Program Review and Investigations Committee




<MeetMDY1> August 12, 2004


The August 12, 2004<MeetNo2> meeting of the Program Review and Investigations Committee was held at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Charlie Hoffman, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Katie Stine, Co-Chair; Representative Charlie Hoffman, Co-Chair; Senators Charlie Borders, Brett Guthrie, Ernie Harris, Vernie McGaha, Joey Pendleton, and Dan Seum; Representatives Adrian Arnold, Dwight Butler, Ruth Ann Palumbo, and Jim Thompson.


Guests:  Chief Justice Joseph E. Lambert, Court of Justice; Edwin White, Circuit Judge, Christian County; Robert McGinnis, Circuit Judge for Harrison, Nicholas, Pendleton and Robertson Counties; Carolyn Keith, Owen County Circuit Court Clerk; Melinda Wheeler, Director, Administrative Office of the Courts; Donna Tucker, General Manager of Court Services, Administrative Office of the Courts; Scott Ferkin, General Counsel, Administrative Office of the Courts; Russ Fendley, Commissioner of Medicaid Services, Cabinet for Health and Family Services; Robert Benvenuti, Inspector General, Cabinet for Health and Family Services, and  Zach Ramsey, Director, Division of Fraud, Waste and Abuse, Office of Inspector General, Cabinet for Health and Family Services.


LRC Staff:  Greg Hager, Committee Staff Administrator, Rick Graycarek, Tom Hewlett, Margaret Hurst, Van Knowles, Erin McNees, Cindy Upton, Jacob Fowles, Wayne Linscott, and Susan Spoonamore, Committee Assistant.


Minutes of the July 8, 2004 meeting were approved, without objection, by voice vote upon motion made by Sen. Harris and seconded by Sen. Stine.


Chairman Hoffman stated that Program Review staff members Cindy Upton and Rick Graycarek would be presenting Chapters 3, 4, and 5 of the report Uncollected Revenues and Improper Payments Cost Kentucky Millions of Dollars a Year. (Chapters 1 and 2 were presented at the June 10 meeting.)


Ms. Upton stated that the Committee had authorized a study to examine the extent of improper payments and the effects of uncollected debts on the state’s finances. She said that the purpose of the study was to determine if more cash could be available to the Commonwealth if policies and procedures were improved. She stated that the answer to that was yes.  The objectives were to determine:


·        How improper payments are prevented and detected when they occur;

·        How debts are identified and collected; and

·        How policies and procedures could be improved.


Ms. Upton stated that staff’s primary focus was to determine what programs and activities could potentially produce millions of dollars in collections or savings. She stated that based on the risk assessment process, staff focused on the following programs: the judicial branch, the Medicaid program, child support enforcement, and statewide policies and procedures.


In reviewing Chapter 2, Ms. Upton stated the following:


·        The amount of debt owed to the courts is not known.

·        A 10 percent increase in collections would gain $3 million a year for the general fund; restricted funds would also increase.

·        House Bill 162 and Senate Bill 228 anticipated coordination between the Administrative Office of the Courts (AOC) and the Finance and Administration Cabinet.


She stated that staff’s recommendations for Chapter 2 focused on collaboration between the AOC and the Finance and Administration Cabinet. She said that AOC and the Finance Cabinet were discussing ways to improve the collections by the judicial branch and were already transferring some functions to the Finance and Administration Cabinet.

She stated that staff found several barriers within the judicial branch that contribute to the deficiency of collections: a) AOC has not made the collection of debts a priority.  She stated that the circuit clerks who commented on the draft report indicated that their offices were understaffed. b) The decentralized court system structure makes it difficult and time consuming to implement changes. She stated that a clerk indicated that a locally elected sheriff could be reluctant to serve a warrant, or that a locally elected judge may not want to pay to house the prisoner once the person is arrested. c) The information systems were not designed to capture information on the total amount of unpaid debts. She stated that one clerk indicated a belief that collections would improve once the new bookkeeping system being developed by AOC was implemented.  d) She stated that another barrier of concern was the insignificant amount of monetary incentive for the clerks to collect.  She said that the judicial branch received 5 percent of court costs collected but received nothing from the collection of fines and fees. One clerk commented that the courts should not be in the collection business at all. 

She stated that staff’s recommendations focused on the collaboration between AOC and the Finance and Administration Cabinet to increase collections while taking some of the burden off the circuit clerks and judges.

She explained that recommendation 2.1 dealt with AOC’s new bookkeeping system, which is being developed. She stated that the new system would enable the clerks to record and track the amount of debt owed, but because the new system was years from being implemented, staff recommended that AOC consult with the Finance and Administration Cabinet in designing and implementing the new system.

