Two regional provider networks nearing operation in Kentucky; state says managed care on hold until other networks form
Kentucky Managed Care
July 31, 1997
Nearly four years after its Tennessee neighbor moved more than 1 million Medicaid beneficiaries into managed care almost overnight, Kentucky is finally moving forward with its own managed care initiative. However, its approach could hardly be more different.Instead of one statewide program offering a choice of a dozen managed care organizations, many new to the state, Kentucky’s Section 1115 waiver envisions a home-grown Medicaid reform that puts providers and consumers in control rather than MCOs. Plans call for the development of one network, known as a "Health Care Partnership" for each of eight state regions.Rather than risk moving too fast, the state is planning to roll out the program over the next 18 months. "It may make it slower, but I'll bet it makes it better," says Richard Heine, the state's Medicaid project manager. "We're very interested in having the providers be on at least an equal footing. We want the providers to be in a policy role—we think that they're going to be more oriented towards quality. And they're local—you don't have some third party telling them how to manage their care."
Two regional provider networks were negotiating capitation rates with the state Medicaid department in early July, and should begin enrolling recipients by Oct. 1. Six other networks, covering the rest of the state, are expected to start up before 1999 to provide coverage for the remainder of Kentucky’s 493,000 non-institutionalized Medicaid beneficiaries.
Kentucky's is the only 1115 waiver that envisions provider-sponsored networks covering nearly all of the state's Medicaid population, according to an official with the Health Care Financing Administration."We want to see how successful the state is in setting up the networks and assuring access," he says.
If providers cannot come together in one or more of the eight state-designated regions, the state has reserved the authority to put coverage of the Medicaid population in a region out to bid among managed care organizations. However, the state won't consider competitive bidding until 1999, Dr. Heine says.
The 4,800-member Kentucky Medical Association would prefer an even more cautious approach. Before Kentucky expands beyond two regions, KMA legal counsel Pat Padgett says physicians want to evaluate the impact of the waiver on quality, whether they will have to comply with undue regulations and utilization review, and whether the program will be profitable enough for physicians to remain participants.
Like other Section 1115 demonstration waivers, the Kentucky Health Care Partnership Program requires managed care savings to be used at a later date to expand health services for low-income residents.
The waiver requires the Health Care Partnerships to have the management expertise, providers and financial reserves to bear the risk of delivering all covered services to a region's non-institutionalized Medicaid population.
Each partnership must maintain a solvency reserve equal to its net worth. The amount may be adjusted downward if a partnership's hospital contracts provide for the continuation of services to members following a partnership's insolvency. Partnerships are being given several options for meeting their reserve fund requirements, including insolvency insurance or a letter of credit for up to 50% of the reserve amount.
Each partnership also must have a board of directors broadly representative of its region's providers and consumers. And each must meet state standards for quality improvement.
Even before Kentucky received its waiver in October 1995, some of the state's providers, seeing managed care coming to the Medicaid market, began to plan managed care networks as an alternative to HMO-run networks.
"We decided that, as a partnership, we would help make our own rules rather than being told what they would arbitrarily be," says Dr. James Bean, a neurosurgeon and member of the executive committee of the Fayette County Medical Society, which had a central role, along with the University of Kentucky, in the formation of the Region 5 Health Care Partnership. It will cover roughly 75,000 recipients in 22 central Kentucky counties with a managed care product called Kentucky HealthSelect.
HMOs do have a role in the partnerships — as administrative service organizations. The 1115 waiver requires each regional partnership either to become or include a risk-bearing entity licensed by the Kentucky Department of Insurance. Each of the two partnerships now nearing operation have contracted with HMOs for claims processing, provider payments, members services and other administrative functions typical of managed care organizations.
But, the providers say that they and the consumers will be calling the shots. In Region 5, for example, the provider network's responsibilities include utilization review, quality improvement, provider sanctions and grievance resolution, medical policy development, and oversight of risk reserves and withhold funds. The partnership's governing board is composed of providers representing urban and rural hospitals, urban and rural physicians, the state Health Department, dentists, home health care and pharmacy. Consumers will have four of the board's 24 seats.
Once the partnerships negotiate a capitation rate, they'll meet with providers and seek to turn letters of intent into actual contracts. "The biggest challenge here is putting a number of providers into a room and deciding what you're worth compared to everybody else," says Dr. Bean.
In Region 5 the interim executive director, Mark Birdwhistell, says the key to the network's success so far has been the involvement of its major stakeholders in every decision.
Although Kentucky's waiver envisions only one provider network in each region, Dr. Heine says the lack of competition will not hamper the state's goal of curbing Medicaid spending. With only one partnership in each region, which must enroll all participants, Dr. Heine says, the program will cut marketing costs and the need for third party enrollment groups.
The Kentucky HMO Association has taken no position on Kentucky’s plan, but association president Robert Quirk says he has more faith in competitive-driven reforms.
"It’s a significant concern when the government does something that lessens competition," Mr. Quirk says. "In the models that I’m familiar with, competition works better than sole source." HMOs are ready to bid on covering Medicaid subscribers if partnerships fail to form, he adds.
Kentucky's Medicaid reform has a behavioral health managed care carve-out. In the same eight state-designated regions, behavioral health providers are forming similar networks that will receive their own capitated payments, Dr. Heine says. The goal is for the behavioral health networks to work closely with the partnerships in each region.
In spite of the huge effort to pull together the provider networks, Bill Wagner, the acting chairman of the partnership in Region 3, which includes the city of Louisville and 16 surrounding counties, says the alternative — an HMO-run system — makes the effort worthwhile.
"We believe that this is a unique opportunity for providers to put together a provider-driven plan," he says. "That's why we've worked so hard over the past year or so to see if this can work. We believe it can."
—Bryan Pfeiffer
Richard Heine can be reached at 502-564-7940. Additional information on the Kentucky waiver, including a draft partnership contract, can be found at: http://cfc-chs.chr.state.ky.us/medicaid/mngcare.htm.
Two regional provider networks nearing operation in Kentucky; state says managed care on hold until other networks form
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