit, I cannot claim I fully understand how hospitals are being paid by Medicaid. According to one key statute in the lawsuit, the Cabinet is supposed to reimburse hospitals on “bases which relate the amount of the payment to the cost of providing services or supplies.” I do not personally read this as mandating that the Cabinet must pay the full cost. Since at least 2007, the Cabinet has been paying hospitals using the “diagnosis related group” (DRG) method used by Medicare and most private insurers. In brief, this means a hospital is paid a fixed lump sum for an admission that is based on the diagnosis, not the length of stay or the amount of testing done. Because the payment rate for a given DRG is based on the relative intensity of services required, it seems to me that even the DRG method does at its base relate to the cost of providing the service. This “prospective payment method” is a current national standard. I will not be surprised to learn that law and regulation have lagged behind in the real world of health care. There may well be a disconnect or conflict among the innumerable laws and regulations affecting hospitals and healthcare industry of Kentucky.
Not the first time the Commonwealth has been sued.
In this claim, ARH adds to a long and apparently contentious series of lawsuits between Kentucky’s hospitals and the Commonwealth. The long and short of it is that ARH is claiming that the Commonwealth has not in recent history paid as much as it was required to by law, and that Kentucky Spirit is doubling down by paying even less. The present lawsuit claims that by the “Cabinet’s own admission,” historical hospital payments to hospitals covered only 80 to 82% of hospital costs (and only 75% of ARH’s costs). Kentucky Spirit is said to be paying only 90% of Kentucky’s already purportedly inadequate rates– if it pays at all. Kentucky Spirit itself may also have been paid less for its covered members than the other three Medicaid managed care contractors.
If you are confused by this, I apologize. I am too. I will try to get some better understanding. Perhaps one of our readers can make some sense of it for us in the Comment Section.
We should all pay attention to what happens here. This lawsuit is just the canary in the cage; a warning that something in the air is not healthy. I suspect that not all the current Medicaid Managed Care companies will survive in Kentucky, and that they may take down some other healthcare structures with them. These pages have been most concerned recently with the way we provide medical care for the disadvantaged in Louisville and the rest of our Commonwealth. The issues of Medicaid and Indigent care are intrinsically intertwined. What makes one system sicker injures the other. Both must be attended and healed together.
Peter Hasselbacher, MD
April 20, 2012