She said that staff recommended (recommendation 2.2) that AOC consult with the Finance and Administration Cabinet to consider the feasibility of implementing interim policies until the new computerized bookkeeping system is in place. 

She stated that recommendation 2.3 is that AOC should work with the Finance and Administration Cabinet to develop guidelines to assess the collectibility of outstanding debts so that debts reported as accounts receivable and referred to Finance for collection are debts that might realistically be collected. 

She stated that recommendation 2.4 discussed using garnishments as a way to collect debts.  She said that staff recommended that AOC officials review the feasibility of establishing and executing criminal garnishments to collect unpaid fines, fees, and costs and should consult with the Finance and Administration Cabinet officials regarding their plans to execute garnishments.

She stated that recommendation 2.5 is that AOC officials consult with the Finance and Administration Cabinet and the State Treasurer to determine the feasibility of implementing a system to allow withholding of unpaid fines, fees, and costs from state disbursements, including salaries, retirement benefits, other government benefits and tax refunds. 

She said that recommendation 2.6 is that AOC officials should consult with Finance and Administration Cabinet officials to implement the acceptance of credit card payments and should then take the necessary steps to enable circuit clerks’ offices to accept credit card payments.  AOC officials should also consider the feasibility of adding credit card payment capability to the Court of Justice website. 

She said that many states report that accepting credit card payments has increased both the promptness and amount of collections. 

She stated that recommendation 2.7 suggested that AOC officials study other states’ best practices in collection systems and determine which methods would best suit Kentucky’s needs.

Ms. Upton stated that recommendation 2.8 was developed because some debts would be referred to the Finance and Administration Cabinet. She said that staff recommended that AOC officials consult with Finance and Administration Cabinet officials to develop a strategic plan to collect debts. The plan should include which collection methods the courts will adopt, a means of prioritizing debts for collection, and a proposed performance measure that would take into account the proportion of debt that might realistically be collected.


Chairman Hoffman introduced Chief Justice Joseph E. Lambert.


Chief Justice Lambert stated he was glad to have the opportunity to explore ways of doing the job of the Commonwealth better by finding the ways and means of collecting funds owed to the Commonwealth.

Chief Justice Lambert explained that he felt it necessary to address the fundamental points of Section 27 and Section 28 of the Kentucky Constitution.  He said that the Constitution states that each branch of government, the legislative, executive and judicial, is confined to its separate area of responsibility, and also that no branch of government may exercise any of the responsibilities properly belonging to another branch.

He stated that the fundamental responsibility of the Kentucky Court of Justice was to adjudicate cases that come before the court and to render a final judgment at the end of the process. He said that at a certain point in time the judge adjudges an individual to owe a fine and court costs. He stated that fines and costs are typically paid on the day that the judgment is entered, but as required by law, an individual can request 60 days to make payment. Chief Justice Lambert stated that the judge then directed that person to make the payment on or before the due date. He stated that if the individual failed to make the payment and failed to appear in court to explain why payment was not made, then the judge would issue a bench warrant for the arrest and incarceration of that individual. He explained that once a bench warrant was placed in the hands of the sheriff, it then became the fundamental responsibility of the executive branch.

Chief Justice Lambert stated that he disputed the statement or implication that the collection of fines and costs was an AOC or a Court of Justice responsibility. He said it was the responsibility of the Court of Justice and the AOC to provide a place for persons to pay fines and costs, to provide a means for giving those persons receipts, and to duly note in court records and documents the payment of those costs and fines.  He stated that even though it was the responsibility of judges to issue those orders, it was not a judicial branch responsibility for judges to physically take an individual into custody who did not pay his fines and costs and put him in jail.

Chief Justice Lambert stated that the Court of Justice would work with the Finance and Administration Cabinet and the General Assembly to develop any means that would more nearly assure an increase in collections. He stated that the Court of Justice and the AOC did agree that their ability to track payment of fines and costs or track the non-payment of fines and costs was imperfect. He stated that the Cabinet and the AOC had three different computer systems that did not work in an integrated fashion. He said it was the goal of the Cabinet and AOC to have the systems fully integrated by the early part of next year, which would give them the capability of producing quality data.


Chief Justice Lambert introduced Edwin White, Circuit Judge of Christian County, Bob McGinnis, Circuit Judge for Harrison, Nicholas, Pendleton, and Robertson Counties, and Carolyn Keith, Circuit Clerk of Owen County. He noted that Melinda Wheeler, Director of the Administrative Office of the Courts and Scott Ferkin, General Counsel, were in the audience if members had any questions.


Judge McGinnis explained that criminal cases originated under the executive branch because the cases were prosecuted by the Commonwealth of Kentucky through a Commonwealth’s Attorney or a County Attorney. He said that in addition to sentencing an individual to prison, the judge determined the amount of the fine stipulated in a final court order. He stated that after the final court order is signed, the enforcement or collection of the fine is the responsibility of the executive branch. He stated that judges do have the limited ability of enforcing an order when the individual fails to pay the fine, but the only avenue left would be to put them in jail.

