Beshear proposes using more private contractors to cut Medicaid costs

Use of private contractors would be expanded

bmusgrave@herald-leader.comNovember 16, 2010 

FRANKFORT — Gov. Steve Beshear announced Monday changes to save more than $142 million in the cash-strapped Medicaid program over the next two years.

The changes include expanding the use of private contractors to run managed health care programs outside of Louisville and are expected to balance the state's Medicaid budget by 2012.

The $6 billion program, paid for through state and federal dollars, currently serves nearly 816,000 poor or disabled people. That's roughly one in five Kentuckians.

Beshear is asking lawmakers to move $139 million intended for Medicaid in fiscal year 2012 to fiscal year 2011. The savings generated from his plan will create the money needed to run the program in 2012, he said.

The proposal will not result in reduced services for recipients or reduced fees for doctors or hospitals serving Medicaid patients, Beshear said.

Many of those currently on Medi caid have lost jobs over the past two years and never expected to be on the program, Beshear said.

Slashing services "would have a catastrophic impact on the lives of our friends, our neighbors and our relatives when they can least afford it," Beshear said.

But some legislative leaders questioned the move, particularly in light of a recent scathing audit that showed problems at Passport Health Plan, a Medicaid managed-care plan based in Louisville and the state's only such plan.

Beshear and state officials said they are confident that moving to more managed-care models where feasible will result in cost-savings for the state.

All states have struggled to find ways to pay for the Medicaid program as its rolls have swelled, while state income has plummeted. Currently the federal government pays 80 percent and Kentucky pays 20 percent of the cost of the program. But a temporary increase in federal matching money will expire on June 30, 2011, the end of the fiscal year.

The increase in the number of people on the rolls and the drop in federal matching money has resulted in a projected $100 million hole in the program.

Beshear and Cabinet for Health and Family Services Secretary Janie Miller on Monday said they were confident the state would be able to save money through more managed-care programs despite problems revealed in the recent Passport audit.

That audit, released last week, showed excessive spending on travel, lobbying and entertainment. But State Auditor Crit Luallen said that more analysis is needed to be done to show whether Passport saved the state money.

Passport receives a fixed rate for each of its 164,000 patients regardless of the cost of that person's medical needs. The rest of the state is on a fee-for-services model, which means Medicaid pays a certain rate to a health-care provider depending on the service.

The audit recommended that the cabinet step up its oversight of Passport, which has received more than $2.5 billion in state and federal taxpayer dollars over the past three years.

Beshear said that the state plans to ask for corrective action from the Passport board and that there are plans to do a complete audit of the program. The state will also up its oversight of all private health care contractors as a result of the audit, Beshear said.

Beshear said there were some indications that Passport had saved the state money over the past several years.

For example, auditors found that Passport had developed healthy cash reserves, which would indicate that the plan had saved the state money, Beshear said.

Many of the programs announced Monday were based on models that have worked in other states.

The proposed changes include:

■ Expanding managed care programs to all Medicaid patients in Kentucky;

■ Encouraging pay-for-performance incentive measures for primary care providers, including increasing payments to providers if emergency room visits and other costly health care visits go down;

■ Starting managed care programs for dental services for children;

■ Increased management of pharmacy programs;

■ Long-term care coordination for those in nursing homes and other state institutions.

Miller said the cabinet is also stepping up its efforts to go after Medicaid fraud, including collaborating more with federal prosecutors. Beshear said one measure — the management of high-cost radiologic and imaging services such as MRIs — could save $7 million to $10 million annually.

Legislative leaders were briefed on the plan Monday at a meeting of a legislative committee looking at reducing Medicaid costs.

Senate President David Williams, R-Burkesville, questioned why the cabinet did not catch the problems at Passport earlier. For example, the audit showed more than $220,000 was spent on travel, entertainment and gifts over three years.

But Miller said she believed that the cabinet actually did do a lot to detect problems at Passport, including questioning why it had built up such large cash reserves. The audit also found that many expenses were improperly classified or not reported correctly, which means the cabinet would not have known about them. Passport was also audited by an independent auditing firm, and no problems were found during those independent audits, Miller said.

Williams, who is seeking the Republican nomination for governor, also questioned whether the cabinet would be able to detect other abuses if the state expanded managed care to other private contracts.

"Additional work needs to be done," Miller said of a thorough cost-analysis of how much Passport has saved the state. Miller also said that the state can put stipulations in a contract that would prohibit the use of state money on things such as lobbying. Passport spent more than $1 million over three years on public relations and lobbying.

House Speaker Greg Stumbo, D-Prestonsburg, said that, moving forward, the state needs to do a better job of monitoring contracts. "I believe that managed care has to be part of the equation to manage costs," Stumbo said.

"We're going to have to have better procedures in place to determine whether these measures are cost-effective and we're going to have to have ... sharing of information ... in the legislative and executive branches," Stumbo said.

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