Kentucky’s Rush Into Medicaid Managed Care: A Cautionary Tale For Other States

GREENSBURG, Ky. — Kaden Stone loves playing baseball, riding his bike and watching Duck Dynasty on TV at his red-brick ranch-style house in rural south central Kentucky. 

Despite his energy, the tiny boy of eight with a crewcut and missing front tooth can’t eat much, the result of congenital bowel problems that have required dozens of surgeries and procedures. He needs PediaSure, says his mother, who was shocked when Kaden’s Medicaid managed care plan stopped paying last fall for the expensive nutritional drink, saying it was not “medically necessary.”

Kentucky's Rush Into Medicaid Managed Care: A Cautionary Tale For Other States

Kaden Stone and his mother, Angelina Alcott (Photo by Jenni Bergal/For KHN)

“We couldn’t believe it, because he had only gained four pounds in a year and the doctor said he had to have it because he wasn’t flourishing,” said Angelina Alcott. “He’s only 3 ½ feet tall and 48 pounds.”

Ever since Kentucky rapidly shifted patients from traditional Medicaid to private health plans that manage their care for a set price, problems have been widespread.

Patients complain of being denied treatment or forced to travel long distances to find a doctor or hospital in their plan’s network. Advocates for the mentally ill argue the care system for them has deteriorated. And hospitals and doctors say health plans have denied or delayed payments.

Experts warn that what happened in Kentucky should be a cautionary tale for other states that rush to switch large numbers of people in Medicaid, the state-federal program for the poor and disabled, to managed care in hopes of cutting costs and improving quality. Nearly 30 million Americans on Medicaid now belong to a private health plan, as states move away from the traditional program that paid doctors and hospitals for each service they provided.

Beginning in January, millions more people will become eligible for Medicaid under the federal health law, and many will be placed in managed care. Thirty-six states and the District of Columbia have enrolled some or all of their Medicaid population in private health plans, which last year cost the states and federal government about $108 billion. 

“The Kentucky case is a harbinger of what can happen when states don’t allow enough time and devote sufficient resources to strengthen the Medicaid agency’s oversight capacity and systems — or develop strong contracts and care monitoring systems from scratch if they haven’t contracted with managed care plans before,” said Debra Lipson, a senior researcher for Mathematica Policy Research, a nonpartisan think tank

Kentucky health officials admit there have been some rough spots because of the speed of the changeover that started in late 2011. But they insist that claims now are being paid promptly and the quality of care has improved.

“We’re changing the delivery of health care in Kentucky for the good,” Kentucky Medicaid Commissioner Lawrence Kissner said.

Kissner, a former CEO of two managed care companies, said that in one year, child immunization and diabetes testing rates have jumped, emergency room use has dropped and prescriptions for controlled substances such as Oxycontin are down.

In May, Democratic Gov. Steve Beshear announced that the state would expand Medicaid under Obamacare to about 308,000 more Kentuckians, who will be placed in managed care plans.

But many say that problems persist, especially in rural areas where access to services can be spotty. And mental health advocates say the plans have denied prescriptions that patients have taken successfully for years and many community mental health centers have limited or canceled programs because the plans won’t authorize enough treatment.

“The whole thing has been a mess,” said Sheila Schuster, executive director of the Kentucky Mental Health Coalition, an advocacy group. “It’s extremely difficult to get any resolution on issues people are facing. If you bring up problems, state officials say you’re just being resistant to managed care.”

Advocates say they’re also worried about managed care’s impact on patients with developmental disorders.

Sheila Schuster, executive director of the Kentucky Mental Health Coalition

Darlene VanHoeve, who lives in the hills of southeastern Kentucky, was shocked to learn that health plan WellCare of Kentucky wouldn’t pay for services at an autism center for her son Reuben, whose doctor thought he had Asperger’s Syndrome. The lanky 17-year-old with curly brown hair and thick glasses is depressed, she says, often hyper-focuses on one thing and gets agitated if he has to do multiple tasks. 

The doctor recommended that he get testing and counseling at the center, an hour away, because no local child psychologists were in his plan’s network. But WellCare denied the request, saying the center wasn’t in its network. 

“I’ve got a child who’s almost non-functioning,” said VanHoeve, who home schools her children and whose husband, Frank, is a missionary. “He’s going to have to take at least another year to finish high school.”

The VanHoeve family, which lives on about $22,000 a year, is paying $1,650 out of pocket to have Reuben tested at the autism center, which has given him an Asperger’s diagnosis. Their ministry has stepped in to help by temporarily offering the family insurance.

Kentucky's Rush Into Medicaid Managed Care: A Cautionary Tale For Other States

Reuben VanHoeve and his mother, Darlene VanHoeve (Photo by Jenni Bergal/For KHN)

WellCare of Kentucky president Mike Minor couldn’t comment on the case because of privacy laws, but he wrote in an email that the plan believes that its provider network is capable of covering members’ behavioral health needs.

Kentucky is largely rural, with a population that has serious health care needs. Last year, its national overall health ranking was 44th and it ranked 50th in smoking and cancer deaths and 40th in obesity, according to a United Health Foundation study

Medicaid pays a lot of the medical bills. When the state faced a $100 million shortfall in its $6 billion Medicaid program, Beshear announced a plan to move members to managed care in 2011. Officials signed contracts with three national managed care companies and transferred about 550,000 people within four months.

The companies had to scramble to recruit and train employees and contract with a network of doctors and hospitals. 