He stated that once a felon was sentenced to prison it became the responsibility of the Department of Corrections and the executive branch. He explained that judges can keep a limited jurisdiction over felons only if they are probated.

He stated that most of the money being collected was through misdemeanors in District Court, but most of the people appearing in District Court faced large fines and court costs, and were poor. He explained that if they failed to pay their fines and costs, the only alternative would be jail, which would be counter-productive for collecting the fine and costs.

 He stated that judges did not have the ability to garnish wages through a criminal process.  The only way a garnishment could be issued in a criminal case would be if the executive branch, through the Commonwealth’s Attorney or the County Attorney, motioned the court for a garnishment order.  He stated that it might be possible for judges to develop a different type of judgment order, which could be sent to the executive branch and then to the Revenue Cabinet to determine if there was tax money to be intercepted.

He stated that he disagreed with the suggestion that a review of bench warrants should be done every 60 days. He explained that many warrants were issued for persons who lived in another county, which meant that warrants were sent to the sheriff of the county of residence. He stated that once a warrant was sent to a sheriff outside the judge’s judicial district, then he or she no longer had any control over the warrant — it would be considered an executive branch responsibility.

 In conclusion, Judge McGinnis stated that the judges looked forward to cooperating with the committee and the legislature in trying to make things better.


Chief Justice Lambert stated the use of credit cards in Warren County began as a pilot project and so far had proved to be successful. He stated that once the costs associated with credit card collections were worked out, it could be expanded into other counties and may be instituted statewide.


Judge White stated that he had been a circuit judge for 21 years and was pleased to say that the collection rate was 100 percent for closed cases in Christian County, the 6th largest county in the state. Christian County collected approximately $807,015.41 last year in court costs and fines. He stated that approximately 800 felony cases a year went through circuit court, and district court was handling approximately 15,000 misdemeanor traffic or civil cases a year. He stated that collecting monies was one of his main priorities.  He said that unless individuals were disabled and qualified under the statute to sign an affidavit of indigence, then the Court would find work for them to do so they could pay their costs and fines. 

He stated that one reason fines and costs were not being paid was because law enforcement officials were unable to find some individuals. He said that obtaining a garnishment or instituting payment through credit cards would not work if they did not want to be found.

He explained that if an individual from another county was brought into court for a misdemeanor or a traffic offense and failed to return to court, then that individual could not be extradited. He said that the most effective method for collecting traffic fines or reporting outstanding cases was to notify the Department of Transportation. He stated that the Department of Transportation’s information system alerted other states of an individual’s outstanding case or fine that had not been paid.  He said that the issuing state of that individual’s driver’s license would suspend that license because of unpaid Kentucky fines.


Judge McGinnis stated that one thing that could be done, with legislative authority, would be to assign people to public work to pay off fines. It would get the fine off the books and the community and/or state would get something in return versus paying to house a prisoner in jail. He stated that most sentences ran for at least 30 days, costing the county $25 per day.  In other words, it would cost the county $750 to collect a $100 fine.


Ms. Keith, Owen County Circuit Court Clerk, stated that most of the people who failed to pay their fines or failed to appear for court either lived in another county or had moved, leaving no forwarding address. She said that a large majority of the people were on welfare, were seasonal workers, and were people living in old, abandoned homes.  She stated that the new receipt mechanism, credit card payments, and new bookkeeping system would definitely improve things, but it would not change the fact that people move around. She stated because there was no statewide system for local sheriffs to obtain information on an outstanding warrant, the only mechanism the court system had at the present time was Court Net.  She stated that many times she had to go to the office in the middle of the night to verify whether or not there was an outstanding warrant. She explained that once a warrant was handed to a sheriff, the clerk and judge had no further authority.

Ms. Keith stated that she strongly felt that the 60-day review recommendation would not work. She stated that if given ample time to pay, most of the people receiving minimum wage would pay $10 here and $5 there. She stated that it was important to remember that most people were hardly making enough to pay rent and buy food.  She stated that sending them to jail would result in the county having to pay approximately $28 a day for housing a prisoner in Carroll County since Owen County did not have a jail, resulting in high costs.

 She stated that in 2003, there were 43 indictments and 27 of those people were given sentences and probated under a 5-year probation period.  She stated that costs and fines for those 27 indictments added to approximately $60,000 and so far approximately $27,000 had been collected. She explained that inmates who served out their time without being probated were sometimes ordered to pay their costs and fines within 60 days of being released. She stated that the whole process created a huge amount of paperwork, and most clerks’ offices did not have the manpower to handle the paperwork. She stated that in some cases, probation officers help to collect those costs.


