ARH sues MCOs, State over lack of adequate patient network and unpaid claims


The largest healthcare system in Eastern Kentucky that cares for some of Kentucky’s most vulnerable citizens is taking two of the state’s managed care companies and the State to court over inadequate patient network and access issues that would require patients to travel out of the area for care, and the MCOs failure to timely pay claims for Medicaid services.

On April 12, 2012, Appalachian Regional Healthcare filed a lawsuit in Franklin Circuit Court against Kentucky Spirit Health Plan, Inc. and the Kentucky Cabinet for Health and Family Services. On April 16, 2012, ARH filed a second lawsuit in federal court in Lexington against Coventry Health and Life Insurance Company and the Cabinet for Health and Family Services.

“There have been issues with the MCOs from the beginning, and for the ARH system these issues have escalated to the point that we have been left with no other option than to pursue legal action against the MCOs and the State in order to protect the viability of our health system and the health of the residents living in our service area who we have provided care to for nearly 60 years,” said ARH President and CEO Jerry W. Haynes. “One of the most serious issues is the MCOs lack of adequate patient networks necessary to facilitate proper care covered by the Medicaid plan. As a result, some of our most vulnerable patients, including those undergoing cancer treatment or obstetric or pediatric care, will be forced to travel long distances from the local hospitals they have always relied on to care for them. Unfortunately, the end result will likely be that these patients either will not seek the care they need or they will delay getting treatment until it is an emergency situation."

In both lawsuits, ARH claims that it has provided healthcare to numerous, low-income patients covered by Medicaid – but has not been properly reimbursed by either Kentucky Spirit or Coventry which are Medicaid managed care organizations under contract with the Cabinet for Health and Family Services.

Many of the claims in ARH’s Complaints concern problems raised in a report released by Adam Edelen, State Auditor of Public Accounts, on February 29, 2012. Among other problems the State Auditor found that “[t]he three MCOs are sitting on more than a quarter of a billion tax payor dollars while small town doctors, hospitals and other healthcare providers have had to open or extend lines of credit to keep their doors open.”

Those problems, which have plagued the State’s Medicaid managed care program since its start on November 1, 2011, have remained uncorrected and are at the heart of two lawsuits filed by ARH.

As of April 16, 2012, ARH was waiting for payment on approximately $5.7 million in claims submitted to Kentucky Spirit since November 1, 2011. Eighty-three percent of those claims have been awaiting payment from Kentucky Spirit for more than 30 days and nearly half have been submitted for payment for over three months. In addition, Kentucky Spirit has under-reimbursed ARH for care ARH has provided to emergency room patients. ARH is concerned that Kentucky Spirit has never been shown to have an adequate network in the region meeting federal standards. As a result, thousands of Kentucky residents have been assigned to a managed care plan that does not have an adequate network to provide the healthcare services needed.

On March 29, 2012, Coventry gave ARH notice it was terminating its contract with ARH effective May 4, 2012 and refuses to renegotiate the terms of the agreement until such time as Coventry can get the State to “do the right thing.” In a letter to Haynes from Timothy Nolan, Coventry’s Executive Vice President, Government Program, on April 19, 2012, Mr. Nolan indicates that “the current crisis would have never occurred except for the Commonwealth’s failure to make timely and reasonable decisions on three major issues.” These issues are failure to implement a risk adjustment methodology, failure to find a solution to the supplemental hospital payment issue and errors in the original data book, and failure to ensure that all MCOs meet the same robust standards for network adequacy.

ARH alleges that Coventry will not have an adequate network in Eastern Kentucky after May 4 when its contract with ARH is terminated. Under federal law, however, ARH will continue to treat Coventry members who need emergency services. A provision in the contract between Coventry and the Cabinet for Health and Family Services provides that after May 4, Coventry will pay ARH as an out-of-network provider only 90 percent of the Cabinet’s Medicaid rates. The Cabinet’s Medicaid rates do not cover ARH’s costs already and a 10 percent forced reduction in those rates would be devastating, therefore ARH rejects the notion that Coventry has the legal standing to make these reduced payments.

“Coventry’s decision to terminate its agreement with ARH will result in ARH seeing a dramatic drop in the provision of services we provide on or before May 4, 2012 in all Kentucky operations. We anticipate the overall reduction will be somewhere in the neighborhood of 10 percent to 12 percent, therefore we must be prepared to reduce costs on a short term and long term basis that will mirror this loss in patient volumes and associated revenues,” Haynes said. “As 50 to 60 percent of our costs are personnel, the required cost reductions will include significant reductions in staff and hours worked. This reduction of staff and hours worked is terribly unfortunate for our people as it is, but especially at a time when our region is seeing so many job losses. It is obvious that ARH is caught in the middle of a dispute between the State and Coventry, which if unresolved, will cause many of our people to be hurt.”

Coventry is a publicly traded company with revenues of at least $1 billion. It has health plans or offers health insurance products in 14 states. Coventry originally contracted with ARH to provide healthcare services to its Kentucky Medicaid patients as part of the Coventry network in Eastern Kentucky. ARH alleges that Coventry has also failed to pay ARH on a timely basis. As of April 16, 2012, ARH was waiting for payment on approximately $12.5 million in claims submitted to Coventry since November 1, 2011.

Also named in ARH’s lawsuits is the Kentucky Cabinet for Health and Family Services, which is the state agency responsible for setting Medicaid reimbursement rates and overseeing the three managed care companies. The Cabinet has set rates for inpatient, acute care hospital services that cover only approximately 75 percent of ARH’s costs – which ARH claims violates Kentucky law. Although ARH and many other Kentucky hospitals have had appeals of these rates pending since October 2007, the Cabinet has not taken any action to change its rates or to process the hospital rate appeals.

“ARH’s mission is and always has been is to improve the health of the people living in Central Appalachia by offering local access to advanced primary and specialty health care services. The actions of the Cabinet and these MCOs have placed our mission in jeopardy,” Haynes said. “ARH is dedicated to the people of this region, and we are seeking any and all measures to ensure that the people of this region continue to receive the health care services they need and deserve.”

ARH operates eight hospitals in southeastern Kentucky and two in southern West Virginia, along with numerous multi-specialty physician practices, rural healthcare clinics, home healthcare agencies, and other services. It serves approximately 350,000 people in a region where many individuals are economically disadvantaged and must rely on Medicaid for their healthcare needs. ARH is the largest healthcare provider and the single largest employer in southeastern Kentucky. The ARH system employs nearly 5,000 employees and has a network of more than 600 active and courtesy medical staff members representing various specialties. ARH has been recognized as one of the most highly integrated healthcare networks in the nation.

Firmly committed to its mission of improving the health and promoting the well-being of all people in Eastern Kentucky and Southern West Virginia, in the past 12 months alone, ARH provided nearly $133 million in uncompensated care for the uninsured and underinsured.

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