Program Review and Investigations Committee




<MeetMDY1> May 12, 2011


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on Thursday,<MeetMDY2> May 12, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jimmy Higdon, Co-Chair; Representative Fitz Steele, Co-Chair; Senators Perry B. Clark, Vernie McGaha, Joey Pendleton, John Schickel, Dan "Malano" Seum, Brandon Smith, and Katie Kratz Stine; Representatives Dwight D. Butler, Leslie Combs, Terry Mills, David Osborne, Rick Rand, and Arnold Simpson.


Guests: Neville Wise, Acting Commissioner, Department for Medicaid Services; Lee Guice, Director, Division of Audits and Investigations, Office of Inspector General; Cabinet for Health and Family Services. Mitchel Denham, Assistant Deputy Attorney General, Office of the Attorney General.


LRC Staff: Greg Hager, Committee Staff Administrator; Rick Graycarek, Christopher Hall, Colleen Kennedy, Van Knowles, Lora Littleton, Jean Ann Myatt, Sarah Harp, Cindy Upton, and Stella Mountain, Committee Assistant.


Co-Chair Steele welcomed Senator Clark as a new member to the Program Review and Investigations Committee.


Approve Minutes for January 13, 2011

Upon motion by Representative Simpson and second by Senator Pendleton, the minutes of the January 13, 2011 meeting were approved by voice vote, without objection.



Staff Report: Medicaid Management and Integrity: Update on Recommendations from Three Program Review Reports

Van Knowles presented the report. He said staff have prepared a combined follow-up review of 56 recommendations from 3 prior committee reports adopted in 2004, 2006, and 2007. Many of the findings in the report are based on statute or best practice, without considering budgetary or staffing limitations.


In the area of Medicaid administration, staff found that the Department for Medicaid Services as well as the Department for Community Based Services continues to have inadequate administrative staffing. Medicaid has improved its written documentation of internal policies and procedures, but still needs a formal policy or standard for such documentation. Also, Medicaid has conducted some cost-benefit analyses, but needs to implement continuous measurement of costs, savings, and benefits across all cost containment efforts. Staff also found that Medicaid has improved its contract monitoring efforts, and more internal audits and reviews by the Office of Inspector General may be needed. The cabinet has implemented many other recommendations or parts of recommendations related to administration, while several remain outstanding.


He said, in the area of program integrity which covers the reduction of fraud, abuse, and waste, previous reports recommended a state false claims act to encourage whistleblowers to report fraud. He said Medicaid has depended on program integrity vendors to supplement its administrative staff. However, program integrity efforts have been limited in that there have been three vendors since 2003 and Medicaid was without a vendor for 30 of the 54 months from July 2006 to December 2010. Providers are required to keep records for 5 years, but program integrity vendors have been unable to examine all providers for improper payments over the past 5 years and some older overpayments are unrecoverable.


Medicaid has made progress toward prepayment review of claims to prevent improper payments. However, prevention of improper payments requires human review of claims that the software identifies as suspicious. Modern pharmacy claims systems that approve or deny the claim at the point of sale make it difficult for the system to suspend claims for human review. Other types of providers are pressing for point-of-service claims processing, but Medicaid should consider how to prevent improper payments first.


Results in eligibility quality control have been mixed. The overall eligibility error rate has been quite low, but the error rate for certain adult Medicaid recipients in long-term care appears to have risen. There also have been mixed results in the program that investigates suspected fraud by Medicaid applicants prior to granting benefits. Previous reports recommended such a program and it was implemented in 2005. However, the return on investment has declined nearly to the break-even point.


Prior reports expressed concern with the relationships among Medicaid, the inspector general, and the attorney general. Currently, these relationships appear to be working well.


Several recommendations directed to the Cabinet for Health and Family Services, such as auditing pharmacies and medical providers, restricting phone-in prescriptions, and expanding health insurance premium assistance, have been implemented in whole or in part. Action is still needed on some recommendations, such as fragmented information systems and incomplete data.


Several recommendations were directed to the Office of the Attorney Generalís Medicaid fraud control unit and primarily related to budget and staffing. The unit has adequate staffing at this time, but its caseload might increase with improved Medicaid program integrity efforts or with a state false claims act.


Since 2007, the General Assembly has made recommended changes to strengthen third party liability provisions to ensure that private sources pay health costs before Medicaid does. Also, 2010 budget language directed the cabinet to reinstitute an advisory board as recommended. Some of the recommendations to the General Assembly are no longer relevant, while there are others that the General Assembly may still wish to consider.


In the second section of the presentation, Mr. Knowles covered lessons learned as documented in the report. A combination of factors, such as limited administrative resources, the inability to attract industry expertise, and management turnover, appear to have led to many of the administrative deficiencies noted in this and previous reports by Program Review staff and by the Auditor of Public Accounts. Another factor is the resistance of providers and recipients to cost containment and program integrity efforts.


Effective management reduces improper payments and uses all practical and effective cost controls. This requires sufficient administrative resources. Within those resources, Medicaid must prioritize and target savings efforts. To do so, Medicaid needs knowledge about what has worked at other times and places. But most importantly, Medicaid needs ongoing measurement of how each policy actually works over time. The cabinet should base its decisions on data about what works and continues to work.


In the area of fraud and abuse, providers are a greater source of recoveries than recipients are, but provider fraud and abuse are difficult to discover. Program integrity efforts nationwide have uniformly reported positive returns on investment. Although the state has to spend money to recover overpayments, more investment seems to lead to more recoveries.


