$26-Million State Settlement with Passport

Jul 21, 2011

Attorney General Jack Conway Thursday announced a $26.4 million civil settlement with the physician and hospital partners of the Passport Health Plan. The partners must begin repayment within 10 days of this announcement. The final payments will take place on or before Jan. 1, 2016.

"In these difficult economic times, when the Commonwealth is forced to cut services and count every penny, the Passport board of directors acted recklessly and irresponsibly," Conway said in a press release issued from his office. "Kentucky taxpayers are now getting a return of their money - money budgeted by the state to provide healthcare for fellow Kentuckians most in need."

By the terms of this settlement, four investor-member managers of Passport will each repay multi-million dollar settlement amounts back to Passport as restitution for improper and illegal cash transfers received by each of these entities from Passport in 2008, 2009 and 2010. The money will be used by Passport to pay for Medicaid patient care. Passport is the vendor that operates the managed-care contract to provide healthcare services for Medicaid patients in the Greater Louisville area.

"This is taxpayer money that should have been applied to health care costs, and with this action, those dollars will be returned for that purpose," Gov. Steve Beshear said in the press release. "I'm pleased that our administration was able to work with the attorney general's office to recover this money while at the same time continuing to protect health care for our most vulnerable families."

The attorney general initiated an investigation into the management of Passport and the transfers of money from the entity to the physician and hospital partners in response to Auditor Crit Luallen's November 2010 audit of Passport. Conway's investigation focused on three distributions - totaling $30.5 million - from Passport into the bank accounts of its investor-members.

These transfers were authorized in December 2008 and December 2009 by the Passport board of directors, which was comprised almost entirely of representatives of the investor-members. At the same time the Passport board approved the distribution of $30.5 million, Passport leadership was in Frankfort requesting a rate increase from the state. The attorney general believes the investor-members transferred the money because they knew Passport would not be granted a rate increase if this $30.5 million was accounted for on its books.

Conway said he also believes that these transactions were illegal under Kentucky state law. By statute, nonprofit corporations cannot pay a dividend or any part of the income of a corporation to its members. These transfers violated Passport's own corporate bylaws which, if properly adhered to, would have prevented the enrichment of any director or incorporator.

Under the terms of the settlement announced, each of the entities will be required to repay the following to Passport:

University Physicians Associates (UPA) - $14.383 million. Approximately $7.2 million will be repaid within in 10 days, and the remainder will be paid out in four equal payments through July 31, 2015.

Norton Hospital - $4 million in one lump-sum payment.
Jewish and St. Mary's Inc. - $4 million repaid in three equal payments beginning on July 31, 2011.

University Medical Center (UMC) - $4 million over five years, with its first payment on December 31, 2011.

The settlement does not require repayment of $2.61 million from one of the investor-members, Louisville/Jefferson Primary Care Associates. The attorney general determined that the entity used the money to provide healthcare to its target group of patients. 

In addition, Primary Care Associates would not be financially able to pay back the money it received and forcing it to do so would negatively impact services to the community's most needy residents.

UPA, who reached out to the attorney general's office to cooperate in the investigation, is also receiving a $1.5 million credit in this settlement that will be counted as a portion of the costs of an upgrade to UPA's electronic medical records system attributable to Medicaid patients. The new system will create a care delivery system on par with some of the best in the nation.

The investor-members settling are receiving a civil release of all claims relating to the covered conduct, which is defined in the agreement. This means the Attorney General considers its civil investigation of Passport, with respect to this conduct, closed.

Amerihealth Mercy

Thursday's Passport settlement is in addition to the January settlement with AmeriHealth Mercy Health Plan (AMHP), the third-party administrator for the Passport. It agreed to pay $2 million in damages to the Kentucky Medicaid Program. The consent judgment constitutes treble damages, or triple the amount of the actual damages, for the Kentucky Medicaid Program. In addition to the damages, the agreement required that AMHP put procedures and personnel in place to ensure that all reports it submits are accurate. The consent judgment was the result of a nine-month investigation by the attorney general's Office of Medicaid Fraud and Abuse Control.