Mississippi has canceled the contract of a third-party administrator that tracked Medicaid recipients' eligibility for hospital care.
The action comes six months after nearly 60 Mississippi hospitals and the Mississippi Hospital Association sued the company, Richmond, Va.-based First Health Services Corp. and Mississippi's Medicaid department for refusing to pay certain Medicaid claims.
In a related event, the state also has filed a lawsuit against First Health, but a spokeswoman for the state Medicaid department declined to comment on either the suit or the cancellation of First Health's contract.
In its suit, filed in Hinds County Chancery Court in Jackson, Miss., the hospitals say First Health refused to authorize the state to pay them $5.8 million for inpatient care provided to Medicaid recipients that the company earlier had approved.
The hospitals also say the company's information system malfunctioned for two years and failed to detect whether Medicaid recipients had exhausted their 30-day inpatient eligibility limitation.
When someone arrived for care, hospitals would check the system to determine whether the patient was eligible for Medicaid. If eligible, the system also informed the hospitals whether they would be reimbursed if the patient was admitted.
R. Mark Hodges, the hospitals' attorney, said the hospitals used the system for two years until the Medicaid department detected the problem.
Meanwhile, the state has hired Electronic Data Systems to replace First Health for the remainder of the five-year contract, which expires on Dec. 31, 1996.
The amount of the contract wasn't available at deadline, but an EDS spokeswoman said First Health processed from $500,000 to $900,000 in Medicaid claims monthly.
In 1989, Mississippi had the third highest Medicaid reimbursement rate in the nation, according to the American Hospital Association. The AHA said Mississippi paid hospitals 105% of their Medicaid inpatient costs, compared with a 78% rate for hospitals nationally.