Medicaid Managed Care Blues in the Bluegrass State

Published March 27, 2012

Kentucky’s $6 billion Medicaid system provides health care to more than 700,000 low-income residents. As with many states, the size and cost of the program has increased dramatically in recent years. This expansion and an attempt to shift to managed care have caused problems in several key areas, according to an evaluation by the state auditor.

Last November Democratic Gov. Steve Beshear signed a law transferring control of the program to three private managed care organizations (MCOs): CoventryCares, WellCare, and Kentucky Spirit. Several states have shifted to managed care options under the assumption partial privatization could save taxpayer dollars. But since the shift in Kentucky, executives from the three companies say one of the toughest challenges has been meeting submitted claims from third-party billing companies.

A survey of home health care providers showed only about 5 percent of total claims had been paid by the managed care companies at the end of January. Today some agencies say they are due more than $1 million from the MCOs, creating serious cash-flow problems for some providers.

In early March, State Auditor Adam Edelen reacted by recommending the state consider making several changes, including removing mental-health services from its new Medicaid managed care system since there have been an especially high number of complaints about access to care and medication in that area.

‘Program Was Too Ambitious’

Andy Hightower, executive director for the Kentucky Club for Growth, says Gov. Beshear did not give the companies enough time to properly transition the program to managed care.

“The State Auditor came out in reports blaming the MCOs for being too slow to reimburse the providers, but I don’t believe you can create health care networks in a state in that short of time without some friction. If I was going to build an MCO, then I would need more than six months. Ultimately the program was too ambitious to put into place and not expect there to be some challenges,” Hightower said.

Jill Midkiff, a spokesperson for the Cabinet for Health and Family Services (CHFS), says the State Auditor’s recommendations will certainly be considered.

“With any change of this magnitude, it is not unexpected to experience transition issues, and the Department for Medicaid Services is methodically working with MCOs to resolve those issues as quickly as possible,” Midkiff said.

Ron McLaughlin, the CEO of RMK, a medical billing company located in Chicago, says there are many inherent challenges in getting reimbursements, especially with legislative changes occurring over time.

“Resolving claim buildups often takes expertise and concerted effort, and a lot of concentration on the part of those providers who need the money to maintain good predictable cash flow or even to stay in business,” McLaughlin said.

Unsustainable Costs

John Garen, an economics professor at the University of Kentucky and a Bluegrass Institute adjunct scholar, says that the state’s Medicaid program was unsustainable regardless of the shift to managed care.

“It’s not unlike Medicaid in other states,” said Garen. “Prices are increasing just as the numbers of eligible folks going onto the rolls are increasing. It’s been growing just a few percentage points every year, but it all adds up. With the ObamaCare mandate expected to force more companies to no longer offer employee health insurance, even more are expected to join Medicaid. This will further increase costs.

“All of this adds up to Medicaid expenditures increasing faster than economic growth,” Garen said.

Medicaid Vouchers Suggested

One of the biggest problems with Medicaid, according to Garen, is that it simultaneously encourages enrollees to visit providers while discouraging providers from accepting them.

“There are three causes for the exploding costs associated with Medicaid: Lower eligibility rules, low reimbursement rates with no co-pays, and incentives for consumers to overuse the program,” Garen said.

The solution, from Garen’s perspective, is to transform Medicaid into a voucher program.

“If you’re on Medicaid, then you’re treated as a second-class citizen by the health community. If the intent of politicians was to help poor people, then it has failed,” said Garen. “What should happen is that we should identify the low-income population that needs assistance and then hand them a voucher so that they can pick their own medical plan and pay for it themselves. If we did this, we’d be turning Medicaid over to the private sector.”

Mandates Seen as Cost-Driver

Garen also recommends the state remove all impediments to competition.

“State mandates about what you have to have in a basic insurance policy drive up the cost of health insurance, just as it will do at the federal level under Obamacare,” said Garen. “Another barrier to competitiveness that Kentucky imposes on Medicaid providers has to do with ‘scope of practice laws.’ These laws determine what medical providers—doctors, nurses, nurse practitioners—are allowed to practice. If we loosened them up, costs would decrease.”

Garen says steps beyond merely moving to managed care are required to change the incentive of state-funding matches.

“Ultimately, turning Medicaid over to the MCOs will save Kentucky taxpayers money. However, the move is not fundamental health care reform in the sense that it turns low-income recipients into well-informed health care customers, nor does it give stronger incentives for providers to serve those customers,” explains Garen.