Attorneys for Appalachian Regional Healthcare are trying to add the Centers for Medicare and Medicaid Services as a defendant in its lawsuit against the managed-care company Coventry and the state of Kentucky.
In a motion filed Friday in U.S. District Court in Lexington, the health care chain said the federal agency's failure to scrutinize the Cabinet for Health and Family Services has resulted in an unstable managed-care system that "is heading toward eventual collapse.''
Officials with Centers for Medicare and Medicaid Services declined to comment Friday.
Three managed-care companies were hired by the state in November 2011 to help control costs in the federal-state health care program for the poor and disabled. More than 540,000 Medicaid members from 104 Kentucky counties were moved to Kentucky Spirit, Coventry Cares and WellCare.
The transition has not gone smoothly.
Under managed care, the state pays the companies a set fee per patient regardless of the amount of services the patient needs.
ARH said in court documents that CMS did not ensure that the state was paying "actuarially sound" rates and did not ensure that managed-care companies provided members with adequate access to medical services.
The lawsuit says CMS failed to comply with federal law.
ARH has asked the court to enter a declaration that CMS acted "arbitrarily and capriciously" in approving the managed-care plan for the state. ARH wants the court to order CMS to determine whether the state is complying with the federal Medicaid Act. The complaint also asks the court to enter an injunction preventing CMS from making funds available for Medicaid managed-care services until the managed-care plan conforms to federal requirements, and instead make funds available under the state's former methodology.
Doctors, hospitals and other providers have complained about late payments and cumbersome reimbursement processes. Managed-care companies have threatened to end contracts with health care providers.
When Coventry told ARH, a predominant provider of health care services in Eastern Kentucky, that it was ending its contract with the health care chain, the dispute ended up in court. That resulted in ARH being granted a temporary injunction that allowed members to be covered for an extended period.
ARH filed the lawsuit against Coventry and the Cabinet in April 2012.
Steve Price, an attorney for ARH. said Friday that the problems continue.
"Two years ago a Medicaid patient could go to any hospital in the state for treatment, Price said. "Today, a Medicaid patient in Eastern Kentucky is lucky if there is even a hospital in their county or a neighboring county where their Medicaid managed-care plan will authorize them for needed treatment."
Price said in a statement that there are several issues that limit treatment options, including Coventry's decision to largely pull out of Eastern Kentucky and a pending lawsuit filed by Kentucky Spirit. Kentucky Spirit has sued the state and is leaving Kentucky next June, a year before the company's contract ends. Cabinet officials have said Kentucky Spirit cannot cancel its contract during the initial three-year term, which ends in July 2014.
Court documents filed by ARH said that WellCare also notified ARH of termination, but the companies reached a tentative agreement.
Price said similar issues are not limited to hospitals and affect "all types of providers" and "it is not limited to Eastern Kentucky but is spreading to the rest of the state."
"Protections for Medicaid beneficiaries and providers are not being enforced," Price said. "The Medicaid Program in Kentucky is collapsing and no one is paying attention."
Cabinet spokeswoman Jill Midkiff, in response to the legal action, said "There is a high level of oversight by CMS of the Department for Medicaid Services to ensure full compliance at all times, including a significant level of required reporting for all Medicaid programs."
Midkiff said the Cabinet worked closely with CMS and continues to do so."