Kentucky protects traditional providers in its rollout of the state’s managed Medicaid program

Local provider groups also suffer traditional start-up problems

Kentucky’s Partnership Program, unique among Medicaid man- aged care demonstration projects for its reliance on a single provider-operated plan in a geographic region, is experiencing some very ordinary health plan start-up problems.

State officials are optimistic about the program and plan to target statewide implementation by mid-1999. By then, they expect, early losses and operational snafus will be resolved and the faith they placed in teaching hospitals and traditional Medicaid physicians will be justified.

To date, the program has enrolled some 150,000 Medicaid recipients in two of eight regions of the state—through Kentucky Health Select in Lexington (Region 5) and Passport in Louisville (Region 3). The state reports that few consumers are complaining, although it is awaiting completion of a provider satisfaction survey for a more complete picture of the program, which began Nov. 1, 1997. (For more information on how Kentucky officials promote quality improvement in the state’s Medicaid managed care plan, see "Kentucky plans offered financial reward for meeting health outcome measures," page 8, this issue.)

Total plan membership represents about a third of the state’s eligible Medicaid population of 499,000.

The Kentucky Partnership Program was designed to improve care for recipients, control costs, and preserve its existing indigent care system and traditional Medicaid provider relationships. In contrast to all other states, it chose not to use commercial managed care organizations, and instead opened participation only to "partnerships" of local, traditional Medicaid providers who could contract with an HMO for risk-management expertise.

"Our belief was that if the providers who ought to know the [Medicaid] health care system can figure this out, that’s who we really wanted," said Rich Heine, director of the state’s division of managed care development. Kentucky took to heart "horror stories" from states in which a shift to Medicaid managed care left health departments and teaching hospitals financially strapped. "One of our objectives was to ensure that we did not destroy the state’s ability to take care of the indigent."

To these ends, Kentucky decided to award contracts to only one plan in a region and to have that plan be locally controlled by a provider organization. Passport and Health Select began enrolling members on Nov. 1, 1997, with a phase-in of all area members expected by March 1. The state plans to bring the Kentucky Partnership up in the other six regions of the state by July 1999.

Launching the partnership program was something of a risk because the state had little experience with HMOs. Managed care is new to Kentucky Medicaid recipients and most commercially insured state residents as well. Prior to the Partnership program, the state had no Medicaid-only managed care organizations. Commercial managed care penetration in Kentucky is about 30%, Mr. Heine said.

Kentucky required the provider sponsors to have either previous risk-bearing experience or to contract for administrative services with an organization that had a track record in managing financial risk.

To meet that requirement, Passport contracted with Amerihealth-Mercy of Philadelphia to provide administrative services for its 95,000 members. Passport’s parent company, University Health Care, is owned by the University of Louisville Medical School Practice Association, three Louisville hospitals, and a group of publicly funded health centers.

Pharmacy costs take a toll

During the year ending Sept. 30, Passport lost $1.6 million, exceeding projected losses of just under $300,000. Much of the loss was due to higher-than-expected pharmacy costs, a problem that plagues many managed care organizations nationwide. Passport’s owners recently infused $2.5 million into the plan and is implementing measures to bring down pharmacy costs.

In addition, Passport is struggling to coordinate information systems with the state. For example, while the state sends the plan a daily list of new members, it is still 30 days behind in notifying Passport of newborns, Executive Director Joyce Schifano said.

The region 5 plan, Kentucky Health Select, is part of an organization that had three years of experience managing commercial lives before launching its Medicaid product. Health Select’s parent, CHA Health, is owned by seven health care organizations, the largest local entity of which is the University of Kentucky Hospital. Health Select has 62,000 Medicaid members and CHA has 110,000 commercial members under a separate HMO license, according to Shawn Crouch, Health Select project manager.

State requires its say-so

The biggest change in operating a Medicaid plan vs. a commercial one has been the state-required governance structure, Mr. Crouch said. To make the plan more responsive locally, a 24-member governing board, composed of hospital, physician and ancillary providers and consumer representatives meets monthly to set policy.

Health Select still is working out several operational issues, including newborn eligibility problems similar to those Passport has experienced. Additionally, Health Select is struggling with care for dual eligibles. Because members eligible for both Medicare and Medicaid are not required to select a primary care physician, coordination of benefits and delivery of care is complicated, Mr. Crouch said. For example, pharmacy benefits are the plan’s responsibility under Medicaid, but Health Select has little power to oversee what medications are dispensed if the member does not have a PCP.

The two plans have taken divergent methods of paying their providers, with Passport capitating its primary care physicians and Health Select paying through a combination of fee for service and a 20% withhold.

Passport is for profit; Health Select is a not-for-profit plan. The state may contract with commercial HMOs in other regions of the state if local providers fail to form partnerships, but thus far, there seems to be sufficient interest to prevent the state from having to go that route, Mr. Heine said. Kentucky will seek to limit the amount of profit or surplus that can be earned by requiring a relatively high medical loss ratio of about 90%.

While Medicaid recipients have only one plan from which to choose in their region, provider choices are wide open. The state has an any-willing-provider law, and asked that the plans make participation "available to all existing Medicaid providers," Mr. Heine said. The plans’ provider panels include more than 90% of primary care providers who had participated in Medicaid previously as well as all the hospitals in the two regions.

The next development in the Partnership program will be a bid solicitation for a behavioral health carve-out, which is likely to follow the medical model of local providers working together, Mr. Heine said.

Contact Mr. Heine at 502-564-7940, Ms. Schifano at 502-585-7983, and Mr. Crouch at 606-257-9049.