Gov. Steve Beshear's administration rushed to privatize Medicaid management last year and, in its haste, provided incorrect cost information to the bidders, according to a lawsuit filed Monday in Franklin Circuit Court.
Kentucky Spirit, one of three Medicaid managed-care companies outside of Louisville, said the faulty information has contributed to losses of $120 million since its work began Nov. 1, 2011. Kentucky Spirit last week told the Cabinet for Health and Family Services that it intends to terminate its three-year contract a year early and fire its 200 employees in Lexington.
By suing, Kentucky Spirit hopes the court will let it end its contract in July 2013 without paying the damages that Health and Family Services Secretary Audrey Haynes has said the state will pursue. The cabinet says Kentucky Spirit cannot cancel its contract during the initial three-year term, which ends in July 2014.
Kentucky Spirit alleges the Beshear administration rushed Medicaid privatization in spring 2011 to save up to $375 million over the next three fiscal years. As a result, health-care cost data compiled for the state by the accounting firm PricewaterhouseCoopers was incorrect, the suit alleges. The resulting "data book" was what managed-care companies used to estimate costs in their bids, Kentucky Spirit said.
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In an email dated April 1, 2011, the accounting firm told Medicaid Commissioner Neville Wise that "there are some outliers that unfortunately there's no time to investigate" and "there is no way to evaluate the performance of one over another given the time constraints."
The lawsuit details several alleged flaws in the data given to bidders, including: the state failed to disclose the volume and impact of retroactive claims by members prior to enrolling in the plans; it changed hospital outpatient reimbursements in a way that increased costs; it misrepresented the number of neonatal intensive care unit admissions; and it misstated the volume of emergency room use by Medicaid clients.
For example, the state's data book indicated an average of 390 emergency room visits per 1,000 Medicaid clients, while Kentucky Spirit's actual experience over the last year was more than twice that, or 942 visits per 1,000 members, according to the suit.
Kentucky Spirit, a subsidiary of Centene Corp. in St. Louis, Mo., hired Beshear's former Medicaid commissioner, Betsy Johnson, at his former law firm, Stites & Harbison, to file the suit. Johnson and Centene both declined to comment Tuesday.
The cabinet defended its privatization efforts in a prepared statement.
"The cabinet was not surprised by Kentucky Spirit's decision to file a complaint," said cabinet spokeswoman Jill Midkiff. "In an attempt to get out of the contract, Kentucky Spirit is claiming that the cabinet did not provide enough information during negotiations of the contract to make an informed bid. Yet Kentucky Spirit willingly signed a binding, three-year contract with the commonwealth."
Midkiff said the state remains in discussion with Kentucky Spirit, which continues to provide services to its 125,000 to 140,000 members.
"We will ensure that Medicaid members experience no disruption in health services due to Kentucky Spirit's actions," Midkiff said.
The state plans to move Kentucky Spirit's members to the other two managed-care companies, Coventry Cares and WellCare.
Last week, Health and Family Services Secretary Audrey Tayse Haynes told a panel of lawmakers that "all three companies have lost money in Kentucky at this point."
Kentucky Spirit seized on that statement in its suit.
"It is simply not plausible that three experienced managed-care companies, let alone Kentucky Spirit, could have missed the mark so badly ... had the data book and other information provided during the request for proposals by the commonwealth been accurate and complete," according to the suit.
More than 540,000 Medicaid clients from 104 Kentucky counties were moved to a managed-care company last year.
In general, Kentucky's transition to Medicaid managed care has not been smooth.
Doctors, hospitals and other providers have complained about late payments and cumbersome reimbursement processes. There also have been testy negotiations between managed-care companies and health care providers. Some of those disputes have ended up in court.