Centene Corp. sues Kentucky, saying state deceptions, omissions led to $120 million in Medicaid losses
You could see this coming from a mile away.
Five days after it announced it would not renew its Medicaid managed care contract with Kentucky, St.Louis-based Centene Corp. – which does business here as Kentucky Spirit Health Plan – filed suit yesterday against every state cabinet that has anything to do with Medicaid.
In the suit filed in Franklin Circuit Court, Centene officials are charging that officials with the Cabinet for Health and Family Services, Kentucky’s Finance Cabinet and the Kentucky Department of Medicaid Services misled Centene officials about the overall health of Kentucky’s Medicaid members during the period leading up to the awarding of $6 billion in contracts back in November 2011.
The Centene suit also claims Kentucky officials submitted incorrect data to the insurer after rushing to stand up a Medicaid managed care system.
Incomplete and accurate data has caused the Medicaid managed care organization to lose $120 million in the 11 months since the contracts went into effect, according to the suit.
Allegations in the 30-page complaint include:
Time is of the essence in determining whether Kentucky Spirit has the right to seek equitable relief because the Commonwealth’s acts and omissions caused Kentucky Spirit to submit a bid on materially incorrect facts, causing Kentucky Spirit to lose over $120 million in the eleven plus months since it began performing the contract on November 1, 2011. Unless equitable relief is granted, these losses will continue to mount over the remainder of the performance of the Contract.
The contract is in effect until next July.
Law suits only give one side of the story, and the state has at least 30 days to file a response. State officials were not available for comment.
In the suit, Centene officials charge:
• Kentucky officials rushed the switch to a managed care system from fee-for-services, meaning that much of the data collected for reimbursements is inaccurate. “Kentucky Spirit relied on the information provided by the Commonwealth to prepare its proposal and set its capitation rates.” When Centene officials asked for clarification and corrections, Kentucky officials refused.
• Kentucky officials knew that Centene’s bids were – based on actuarial data – too low to cover the costs of medical care and administration, but never notified the insurer despite state and federal laws requiring the state to provide sound data.
• Kentucky officials misrepresented changes to the hospital reimbursement methodology, changes that actually cost Centene money, according to the suit.
• The state failed to disclose the volume and impact of retroactive fee-for-services claims that could not be dealt with under the Medicaid managed care system.
• Kentucky officials misrepresented to Centene the number of expensive neonatal intensive care admissions – and intensive care admissions in general – in areas outside Louisville and the surrounding counties. The implication is, such extraordinary care is much more frequent in rural areas outside Louisville, where incidents and chronic diseases are higher.
• State officials failed to disclose the true volume of expensive emergency room use.
Centene attorneys are asking the court to allow the company to leave the contract early without a breach of contract penalty, with the state paying damages and legal expenses. They also are asking the court to allow Centene to seek damages.
The back story on Medicaid changes in Kentucky: In April 2011, state officials asked health insurers to submit managed-care proposals for the $6 billion worth of care 800,000 poor and elderly Kentuckians receive annually under the federal/state Medicaid program. At the time, Gov. Steve Beshear touted the switch to managed care from fee-for-services as saving the state $375 million over the life of the initial three-year contracts. Insiders said officials in other states such as Georgia took as long as 18 months to make the change while Kentucky tried to do it in less than six months.
The three companies receiving MCO contracts were St. Louis-based Centene, Tampa, Fla.-based WellCare and Coventry Cares, based in Bethesda, Md. All are publicly traded companies. (Passport Health Plan, a Louisville-based non-profit controlled by providers, is the managed care insurer for Jefferson County and 16 surrounding counties.)
Each bid for the Kentucky MCO business was based on per-member, per-month health care costs projections. Low-bidder Centene bid $330 per member, per month, according to documents submitted to Insider Louisville. WellCare’s bid was based on $400 per member per month, and Coventry bid $436 per member per month.
The algorithm state officials used to choose the winners favored the low-cost plans, obviously, because therein lies the savings.
The state methodology initially assigned members to a plan, with the two lowest cost plans getting more members than the highest.
If Centene’s manged care system, for example, could actually get each member to spend less than $330 per month, they’d make a profit. But crucial to getting costs that low would mean lowering reimbursements to health care providers such as doctors and pharmacies, which meant losing some.