Sen. Harris asked if the Court of Justice and AOC had looked at increasing the 5 percent incentive for collecting fines and costs. He stated that if the clerks’ incentive was increased and if the sheriffs’ fees could be increased, it might help to get warrants served and provide more manpower for the clerks’ offices.



Ms. Keith stated that the clerks received less than 5 percent.


Chief Justice Lambert agreed that there might be more motivation for sheriffs to serve warrants if their fees were increased.


Sen. Seum asked if sheriffs were overwhelmed with outstanding warrants.


Judge White stated that they were overwhelmed.


Sen. Seum asked if a sheriff would be inclined to serve a bench warrant before he pursued a felony warrant or was a warrant a warrant.


Judge White stated that was right.


Judge McGinnis stated that it was more important for the judges to get the felons off the street, but he did not think from a sheriff’s standpoint there would be any advantage to it.


Sen. Seum asked if the local courts had the authority to put the credit card payment system in place if they so chose or would legislation be needed to give them that authority.


Donna Tucker, General Manager of Court Services, Administrative Office of the Courts, stated that the AOC’s general counsel believed that the local courts had full authority to implement the credit card programs.


Sen. Seum asked if traffic fines could be paid by credit card.


Ms. Tucker stated that traffic fines could only be paid by credit card in Jefferson and Warren Counties. She stated that Jefferson County had been accepting credit cards for a number of years, and Warren County, as a pilot project, had been accepting fines and costs since January 2004. She stated that AOC was in the process of implementing credit card payments in four more counties. She said that AOC was paying the 3 percent fee for over-the-counter transactions. She stated that if a credit card transaction was conducted by phone, then the fee could be passed on to the consumer.



Sen. Guthrie stated that in looking at staff’s recommendations he felt that staff had adequately addressed the issues with suggestions for improving collections and improving the overall reporting system. He stated that the testimony today had helped him better understand how the process worked.


Ms. Keith stated that implementing a statewide, unified reporting system for unpaid fines would definitely help the sheriffs and would improve collections.


Sen. Guthrie stated that he would like to see incentives increased for the clerks and the sheriffs, and that the additional money be put back into the judicial system to help with staffing and improving the information system. He stated that the General Assembly would be able to assist by implementing new legislation to help with collections.


Judge White stated, in response to Sen. Seum’s earlier question, that many outstanding cases had not been adjudicated yet, and that the failure-to- appear warrants did not guarantee payment of fines and costs.  He stated that most of the failure-to-appear warrants would result in jail time, costing the county approximately $27 or $28 dollars a day.


Judge McGinnis stated that incarceration could end up costing more than the fine and costs, but incarceration was the only mechanism of enforcement.


Sen. Guthrie stated that even though it could cost money, sometimes people deserved jail time, especially if they were making a mockery of the system. He asked if judges had the discretion of ignoring a probation violation.


Judge McGinnis stated that judges have full discretion.


Rep. Palumbo asked if judges could order people to perform community service work in lieu of jail time or paying their fines. 


Judge McGinnis stated that the only options available to judges would be giving them the choice of going to jail or work. 


Rep. Palumbo asked if there were laws stating that the court could not force them to work.


Judge McGinnis stated that they have to be willing to work; some would just as soon go to jail.


Judge White stated that it was important to note that there were costs associated with letting people out of jail to work. They had to be monitored and the monitor had to be paid. 


Rep. Palumbo asked if only one court cost was assessed no matter how many continuations were granted. 


Judge McGinnis stated that was correct.


Rep. Palumbo asked if it was possible for the courts to assess court costs every time a case is continued.


Judge McGinnis stated that he did not think it was possible to do that in a criminal case, but perhaps it could be done in a civil case.


Rep. Palumbo asked if additional court costs could be assessed in child support cases that are repeatedly continued.


Judge McGinnis stated that it might be possible to assess additional costs in the family court system but not in a criminal child support case.


Rep. Palumbo stated that she had sat in on some child support cases that had been continued three or four times, knowing that the non-custodial parent could afford to pay.  She stated that she was frustrated because sometimes it was known that the non-custodial parent dealt in drugs, paid cash for automobiles, but put the vehicle in the name of someone else. She stated that she did not understand how they could pay attorneys each time they came into court but not pay their child support.


Justice Lambert stated that those cases also frustrated judges, but they were only doing what they could in observance of the legal and constitutional rights of the persons involved.


Rep. Palumbo stated that she understood that, but failure to pay child support was not a matter of guilt or innocence. She said that they should either pay it or be made to go to work.


Judge White stated that if a person came before him for not paying child support, that person either went to jail for 30 days or paid the money.


