KY Spirit - Managed Care Update

There was a lot of activity on the Medicaid Managed Care front on Wednesday. Here are the highlights:

- The day started with KY Spirit, the MCO that is a subsidiary of Centene, notified the state that they would be terminating their managed care contract with the state effective July 5, 2013 via this press release. The assertion in this press release is that the state "provided erroneous information related to medical cost experience and non-standard program policies during the RFP process." Due to these errors KY Spirit has filed a formal complaint for damages from the state. The closing of their Lexington offices will cost the state 200 jobs as well.

- The initial reaction from the state was this joint press release from the Governor and CHFS Secretary Audrey Haynes. The release says two important things: 1. The state considers this a breach of contract and will enforce the contract provisions, and 2. The state will work to transition the lives managed by KY Spirit will be moved to the other existing statewide MCO's Wellcare and Coventry. So the state basically is putting KY Spirit on notice that they will be counter-suing for breach of contract.

- This afternoon at the Interim Joint Health & Welfare Committee, members were treated to an impromptu briefing from Secretary Haynes in regards to the KY Spirit situation. Secretary Haynes gave a very detailed account of the situation and came across as very transparent to the committee. Here are the highlights:

1. This dispute is about money. Secretary Haynes had been in discussions with KY Spirit over the past two weeks over a change in their capitation rate. The facts are that their initial rate was roughly $70 on average per member per month less than the other two MCO's in year 1. Further, KY Spirit had only asked for a 1% increase for year two when the contract was signed, when the other two MCO's have contractual increases of 3-5% respectively. This has widened the gap in capitation payments between KY Spirit and the other two MCO's to nearly $90-100 pm/pm. So in essence, KY Spirit bid too low though Secretary Haynes acknowledged that their losses were real and that they were struggling to make money.

2. Secretary Haynes confirmed what the press release from the Cabinet hints at, the state will try and recover damages from KY Spirit for breach of contract. She mentioned that it would trigger the contract provisions requiring loss of KY Spirit's performance bond and a 10% provision for liquidated damages. Secretary Haynes went as far to say that any extra funds this costs the state, the state will try to recoup from KY Spirit.

3. Secretary Haynes took the gloves off a little in her remarks on two occasions: 1. Pointing out that the increase in Centene's stock price in one day was enough to cover the costs they were losing in the state. 2. She also said that Centene was announcing earnings soon and that they may "take their foot off the gas" once that passes.

Legislators on the Health & Welfare Committee had several concerns from the loss of jobs to the transitioning of patients and continuity of care. However, the biggest concern was expressed over the potential cost this could mean to the state. As KY Spirit's lives are moved to one of the other two MCO's the state will incur costs for those lives at a higher capitation rate, as stated above almost $100 per member per month more. Based on some quick math in the committee members calculated the potential cost at $168 million. Secretary Haynes said that it was early in the process, but the state's intent is that any extra costs to the state will be paid by Centene.

One thing is for sure, more litigation is likely to follow.

September Receipts - General Fund Up, Road Fund Down

The Budget Director released the September Tax Receipts today, and you can download a copy of her release and attachments HERE. The highlights are:

- General Fund receipts were up 5.3% in September 2012 over September 2011. This brings 1st quarter revenues up 2.1%. The official revenue estimate, which the budget is based on, calls for 2.4% revenue growth for this fiscal year, so revenues need to grow at least 2.5% for the remaining 3 quarters to achieve that growth.

- Road Fund revenues on the other hand were down in September 2012, 3.9% less than September 2011. This is new territory for the Road Fund revenues, which have posted their second consecutive monthly decline after 25 months of increasing revenues. To meet the forecasted estimate for this fiscal year of a 3.9% increase, revenues need to increase 4.7% the remainder of the fiscal year.

NCSL Paper on Sequestration

NCSL recently published THIS paper on sequestration and the impact on the states. Examples of what states can expect in terms of reduced funding:

- $1 billion plus for Title One education programs.
- Nearly $1 billion in special education (IDEA) funding, moving the federal government even further
from its decades-old promise to provide up to 40 percent of special education costs.
- Eight of 11 block grants are reduced, including four health, two human services and two community
development block grants.
- Programs with unfunded or underfunded mandates—including Real ID, No Child Left Behind Act,
homeland and border security programs, Individuals with Disabilities Education Act, and the state
criminal alien assistance program—would be further underfunded or remain unfunded.
- $200 million or so in Clean Water and Safe Drinking Water Revolving Fund infrastructure loan
support would be lost.
- Head Start would experience an approximate $600 million reduction.
- Unemployment Insurance administrative support would decline by more than $200 million.