Three private companies that took over management of Kentucky’s Medicaid system in November have become a clogged channel between payments from the state and the hospitals and doctors who need the money. Jennie Stuart Medical Center, the Christian and Todd County health departments and Pennyroyal Mental Health Center are awaiting months’ worth of back payments, causing major budget shortfalls.
The Christian County Health Department, which relies on Medicaid for about a quarter of its annual revenue, has cut 12 staff members since July, said Mark Pyle, the department’s director. The reimbursement lag is one of several reasons, Pyle said.
Pennyroyal Mental Health Center has extended its line of credit. The Todd County Health Department has required extra money from the county’s general fund.
State Auditor Adam Edelen announced Wednesday he was shifting resources in his department to create a unit that will monitor the Medicaid system. Edelen promised an “expansive review” of the system later this year and recommended 10 steps toward improvement.
Medicaid payments began to trickle into local agencies in January. Still, as the agencies’ reserves are depleting, and some face the prospect of more cuts if the situation doesn’t change soon.
The federal government instituted Medicaid as part of the 1965 Social Security Act. States put money into the program, and the federal government matches their contributions at 50 to 76 percent, depending on the state’s per capita income, according to a report from Georgetown University’s Health Policy Institute.
The program funds medical care for the poor, elderly and disabled.
The Medicaid program in Kentucky receives about $6 billion a year, making it one of the largest health insurance programs in the state. It has more than 730,000 recipients, Edelen said.
According to federal law, states must provide Medicaid money to certain groups, including children in low-income families. Otherwise the states have discretion about eligibility requirements.
Beginning Nov. 1, the Kentucky government contracted with three private companies to manage the system. Officials estimated this would save $1.3 billion a year, according to a news release Edelen’s office issued Wednesday.
Since that time, the three managed care organizations have received $708 million in tax funds but have only paid out $420 million to hospitals, pharmacies and physicians, Edelen said. Complaints have streamed into Edelen’s office.
Pennyroyal Mental Health Center gets about 35 percent of its income from Medicaid, though only about 20 percent comes from direct Medicaid instead of waivers, said David Ptaszek, the agency’s executive director. This equals about $5 million a year.
In the last four months, the agency has only received about half the Medicaid revenue it expected. For the first time ever, it has dipped into its reserve fund and extended its line of credit, Ptaszek said.
Worse, the new management companies seem to have little experience with mentally ill patients, Ptaszek said. Each company only pays for certain brands of medications. This causes problems for some of the Pennyroyal Center clients, as each brand of psychiatric drugs affects them differently. It takes some patients years to find the right medications, and a change can upset their mental health, Ptaszek said.
“It’s kind of like going backward,” he said. “In dealing with a client, to me that’s just unconscionable.”
The Christian County Health Department receives about 25 percent of its revenue from Medicaid accounts: a total just above $1 million a year, or an average of $87,500 a month. It pays back 29 percent of this as a matching contribution.
Between Nov. 1 and January, the department did not receive Medicaid payments from any of the providers. It has received one payment to date.
Between cuts in state and federal funding and reduced interest from investments, the health department has used up a significant share of its reserve funds, Pyle said in an email to the New Era. It has also cut 12 staff positions during this fiscal year.
Several months from now, the department may face a choice of cutting more staff, cutting programs or increasing the public health tax, Pyle said.
Medicaid funding usually makes up roughly 40 percent of the Todd County Health Department’s revenue, said Department Director Jennifer Harris. This totals a little less than $500,000 a year.
Since Oct. 31, the department received its first Medicaid payment last week.
It has not cut staff so far but will not replace an employee who plans to retire soon, Harris said. The department may have to cut health programs during the next fiscal year.
“The bottom line is, you can’t spend money that you don’t have,” Harris said. “That’s not good business practice.”
In the meantime, the department has required two transfers from Todd County’s general tax fund. Harris has heard two more Medicaid payments should come within the next month.
Jennie Stuart Medical Center sees an average of 110 to 115 inpatients with Medicaid every month, plus many outpatients with Medicaid. It ordinarily collects about $1 million a month in Medicaid, or 14 to 15 percent of its budget, said Sam Brown, the hospital’s vice president for finance.
The hospital had enough reserve funding to avoid taking out a loan, and now that payments have started coming in, Brown believes the worst is over.
Western State Hospital had a small buildup of Medicaid reimbursements, but not enough to cause serious budget problems, said Steve Wiggins, the hospital’s director. It sees fewer than 10 or 12 Medicaid patients a month, Wiggins said.
Edelen said on Wednesday that privately managed Medicaid is the best system for Kentucky—“provided it’s done right.” However, the Cabinet for Health and Family Services was ill-prepared to monitor and enforce its contracts with the management companies, he said.
“These organizations, in turn, did not appear to have adequate systems, staffing or communications in place despite assurances they were ready to launch the program last fall,” he said.
Health care providers may have also been unprepared to bill the companies properly, Edelen said.
In addition to the system review he promised for later this year, Edelen made 10 recommendations for streamlining the payment system and improving communication.
Jill Midkiff, spokeswoman for the Cabinet for Health and Family Services, said in a statement Wednesday the cabinet was “aggressively pursuing” solutions and would consider Edelen’s suggestions.