The first page of the Passport letter.

Passport Health Plan executives are charging Beshear Administration officials with manipulating the process of awarding new Medicaid managed care organization contracts in the Louisville area.

Touted as a way to increase competition and lower costs, Kentucky is adding MCOs Humana, WellCare Health Plans and Coventry Health Care to Region 3, which includes about 180,000 people in Jefferson County and 15 surrounding counties.

Until the changes, Passport – which is owned by Louisville health care systems including the University of Louisville Hospital – had been the sole Medicaid managed care contractor since 1997.

The introduction of competitors potentially cuts Passport’s business by 75 percent.

Instead of saving money, as Gov. Steve Beshear touted when he announced Medicaid reform during the 2011 gubernatorial campaign, the changes in Region 3 will add $80 million in costs while totally disrupting patient services, according to a formal complaint by Passport CEO Mark Carter .

(You can read the letter Passport here in its entirety. The letter was submitted to Insider Louisville by several sources.)

In the pointed 8-page formal letter of protest to Lori Flanery, secretary of the Finance and Administration Cabinet, Carter accuses state officials of ignoring sound practices –  as well as more than a decade of Passport’s sound performance – as they awarded Region 3 contracts.

Carter closes the letter by saying that if the bid protest is denied, Passport officials “will consider all other available legal options, including the filing of litigation against the Commonwealth.”

The move comes a week after St. Louis-based Centene Corp. sued the state, accusing Kentucky officials of misleading Centene officials about the overall health of Kentucky’s Medicaid members during the period leading up to the awarding of $6 billion in  contracts in November 2011. The Centene suit also claims Kentucky officials submitted incorrect data to the insurer after rushing to institute private Medicaid managed care in place of a government run fees-for-services system. Finally, Centene is trying to end its contract.

State officials said they could not comment on the Passport charges because they haven’t seen Carter’s letter.

Here are the main points of the Passport letter:

  • At a meeting last week, Kentucky officials told Passport executives the firm would receive about 41 percent of the Region 3 Medicaid recipients after the new contracts adding Humana, WellCare and Coventry are in effect.
  • Instead, at a meeting between Passport staff members and representatives of Department of Medicaid Services a few days later, Passport staff members were told that the assignment algorithm had been run by DMS, and that Passport’s initial assignment under the algorithm was only 27 percent of the Region 3 Medicaid recipients. “Although Passport does not yet fully understand the reasons for this outcome, we believe that one factor may be that DMS has decided to treat a letter of intent (“LOI”) between a provider and an MCO as if it were a binding contract, a decision that Passport believes to be contrary to the terms of the RFP documents.
  • State Medicaid rules require an MCO have an adequate provider network and readiness review before awarding binding contracts. ” Passport, based on its long history as a Medicaid contractor in Region 3, clearly has an adequate network,” Carter wrote in the letter. But Carter charges the state did not use rules for binding contracts with Passport competitors Humana, WellCare and Coventry, but accepted their letters of intent as proof they’re qualified to receive contracts. “To Passport’s knowledge, nothing has been done by the Commonwealth to assess whether the other MCO’s are ready to provide services in Region 3. In the letter, Carter refers to the fact that federal courts ruled WHEN Coventry did not have an adequate health care provider network.
  • In the letter, Carter also refers to the Beshear Administration’s claims that switching to a Medicaid managed care system from fees-for-services would result in more than $700 million in savings for the life of the 2-year contracts. In doing so, he makes public the bids by the four firms, saying state officials actually encouraged Passport executives to increase their original bid by eight percent.
  • Passport’s final bid for providing Medicaid services in Region 3 was an average of $457 per member per month. “This bid was actually increased during the negotiation process from Passport’s initial bid of $433 average PMPM, based on discussions with the Commonwealth’s representatives. In fact, Passport told the Commonwealth’s representatives during the negotiation process that Passport would have been willing to enter into a contract with DMS at $423 average PMPM, if the outcome of the assignment process were the assignment to Passport of about 80 percent of Region 3’s Medicaid recipients.”
  • Passport’s initial $423 bid was the lowest, according to the letter, with Coventry and Humana both bidding $473 and Wellcare $446.
  • Based on those bids, Carter estimates Kentucky will spend annually in Region 3 about $80 million more than it would have been required to spend if DMS had entered into a contract with Passport at $423 average per member, per month for 80 percent of Region 3’s Medicaid recipients.
If Kentucky implements the changes in Region 3, Carter concludes, it will be unnecessarily disruptive to the continuity of care of Medicaid recipients in the region, and will result in excessive spending of taxpayer dollars that could have been avoided by a different initial assignment process.
Carter notes that Passport’s formal protest essentially suspends implementation of the Region 3 changes until there is a ruling, changes scheduled to go into affect at the end of next month.