“It was a significant challenge,” said Michael Murphy, CEO of CoventryCares, which is part of the Bethesda, Md.-based Coventry Health Care chain that recently was purchased by Aetna. “Obviously we learned a few lessons in Kentucky,” he adds. “We have the scars to prove it.”

Payment disputes soon erupted between the plans and hospitals and doctors, who complained that claims were being denied or delayed improperly and that the cumbersome pre-authorization process hindered treatment.

“It’s just been a litany of issues – slow payment, network adequacy, denials, pre-admission problems,” said Michael Rust, president of the Kentucky Hospital Association. “States usually phase this in. Here, it was the whole enchilada. It was almost a change overnight.”

A 2012 evaluation by the Urban Institute called the transition in Kentucky “extremely rapid.” 

It found that patients faced delays in getting care, mental health gaps were exacerbated and an “adversarial relationship” plagued the state, the plans and the medical community.

Medicaid chief Kissner said most problems have been resolved. But some state legislators say they continue to be flooded with complaints from disgruntled doctors, dentists and hospitals.

“The state is tone deaf to the providers,” said state Sen. Julie Denton, a Louisville Republican who chairs the Health and Welfare Committee and has held hearings on the issue. “They have let these health plans run amok because they want the savings and they don’t want to do anything to jeopardize that. It’s all about the money. It’s not about patient care and access to care.”

Earlier this year, the legislature unanimously passed a bill that would have set up an appeals process at the Department of Insurance to mediate disputes between the medical community and the health plans. The governor vetoed it, saying it would have resulted in excessive costs and could have interfered with contractual agreements. Instead, he announced an “action plan” that included insurance department audits and a requirement that plans meet with every hospital to review past-due bills. 

Kissner said those meetings have taken place, and the plans aren’t finding anywhere near as many unpaid claims as the hospitals allege. New claims are being paid promptly, he added.

For the three national health plans, Medicaid managed care in Kentucky has been a loser financially.

Kentucky Spirit, a subsidiary of the St. Louis, Mo.-based Centene Corp., pulled out of Kentucky this month, saying it had lost $120 million. It has sued the state for damages, arguing that the data it received when it initially bid was flawed and underestimated the actual costs and poor health of members. The state, which has started transferring about 125,000 members into the two other plans, announced it would sue Kentucky Spirit for breach of contract.

CoventryCares CEO Murphy said his plan has lost about $156 million since the contract started. But he said the payment disputes with doctors and hospitals are now being resolved and the situation has “improved and stabilized.”

In January, the state amended its contracts with CoventryCares and WellCare, agreeing to increase their rates by 7 percent. That’s an additional $18 million in state funds and $22.5 million from the federal government, according to Kissner.

While payment issues have gotten most of the attention in the halls of Frankfort’s capitol, there’s also concern about whether the plans’ network of doctors and hospitals is adequate, especially in underserved areas.

In rural Eastern Kentucky, Appalachian Regional Healthcare, the predominant hospital chain, is suing Coventry, which severed its contract after the health care system refused to agree to reduced rates. Appalachian also did not contract with Kentucky Spirit because of a disagreement over rates. Only WellCare remains in the Appalachian system.

Hospital officials say that means many poor Eastern Kentuckians are left without ready access to certain services, such as maternity care and radiation therapy.

Medicaid’s Kissner disputes the criticism about the network’s adequacy. He said his office performs a monthly review to insure services are available in rural areas within 60 miles or 60 minutes of members, as required by state law. 

Advocates are also distressed about the safety net for vulnerable mentally ill Kentuckians. They say that not only have programs been cut and access been limited under managed care, but psychiatrists and therapists have reduced the amount of time they spend with patients.

“The result is decompensation, poor illness management and more hospitalizations,” said Kelly Gunning, advocacy and public affairs director for the National Association for the Mentally Ill in Lexington. “The people are powerless. They have no say.”

Kissner disagreed with the advocates’ assessment about the decline in mental health care. He said the community mental health centers have been rattled because the plans are demanding information about discharges and the expected outcome for patients.

“I think they’re struggling with oversight of managed care. They’ve operated in a different environment and now the (plans) are requiring more oversight,” Kissner said. “The goal is not to be in a facility the rest of your life.”

While Kissner and other Medicaid officials view the move to managed care in Kentucky as a monumental step toward improving patients’ health, that view isn’t shared by Alcott, the mother of the boy who was born without a rectum or bowel control.

Alcott said that for years she was grateful that Kaden was on Medicaid, which paid for all his health care expenses. Even though she teaches adult education and Kaden’s father is an electrician, they relied on the state program for their son’s treatment because it would have been too costly if he was on her private health plan.

Alcott said she was hopeful about managed care until CoventryCares stopped paying for the PediaSure last year. She has had to take on extra jobs to pay the $180 to $200 a month it costs.

Coventry spokesperson Kristine Grow said that the plan generally covers “medically necessary” nutritional supplements, but she couldn’t discuss the case because of privacy laws.

What’s been even more disturbing for Alcott was that the Louisville children’s hospital where Kaden’s long-time surgeon is on staff decided to stop accepting CoventryCares patients in June. She switched plans in July.

“At first, managed care was great. Now it’s really stressful,” Alcott said. “It’s been so hard. I feel like I’m a strong person, but I’ve cried. You feel powerless.”

This article was produced by Kaiser Health News with support from The SCAN Foundation.