Judge McGinnis stated that the harsh reality is that many of these people do not have money, and they cannot get a job because there are not any jobs available, and even if there were jobs, no one would hire them.


Rep. Palumbo asked if there was a legal problem in telling them to pay or go to jail.


Chief Justice Lambert stated that if a person failed to observe a court order, pay his fines or costs, then the judge generally had only one option – incarceration, which meant additional costs to the system.


Rep. Palumbo asked the judges to think about legislation requiring cell phone providers to furnish telephone numbers to the courts.


Rep. Palumbo asked if repeat misdemeanor offenders who owed a lot of money could be classified as felony offenders.


Judge White stated that an offense is either a misdemeanor or a felony.


Judge McGinnis stated that the national system is already inundated with felonies and, if misdemeanors became a part of that, the system would become worthless.


Judge White stated that the Department of Transportation’s information system worked well for traffic offenses. He stated that if someone failed to appear in court or did not pay a fine, then his or her driver’s license would automatically be suspended.  He said that the key to getting the fines and court costs paid was the ability for them to get employment. He said that in some cases it might be worthwhile to look at issuing a hardship license so they can go to work to pay the fines and costs. He stated that there may be unpaid fines, but most of the time there was a real reason for non-payment, such as being in prison.


Rep. Butler stated that he thought the development of a statewide system to track warrants would be an important asset in collecting fines and costs.


Sen. Pendleton asked if it would be correct to say that the legislature needed to help the clerks and sheriffs by funding more for the hiring of deputies, and upgrading the computer systems so they could become integrated between the agencies, and to also develop a system for tracking warrants.


Judge White stated that was correct.


Chief Justice Lambert stated that based on an analysis of staffing needs, the National Center for State Courts determined that Kentucky was short 330 deputy circuit/district clerks. He stated that presently there were 120 elected clerks and approximately 1,500 deputy clerks.


Ms. Keith stated that many of the trained and knowledgeable deputy clerks were leaving and going into other areas to make more money.


Judge White stated that there were currently 17,500 adults in the prison system who were not paying court costs or fines, and there were approximately 30,000 people on probation. He said that the people who collected the most money for the court system were the probation officers. He stated that when he first started as a judge in Christian County, the probation and parole officers had a caseload of roughly 30 people per officer, and now it is 108 people per officer. He stated that he would much rather have more probation and parole officers since they are the ones collecting the money, not the sheriffs.


Sen. Stine stated that it would be very helpful if Chief Justice Lambert would provide to the Committee specific language that could be used in addressing the issues raised in the report.


Chief Justice Lambert stated that his office would submit a response to the committee and committee staff.


Sen. Stine reminded Ms. Wheeler that the Committee had requested AOC to provide more information regarding the state’s ability to withhold debts from public assistance and also any information pertaining to statutory provisions that are impediments to the collection process.


Sen. McGaha asked if the sheriffs could be ordered by the courts to attempt to serve the warrants within a specific timeframe.


Chief Justice Lambert stated that specifying a timeframe could be counterproductive. He said that if a sheriff was given a timeframe of 30 days, he could keep the warrant for 30 days and then send it back to the court, thinking that he had no further obligation to serve the warrant. He stated that the prior discussion regarding a computer system designed for indexing warrants could be a useful tool for sheriffs.


Judge White stated that he wanted the committee to understand that the sheriffs were serving warrants, but the people they were trying serve were not ministers or bank presidents.


Judge McGinnis stated that if limitations were put on serving warrants, he felt that some sheriffs would attempt to deliver them one time and then return them as undeliverable.


Sen. McGaha stated that was why he used the word  “attempt” to serve.


Judge McGinnis stated that it was a fact that some sheriffs may not serve a warrant for political reasons, especially if it could cause problems in their next election.


Sen. McGaha asked if there was a prioritization process for serving warrants.


Judge McGinnis stated that if time limitations were put on sheriffs, then the only alternative left for a judge would be to put that sheriff in jail for failing to serve warrants.  That would not be good.


Chief Justice Lambert stated that would be an undesirable circumstance.


Sen. McGaha asked if AOC received less than 3 percent for the collections it took in.


Ms. Keith stated that it was much less than 5 percent.


Sen. McGaha asked what percentage of the amounts collected would be needed for the clerks to reach an effective level.


Ms. Wheeler stated that she would provide that information to the committee.


Rep. Hoffman asked if implementing the use of credit cards would improve collections by 10 percent. He also asked if staff could look at other states who use credit cards for payment to see how much their collections had increased.


Ms. Upton stated that she did not have enough data to answer that question. Court systems and caseloads would be very different in other states.


Sen. Stine stated that perhaps staff could examine Warren County to see if there had been an increase in collections due to using credit cards for payment.


