Kentucky's challenges are not unique. Across the country, states have increasingly moved to a risk-based, capitated managed- care model, said Vernon Smith, managing principal with consulting firm Health Management Associates.
“It's not unusual to go through a period of adjustment,” Smith said. “Issues like this have come up with other states.”
Missouri is awaiting a decision in a suit that alleges that it illegally changed the rules of its managed-care program by capping the number of health plan contracts. Molina Healthcare, Long Beach, Calif., sued the state after its contract was not renewed this year.
From 1999 to 2009, national spending on Medicaid rose 55%, and the number of enrollees increased 47%, according to a report from John Garen, an economics professor at the University of Kentucky. “Managed care seemed to have shown to save some money,” he said in an interview.
At the same time, while reimbursement rates for Medicaid patients remain low, beneficiaries still lack financial incentives to contain their own healthcare spending, Garen noted. “That's a fundamental paradox that has not been resolved.”
Still, Smith said financial issues are not at the heart of the shift to managed care. “The virtue of managed care from a Medicaid perspective is accountability,” he said. “The health plan is responsible for ensuring that an appropriate level of care can be guaranteed.”
Appalachian filed its suits in mid-April, alleging in two complaints that the Cabinet for Health and Family Services illegally set Medicaid reimbursement rates for inpatient and acute-care services that covered only 75% of its costs. It also charged that the managed-care organizations failed to make payments on a timely basis and that it is still owed millions of dollars in claims.
The operator of 10 hospitals in eastern Kentucky and West Virginia filed the suits after it received notice from Coventry Cares on March 29 that the managed-care organization planned to terminate its contract with the system on May 4. A spokesman at parent company Coventry Health Care, Bethesda, Md., was not available for comment.
In a letter to Appalachian, Timothy Nolan, Coventry's executive vice president, government program, highlighted concerns about the program that led to the contract termination. Among them, he cited the state's failure to adopt risk-adjustment methodology to take into account higher risk patients such as the ones treated at Appalachian. He also claimed that Coventry was not held to the same standard as another managed-care organization that was allowed to exclude Appalachian from its network.
The health plan has since notified at least two other hospital systems that it intends to terminate its contract unless it can renegotiate the agreements—prompting outcries from state lawmakers against its hard bargaining tactics.
Dr. Peter Hasselbacher, president of the Kentucky Health Policy Institute, who previously worked on Medicaid issues for the state, noted that the managed-care program has raised numerous concerns since its expansion, including increased claim denials, slow payments, inadequate payments and a lack of cooperation from health plans.
“This is the canary singing in the cage,” Hasselbacher said. “Something is very wrong. I think it's going to show that the Medicaid program is underfunded.”
Jerry Haynes, Appalachian's president and CEO, noted in an interview that other states have allowed at least a 12-month transition period before moving to a managed-care program. He also noted that his health system is the largest Medicaid provider in Kentucky and operates in “one of the most economically depressed areas in the country.”
“We have very thin profit margins,” Haynes said. “It's added pressure on the service providers. This managed-care plan has been about managing money.”
Appalachian filed suit against Coventry as well as the Cabinet for Health and Family Services in federal court in Lexington on April 16. It also filed suit against Kentucky Spirit Health Plan and the agency in Franklin Circuit Court on April 12. The health system alleges that it is owed $12.5 million from Coventry and $5.7 million from Kentucky Spirit.
Centene Corp., parent company of Kentucky Spirit, did not respond to a request for comment.
On May 4, U.S. District Judge Karl Forester ordered an extension of Appalachian's contract with Coventry until June 30 and the two parties to negotiate a new agreement. He also ordered state representatives to meet with Coventry at least once before the end of June to discuss its risk adjustment concerns.
Hasselbacher said the state may need to revisit at least some aspects of the managed-care program. “No one comes out of this looking blameless,” he said.