The Medicaid Dominoes are Falling.

Second lawsuit by Appalachian Regional Healthcare against Medicaid Managed Care:  This time we also hear from the other side!

The prolonged period of confusion following the state-wide implementation of Medicaid Managed care throughout Kentucky was bad enough, but not unexpected given its broad sweep and its short implementation period. (Some background is available by clicking on the Medicaid Tag at the bottom of this article.)  After an initial flurry of hearings in Frankfort, not much was appearing in the media, and those of us not in medical billing offices, seeing patients, or for that matter beneficiaries of Medicaid might have hoped that things were sorting themselves out. Alas, the worst seems yet to come. For me, the most recent and indeed frightening public notice that things were not self-correcting was the lawsuit filed by Appalachian Regional Healthcare (ARH) against one of the three new managed care organizations (MCOs) and Kentucky’s Medicaid Cabinet.

In that suit against Kentucky Spirit, we learned that not all the MCOs were able to pull together the necessary state-wide networks, that at least one large healthcare provider organization with a corner on a regional market was able to thumb its nose at an MCO, that payments to hospitals were painfully slow and lower than desired, and that Kentucky Hospitals have been engaged in disputes (legal and otherwise) with the Cabinet for quite some time over the adequacy of payments. It is always true that a lawsuit only represents one side’s positions, but these conclusions seem rather self-evident. You can read the lawsuit for yourself as well as my initial analysis elsewhere in these pages. It was clear to me that something bad was going to happen.

Now other shoes are falling. Insider Louisville extended its breaking reporting to a second and not unexpected lawsuit by ARH against Coventry Health Care and included a copy of a letter from the Executive Vice President of Coventry to the President of ARH. That suit itself is not yet available to me, but it sounds like it was very similar to the one against Kentucky Spirit. We are told that “Coventry will mount a fierce defense that will be an enormous drain for ARH.” I guess this is how the big boys play, but in fairness, Coventry tells a very different and equally believable story than that told by ARH in its suit against Kentucky Spirit, and seems earnestly to want to make things right for the citizens of Kentucky.

What is most informative and perhaps most valuable is the background and context the letter writer offers in his attempt to convince ARH that an expensive lawsuit is in no one’s best interest. Much is blamed on the Commonwealth in this exposition. Having been told that having ARH in its network was “required,” Coventry agreed to terms that paid ARH well above the Medicaid rate, but apparently without a contract. However, the Commonwealth is alleged to have allowed another MCO to go ahead without having ARH in their network. “This disparity resulted in an unprecedented movement by higher-risk members from the other MCO to Coventry” without implementing a contractual promise by the state to adjust its payments to the MCOs based on severity of illness. It seems clear to me that the Commonwealth did not hold all the MCOs to the same network requirements, nor pay them all the same.

Also repeated by the letter is the claim that there were significant errors in the “data book” of historical payments given by the Cabinet to prospective MCO applicants to allow them to prepare their bids. The claim is that the Commonwealth understated how expensive it was going to be! [Has anyone out there ever heard an estimate about the cost of Medicaid that was too low?] Coventry claims that it is “paying so many claims for ARH and other Commonwealth providers that our Kentucky plan is deeply in the red and losing millions of dollars each month” due to the absence of a risk adjustment methodology; the errors in the data book; failure to ensure that all MCOs meet the same standards for network adequacy; and an unknown and undefined (for me) failure to find a solution to the “supplemental hospital payment issue.”

Coventry claims it has worked with ARH in good faith and that slow-pay is not an issue. Coventry goes on to refer to ARH as a non-participating provider and states that they will no longer authorize any treatment or services for their members at ARH facilities rendering moot any issue of what the payment to ARH would be. [Excepted are certain services required legally for which ARH would receive 100% of the Medicaid fee schedule.] It’s tough talk time! In this emerging and likely expanding situation I agree that no one wins, least of all the citizens of Eastern Kentucky. More important to Kentuckians is how can we fix Medicaid so that it provides essential care at a price that can be paid for.

There is much more that might be explored. Is it really possible to devise “risk-adjusted” payments to hospitals, or to doctors for that matter? Is the “risk” referred to the severity of the illnesses of the insured members, or the risk to the pocketbooks of the insurance companies? Medical payments by federal programs have historically been much higher in Eastern Kentucky than the rest of the state. Is that because the people are sicker? Is it because the doctors and hospitals simply are in the habit of charging more? Or is it to feed the disability industry that supports the economy of Eastern Kentucky? These latter two are the kinds of issues that managed care is paid to deal with. Paying claims on demand, or according to historical standards alone only perpetuates and accelerates a fundamental problem.

Is managed care really a viable solution for Kentucky? It seemed to some as worthwhile to try, although to my knowledge it has never been shown that Passport, Kentucky’s first Medicaid MCO, ever saved the state any money. I think Passport provided good care, but it became a vehicle for patronage and a scandal. Seems to me that this is a can that Kentucky government has been collectively kicking down the road for some time. Of course it is going to be hard. Of course there will be resistance from vested interests. Many, if not most of our elected politicians see this as the proverbial third rail of politics: touch it and die! More money might actually have to be put on the table!

I wish I could see some light at the end of the tunnel. What I do see is an even larger number of Medicaid beneficiaries being added to the system soon as a result of the Affordable Care Act. Many hope that our healthcare reform legislation will be judged unconstitutional by the Supreme Court, but the individuals increasingly being denied access to the health care system that I and many of us enjoy are not going to go away. No doubt our state leadership hoped that having a managed care system for Medicaid in place, based as it is on the private insurance market, would enable us to manage our needs. That was not an unreasonable assumption. However, I would maintain that even the system we have for our better-off half is non-viable. Who out there is not getting clobbered by soaring out of pocket healthcare expenses? Can I offer a solution? Not out of hand, but at least I am not a “healthcare-crisis-denier.” As you might suspect I am in favor of a more broadly based and coordinated system of providing health care that may or not involve insurance companies.

When truly depressed, and usually after the second martini, we healthcare policy wannabes fantasize about the rapture when our system collapses under the weight of its own waste and complexity so that something new and pure (for a while anyway) can emerge. In the bright light of day, I neither believe nor wish for that to happen, but neither do I believe a real solution is going to emerge from a courtroom in Kentucky.

Peter Hasselbacher, MD
April 24, 2011

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