Judge McGinnis stated that because Warren County was a prosperous county, the use of credit cards would make more of a difference there than it would if credit cards were used in Nicholas County.  He stated that using credit cards was a good idea, but it would not solve all the problems, especially for the disadvantaged.


Chairman Hoffman stated that due to the time constraints, the committee would not be hearing chapters 4 and 5 until the September meeting. He asked Ms. Upton to continue with the presentation of chapter 3. 


Ms. Upton stated that Medicaid spends over a billion dollars a year in state funds, and most is from the general fund. She stated that the size of Medicaid expenditures merited attention in a study on payments and collections. She explained that Medicaid was a federal matching program in which the federal government paid 70 percent of the costs of claims for services and the state paid the remaining 30 percent. She stated that based on staff’s risk assessment process, it was determined that the Medicaid program was at risk of making improper payments. Those payments could include payment for services that were not provided to recipients, payment for services rendered to people who were not eligible, and payments resulting from outright fraud and abuse.

She stated that Medicaid was also at risk for failing to collect debts for the following reasons: (1) the payments made on behalf of ineligible recipients were difficult or impossible to recover, because many of those recipients did not have the resources to reimburse the state and,  (2) debts arising from fraudulent information were difficult to identify. She explained that chapter 3 described some of the ways that Medicaid was already preventing improper payments and collecting debts. She stated that the report also discussed some improvements that could be made to their processes. 

She stated that some claims presented to Medicaid for payment were actually the responsibility of another party, referred to as a third party liability. She stated that Medicaid, by federal law, is the payer of last resort; when possible, other parties should be billed first. She said that liabilities were normally attributed to private health insurance companies, Medicare, court judgments, estates, and medical support from non-custodial parents. 

Ms. Upton stated that because the Medicaid program had improved its ability to identify liable third parties, Medicaid had been able to bill the liable third parties for the costs before the state paid for the medical services.  She stated that in federal fiscal year 2002, the state’s share of Medicaid claims identified and avoided was $190 million. She explained that Medicare and private insurance companies provide computerized eligibility files to the fiscal agent, Unisys, which matches those files to a list of persons eligible for Medicaid. She said that when a person’s name showed up on another party’s list, then that party was billed first. She stated that KRS Chapter 205 requires insurance companies to provide the data to Medicaid, but Medicaid officials say that not all insurance companies provide the data, and there is no penalty if they do not. Ms. Upton stated that recommendation 3.1 was that the General Assembly might want to consider amending KRS 205.623 to include a penalty for noncompliance.

She stated that another risk factor was ineligible persons receiving Medicaid services. She stated that the local Department for Community Based Services (DCBS) was responsible for determining Medicaid eligibility, but that the DCBS case workers did not have the resources or the training to conduct field investigations to verify eligibility data, even when they believed a client had presented false information. She said that at one time field investigations were conducted by the cabinet's Inspector General’s office, but that program had been discontinued in the first quarter of fiscal year 2003. She stated that recommendation 3.2 repeated a recommendation in the 2004 Program Review report on K-TAP that the Cabinet for Health and Family Services should review the feasibility of establishing a field-based investigation unit such as the Cooperative Review of Eligibility program.  She stated that the review should include a cost-benefit analysis, and the results of the analysis and any action taken to expand the capability of the Office of Inspector General to conduct field investigations should be reported to the Program Review and Investigations Committee before the 2005 session of the General Assembly.

She stated that the Inspector General’s office performs many functions for the Cabinet for Health and Family Services. For example, she said that the Inspector General operates a fraud and abuse hotline and seeks administrative recoveries from providers and recipients for payments made in error or due to fraud. She stated that the office was being reorganized to include three divisions, which are expected to have responsibilities related to improper payments and debt collection. She stated that the Division of Fraud, Waste and Abuse Identification and Prevention is responsible for, but not limited to, coordinating fraud and abuse investigations, performing specialized recovery and cost avoidance functions, and monitoring prescription drug use. She stated that the Division of Special Investigations is expected to conduct preliminary investigations of Medicaid provider fraud and abuse and to perform field investigations of potential fraud. In addition, she said that the Division of Audits is expected to audit and review contractors and cabinet activities. She said that recommendation 3.3 recommends that the Cabinet for Health and Family Services Inspector General implement the planned expansion of audit and investigative functions and ensure the financial integrity of public benefit programs administered by the cabinet. The Inspector General should develop a method to report the results of audits and investigations. The Office of Inspector General should report to the Program Review and Investigations Committee before the 2005 session of the General Assembly all actions taken to strengthen the audit and investigative functions of the cabinet.

