FRANKFORT — One of three Medicaid managed-care companies has told Kentucky that it plans to end its contract with the state by July 2013, putting 200 people out of work in Lexington.
Kentucky Spirit notified the Cabinet for Health and Family Services on Wednesday that it intends to terminate its three-year contract a year early. The company and the state said they intend to seek damages for breach of contract.
Kentucky Spirit, a subsidiary of Centene Corp., and the state have been in discussions for some time about Kentucky Spirit's concerns with Kentucky's Medicaid managed-care program, the company said in a written statement.
"The decision to terminate the contract comes after months of efforts by Kentucky Spirit and the cabinet to resolve these concerns, and only after it has become clear that there is no viable path to a sustainable Medicaid managed care program in Kentucky," the statement said.
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Kentucky Spirit, which serves between 125,000 to 140,000 Medicaid patients, was one of three managed care companies hired by the state in November 2011 to help control spiraling 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.
Gov. Steve Beshear and Health and Family Services Secretary Audrey Tayse Haynes issued statements harshly critical of Kentucky Spirit's decision.
"I am deeply frustrated that this publicly traded, Fortune 500 company has chosen to put profits above people and will not honor the terms of its contract," Haynes said in the statement. "The managed-care model is working in many states and is working here in Kentucky."
Cabinet officials said Kentucky Spirit's contract doesn't expire until July 5, 2014.
The company offered the lowest bid for Medicaid managed-care services in early 2011, but it now cites lost profits as the reason behind its decision to leave, according to the state.
"We will continue to work within the contract process to make sure members are provided health care services and providers get the payments they are due," Beshear said. "We will hold this company accountable to its contractual commitments through whatever means necessary on behalf of both the members and taxpayers."
The state plans to move Kentucky Spirit's patients to the other two managed-care companies, which are paid a higher per-patient rate than Kentucky Spirit. The difference between what Kentucky Spirit is paid for a Medicaid patient verses the other managed-care companies is on average about $100 a month.
The change could cost Kentucky an additional $168 million next year, some Republican legislators said Wednesday.
"They are in breach of the contract by leaving early," Haynes told the legislature's Interim Joint Committee on Health and Welfare. "They are responsible for the damages and the cost to the state. Clearly, I expect that to be litigated out."
Some Republican lawmakers questioned whether the cabinet should have been more skeptical of Kentucky Spirit's low bid last year.
"The lowest bid is not necessarily the best bid," said Sen. Joe Bowen, R-Owensboro.
Haynes said Kentucky Spirit — which works in 19 states — placed a low bid to get into Kentucky.
"They were aggressive about coming in here," Haynes said. "I would not be too quick to judge us."
Although the state granted a 1 percent increase in Kentucky Spirit's contract in July, the company has told the state during negotiations over the past few weeks that it is losing more money than expected, Haynes said.
Coventry and WellCare received increases of 3 percent to 5 percent in October, she said.
The state and Kentucky Spirit must now go through an internal contract-dispute process. If an agreement is not reached through the administrative process, the battle could go to court.
Still, it's possible that Centene will "take its foot off the gas" and return to negotiations after it holds a conference call with investors next week, Haynes said.
Overall, Kentucky's transition to Medicaid managed care has not been smooth. Many doctors, hospitals and other providers complained about late payments and cumbersome reimbursement processes. There also have been testy negotiations between the managed-care companies and health care providers. Some of those disputes have ended up in court.
The 200 people employed by Kentucky Spirit in Lexington will lose their jobs, said Carol E. Goldman, executive vice president and chief administrative officer of Centene.
"We regret the loss of these high-quality jobs, which represent over $120 million in annual wages and benefits eliminated from the local economy and tax base," Goldman said. "The company is working closely with its employees to provide them with the appropriate levels of support and resources during this transition."
The company said it will work with Medicaid patients to transfer them to another Medicaid managed-care company before July 2013.
Kentucky Spirit said it has seen many successes during nearly a year in Kentucky, including a 30 percent increase in well-child visits among its clients, a 53 percent increase in diabetes testing and a 94 percent decrease in "doctor shopping" for narcotics.