A federal judge ruled Wednesday that Coventry Cares must continue its contract with Appalachian Regional Healthcare through Nov. 1 to meet the medical needs of 25,000 Eastern Kentucky Medicaid patients.
ARH operates eight hospitals and other health clinics in the region. Coventry is one of three companies the state hired Nov. 1 to manage care for the 560,000 Kentuckians enrolled in the federal-state health care program for the poor and disabled.
Michael Murphy, president and CEO of Coventry Cares of Kentucky, told state lawmakers Wednesday that the company has lost $50 million in the first quarter of 2012 in Kentucky. He said the company is trying to mitigate those losses by renegotiating contracts with health care providers.
When Coventry said May 4 that it would sever its contract with ARH, the hospital chain filed a lawsuit in U.S. District Court in Lexington asking for a preliminary injunction to prevent the termination.
Coventry agreed to continue its contract until June 30 while negotiating with ARH, but negotiations stalled.
In his order, U.S. Senior Judge Karl Forester wrote that temporary injunctive relief "is essential" to prevent Medicaid recipients in the region from being "thrown under the bus."
"The health and well-being of thousands of these patients hang in the balance, and many have already suffered hardships, stress and confusion as a result of Coventry's sudden notice of termination of its contract with ARH," Forester wrote. "ARH serves a high-risk population in an economically depressed area. If faced with a lengthy and costly trip to visit their primary care physician, many patients will simply forego preventive care, leading to worse health problems, higher risk, and more expensive treatment in the future."
Forester's ruling said Coventry may terminate its contract with ARH after Nov. 1, but he ordered Coventry to provide ARH a list of its members who have used ARH during the past five years so ARH may contact those patients.
Medicaid recipients who want to change from Coventry as their managed care organization "in order to retain ARH as their provider will be allowed time and information to make a more informed choice and will avoid harm from extensive travel and/or lack of care," Forester wrote.
At this point, ARH has a contract with only one other managed care organization, Wellcare.
"The people who won were the people of Eastern Kentucky who stood to be harmed by Coventry's actions in this matter," said Rick King, vice president of legal affairs for ARH. "They are going to be able to continue getting their health care where they have always gotten it. We are extremely pleased with that result."
Cabinet for Health and Family Services spokeswoman Jill Midkiff said the cabinet was reviewing the ruling and did not have a comment.
ARH officials have said contract negotiations stalled because Coventry was asking for a cut in Medicaid reimbursements that ARH found unacceptable. Medicaid's rates pay 75 percent of the cost of treating patients on an in-patient basis, and Coventry had asked for a further reduction.
"That really would have harmed us greatly," said King.
Murphy said Wednesday afternoon that he had not seen Forester's ruling and could not comment on it.
In talking to lawmakers, Murphy blamed the majority of Coventry's losses on faulty data the state provided to Coventry before the company bid on the Kentucky contract. The data show much lower utilization rates for patients than what Coventry is seeing. All three companies have seen much higher utilization rates than what the state numbers showed, he said.
Coventry is trying to renegotiate contracts with at least 10 hospitals in Kentucky, including the ARH group.
Coventry decided not to charge Medicaid patients a co-pay. That meant Coventry received a disproportionate share of sickly patients. The cabinet adjusted payments to the companies in April, but Murphy said that adjustment did not go far enough to cover Coventry's costlier patients.
The state will open enrollment to patients in the three managed care companies in August, which means patients may choose to move to a different managed care provider. At that time, Coventry probably will charge a co-pay, Murphy said.
Coventry's original complaint was with the state, ARH's King said.
The company thought the state was not paying enough for the acutely ill patients who were transferring to Coventry so they could continue using ARH, King said.
"I really feel like the state has kind of gotten off a little easy here, because in the first place, had they been able to make the proper risk adjustment that Coventry asked for, I don't think we'd be in court today," King said.
In Frankfort, Cabinet for Health and Family Services Secretary Audrey Haynes told legislators that although the transition to managed care has been rocky, the state has seen savings. The first six months of managed care have generated savings of $190 million, about $50 million of which is Kentucky General Fund dollars. The federal government picks up most of the tab for the program.
Haynes said Coventry ended up with a larger share of high-use patients in some of the poorest areas of Kentucky because it made a business mistake in not charging co-pays.
Murphy said after Wednesday's meeting with lawmakers that he would like to see the cabinet adjust payments to the managed care companies to reflect the higher rates of use by Medicaid patients. But Haynes told legislators that the state does not want to reopen or renegotiate the managed care contracts. Those contracts are for three years, she said. The switch to managed care was projected to save the state $375 million during that time, and Haynes said she thought the state was on track to reach that level of savings.
Valarie Honeycutt Spears: (859) 231-3409. Twitter: @vhspears.