Ms. Upton said that an agreement between the pharmaceutical companies and the United States Department of Health and Human Services requires drug companies to provide rebates to the state for dispensing their drugs to recipients. She stated that approximately 500 companies participate in this program. She said that the Centers for Medicaid and Medicare Services, which are part of that department, provide information to the state each quarter on the dollar amount per unit dispensed that is subject to the rebate. Then the Medicaid fiscal agent, Unisys, multiplies the unit amount by the number of units dispensed to calculate the rebates due to the state and sends out the bills to the drug companies. She stated that the drug company would compare its records to the bill, and could dispute all or part of the bill. She explained that if the company disputed any part of the bill, then the company was not required to pay the disputed amount until the issue was resolved. She stated that a delinquent notice would be sent to the company if Medicaid did not receive payment on a bill within 38 days, and then another notice would be sent after 60 days if the rebate still had not been received.

She stated that the agreement between the drug company and the federal government states that the drug company is responsible for calculating interest on over-due amounts owed to the state. She said that the Kentucky State Auditor reported that Medicaid did not double-check the interest to see if the right amount was paid. The Auditor also reported that Medicaid did not actively seek payment on rebates after the second delinquent notice was sent. She said that Medicaid was doing better at collecting drug rebates than it had in the past. She stated that with $28 million in receivables outstanding in 2002, it was important for Medicaid to continue to try to collect those rebates or write them off as uncollectible. Therefore, recommendation 3.4 is that Medicaid should actively try to collect all drug rebates and interest owed by all pharmaceutical companies, including current and backlogged amounts. Ms. Upton stated that recommendation 3.5 is that Medicaid should monitor interest charges on all invoices to drug manufacturers. She said that when an invoice remained unpaid, interest charges should be assessed on the outstanding balance from the due date. She said that recommendation 3.6 is that Medicaid should resolve disputed amounts in the backlog of drug rebate receivables. She said that if the backlogged amounts were not collectible, then they should be removed from the receivable balance to enable Medicaid to concentrate on collectible amounts due.


Sen. Stine asked why the Special Investigations Division of the Attorney General’s Office put a cap on the number of referrals from the Cabinet for Health and Family Services.  She also asked how many cases had not been referred because of the cap.


Ms. Upton stated that the current Inspector General had indicated that there would be no more caps. She stated that staff found there had not been enough people and money to conduct all the investigations.


Sen. Stine asked if Kentucky’s Medicaid Fraud Control Unit and the Office of Inspector General worked well with each other, especially when passing referrals on to the Attorney General’s Special Investigations Division.


Ms. Upton stated that there was good communication between the agencies.


Rep. Hoffman invited Russ Fendley, Commissioner of Medicaid Services; Robert Benvenuti, Inspector General; and Zach Ramsey, Director of Division of Fraud, Waste and Abuse, Office of Inspector General, Cabinet for Health and Family Services, to come to the table.


Mr. Fendley stated that staff’s report had provided the additional justification for the cabinet’s need to modernize the Medicaid program. He stated that the cabinet had already begun working on some of the issues identified in the report.

He stated that one of Medicaid’s biggest problems was the inability to access data quickly. He said that the Medicaid program was presently operating on an MMIS system that was based on 1970s technology.  He stated that because the system would not allow for any flexibility, it took months to make changes or edits in Medicaid benefits. He stated that Medicaid Services was in the process of searching for the latest available technology in order to bring the system up to speed. He said that once the new technology was installed, detailed data would be available faster and more accurate information could be provided to other agencies.

Mr. Fendley stated that the cabinet was working to strengthen its ability to identify other parties that might be liable for health care costs paid by Medicaid. He said that the cabinet would be using a new data warehouse function that would give them real-time access to medical claims data to speed up collections. He said it was the goal of the cabinet to focus on managing the business and not just administer claims.

He stated that the new Kentucky Medicaid card would also significantly affect the determination of eligibility. He stated that the card would allow providers to gain immediate access to Medicaid enrollment files, which would allow the providers real-time information on eligibility.


Sen. Stine asked if the card was personalized, and if so, did the card conform to HIPAA  [Health Insurance Portability and Accountability Act] requirements.


Mr. Fendley stated that the card was not personalized — all the information was encoded. He also stated that there was no information on the card that would be in violation of HIPAA standards.


Sen. Stine stated that she was concerned about individuals card sharing. She asked if the Cabinet had considered personalizing the card by requiring a photo ID


Mr. Benvenuti stated that Cabinet officials had already discussed upgrading the card to include a photo as a means of identification.


Sen. Harris asked how many individuals were enrolled in the Medicaid system.


Mr. Fendley stated that there were approximately 670,000 people in the system.


Mr. Fendley stated that he specifically wanted to address the recommendation in the report that Medicaid actively try to collect drug rebates and interest, monitor interest due on all drug rebate receivables, and resolve disputed drug rebate receivables. He said the report also said it would have recommended that the Department for Medicaid Services hire and train more employees if a pharmacy benefits manager is not hired. He stated that he preferred the term pharmacy benefits administration (PBA). He stated that PBA was a subtle, but important difference, because the cabinet wanted people to know that the cabinet was not giving up management of the pharmacy program. He stated that the cabinet was very close to hiring a pharmacy benefit administrator to oversee the $750 million pharmacy program. He explained that the role of the PBA would be to monitor the claims information for any fraud and abuse. They would also have the real-time ability to detect whether or not a recipient was abusing the system by having a prescription filled at one pharmacy, and then having the same prescription filled on the same day at another pharmacy. In addition, he stated that the PBA would not only manage and negotiate the OBRA 90 rebates (the federal rebates) but they would also process the collection of interest and work with the drug companies to collect rebates.  He stated that the PBA would also be working with drug companies to do the supplemental rebates and would be negotiating supplemental rebates on behalf of the cabinet as well.  


Sen. Guthrie asked if a recipient would be able to use the pharmacy card to have the same prescription filled more than once, on the same day, at virtually the same time, but at different pharmacies.


Mr. Fendley stated that they would not be able to pharmacy shop. He stated that there are two different utilization review processes, which provide real-time information. When a card is used the system would pick it up. He stated that use of the card would also help to detect harmful drug interactions.


Sen. Seum asked at what point in time would a recipient lose his or her card for abusing the system.


Robert Benvenuti stated that abusing the card would be considered illegal, but there would also be legal issues if a recipient’s card was revoked and prescribed medications were suddenly cut off. He stated that the card system would allow the cabinet to identify the recipients who were abusing the card and put controls in place.   He stated that moving the drug enforcement group called KASPER from public health to the Office of the Inspector General would help to improve coordination efforts between the enforcement agencies within the cabinet. 


Sen. Seum asked if there was a way to pull the card if a recipient was abusing the system.


Mr. Benvenuti stated that recipients could not be threatened with losing necessary medication. He explained that through the use of technology, the cabinet would be able to flag that card, giving the cabinet the ability to control the usage of the card.



Mr. Fendley stated that through case management, the cabinet will have people who will be responsible for counseling individuals, case management of individuals, and provider management. He stated that case management would improve the quality of care and be more cost effective.


Rep. Hoffman thanked officials for their input.  He stated that staff would continue with chapters 4 and 5 of the report at the September 9th meeting.


Rep. Hoffman asked Rep. Butler to explain study topic #13 (Outsourcing of services to other countries by state agencies, trends in other states).


Rep. Butler stated that the topic dealt with outsourcing of services to other countries by state agencies. He said that the topic would also include how the state was outsourcing, was it costing money or was it saving money. He said he was also concerned with incentives being given to companies without any stipulations on how long they were required to remain in the area.


Rep. Hoffman asked for a motion.


Sen. McGaha stated that the study should also include information about what is coming in from other countries locating here, such as income and jobs.


Sen. Harris asked if the study would include the costs for in-house services versus outsourcing services.


Rep. Butler stated that was correct.


Sen. Pendleton stated that he would recommend study topic 23 (Investment practices of the Kentucky Workers’ Compensation Funding Commission), especially in light of what had happened with the AIK fund.


Motion made by Rep. Butler and seconded by Rep. Hoffman to adopt study topic #13: Outsourcing of services to other countries by state agencies, trends in other states.


Sen. Stine asked for clarification on what would be included in the study topic.  She asked if Sen. McGaha’s recommendation had been incorporated.


Rep. Butler stated that he had no objection to incorporating Sen. McGaha’s recommendation.


Rep. Butler stated that he would also like staff to look at the loss of jobs or companies to other states as well. He also asked that staff examine the incentives given to companies locating in Kentucky. He especially wanted to know if businesses had to forfeit their incentives if they decided to relocate to another state or country. 


Rep. Thompson stated that he was not clear on the focus of the study. He asked if the study would look at raw products being outsourced and the finished products coming back.


Sen. McGaha stated that could be a possibility.  He explained that he would like for staff to look at the benefits as well as the negatives to outsourcing.


Rep. Hoffman stated that the committee would now consider the motion on study topic 13.  He asked the secretary to call the roll.


Sen. Stine asked if Chairman Hoffman intended to consider only this motion and one other, or would he consider all motions made by committee members.


Rep. Hoffman stated that staff had enough to do and some topics were daunting tasks so he would like the committee to take more time to consider them. He said that he would take the motion on the floor regarding study topic 13 and then one other motion.


Sen. Stine stated that she objected if that was the case. She said that topics needed to be launched for staff to work on in the coming year.  She said she thought that as co-chairs they should allow whatever motions members wished to make.  She asked that the limit on motions regarding topics be reconsidered.


Rep. Hoffman adjourned the meeting at 12:20 p.m.