Mr. Knowles discussed the cabinetís 2011-2012 Medicaid cost containment plan, which appears likely to result in several managed care organizations (MCOs) covering different types of services in different parts of the state.


The burden of operating the program would shift from the cabinet to the MCOs. Presumably, the MCOs would have professional health plan managers and clinical staff with less management turnover. Because the MCOs accept the risk of cost increases, these contracts could make the Medicaid budget more predictable. Also, the medical home and performance-based payment models might contain costs.


The cost containment planís challenges include ensuring cabinet capacity to monitor MCOs; continuing to cover non-MCO services; measuring and tracking costs and benefits; obtaining adequate MCO capacity; sharing information among multiple MCOs and the state Medicaid information system; coordinating program integrity among multiple MCOs and state agencies; and ensuring access and quality of care.


Mr. Knowles concluded his presentation by saying that the presentation focused on material in Chapter 1; Chapter 2 details the background and current status of all 56 recommendations organized in sections by topic and each sectionís findings include status and remaining recommendations.


Senator Stine noted that the follow-up report says that the return on investment of the Determining Eligibility Through Extensive Review program declined after 2005 to only $1.20 per $1 invested in 2010. This was much less than the amount reported for a similar program in previous years. Senator Stine asked what the similar programs were and what their return on investment rates were.


Mr. Knowles said that the previous program was called CORE [Cooperative Review of Eligibility]. The returns that the cabinet reported at that time were $4 to $5 per dollar invested, depending on the year.


Senator Stine asked why there was a change from $4 to $5 per dollar invested to only $1.20 per dollar invested. Mr. Knowles said that he did not know why there was that change in returns. The Inspector Generalís office indicated they were going to look at that but that he did not know the results.


Senator Stine asked whether cabinet officials have explained why they have mostly ignored the three Program Review reports that are summarized in the present report. Mr. Knowles replied that the cabinet could address this. The cabinet has adopted some of the recommendations but not others.


Senator Stine said that there were numerous observations in the follow-up report about the cabinet not responding to recommendations and not achieving the intended objectives of recommendations the cabinet agreed to. An example of the latter is the lack of progress in measuring the net changes in cost and quality of care when attempting to contain costs, increase efficiency, or improve quality. Mr. Knowles said that would be one of the major points that staff have tried to make in the report.


Representative Steele asked the cabinet to address the three recommendations related to measuring cost containment. Mr. Wise said there are numerous things that Medicaid is doing in the area of cost containment and it is somewhat problematic in certain situations to get definitive data that proves that everything they did was successful. Many of their activities, many of which are happening at the same time, are interrelated and it is often difficult to isolate the effect of one action from another. The cabinet tries to implement all recommendations it gets from providers, recipients, and the legislature.


Mr. Wise said they review quarterly reports from their pharmacy benefit administrator, detailing each action put into the system to contain costs and the effect of that action, ongoing and cumulative. Medicaid would be able to provide additional documentation after a scheduled meeting with the vendor later on May 12. The cabinet had determined that the Kentucky Medicaid administrative agent was not effective and had cancelled that contract. In the current administration, most of those activities, such as provider enrollment, have been brought back in house to do more effectively and to have more direct control. Prior authorization is still being done through another vendor. KyHealth Choices was an initiative under the previous administration and it was determined at the beginning of this administration that it has not been entirely successful.


Senator Pendleton requested that in future the cabinet would be given at least 24 hours to prepare before being questioned by the committee. Committee members are not getting the answers needed to make honest decisions concerning the citizens of Kentucky. All areas of Kentucky need to be considered when looking at and implementing Medicaid managed care.


Representative Steele and Senator Higdon said this report will be reviewed again in next monthís meeting.


Senator Stine said that it was her understanding that the cabinet had had the report for three weeks and that it was an elaboration on a report that was considered in January. This was not sprung on the cabinet, and there have been numerous reports for years covering these issues. She encouraged the cabinet to read the report, noting the reportís findings regarding written documentation of internal policies and procedures; a lack of any kind of cost-benefit analysis; which was a concern also raised by the auditor; finding out where improper payments had been made; why under CORE the return was as much as $4.50 per $1 spent and now it was down to just $1.20 spent; and how program integrity functions should be in place for the new managed care contracts.


Senator Stine quoted from the report that KRS 205.6336 requires the cabinet, along with the Finance and Administration Cabinet, to provide quarterly cost containment reports to the Interim Committee on Appropriations, which apparently has not been done. Progress reports for 2008 and 2010 have not been received. She said the reason for requiring reports was to determine whether programs in place are working effectively and are serving the people of Kentucky.


Senator Stine said that some of the 7,000 employees in the cabinet could possibly be freed up to make sure that money is not wasted and by spending a little extra money on that may in fact save a lot more money.


In response to questions from Senator Higdon about constraints related to personnel, Mr. Wise said there was a concern of attracting employees with the exact health industry experience needed because of the state salary structure and not being able to compete with the executive salary structure of the private health industry. He said about 190 of the 7,000 cabinet employees work with the Medicaid program, which does not include field services workers in each county. Additional personnel would help to recover some of the monies lost through fraud. He said the plan initially was to have 12 additional people work on the managed care initiative. They were not hired contractors but were all state staff or a combination thereof.


In response to a question from Senator Higdon regarding the status of developments on the managed care initiative going into effect July 1, Mr. Wise said the RFPs are due May 25 and after evaluating and scoring those proposals, more would be known. Since the beginning of the special session, the cabinetís focus had been on the managed care initiative, which was part of the problem for not having been able to evaluate the Program Review staff report.


Senator Smith commented that cabinet officials were being asked questions about Medicaid with which the cabinet should be very familiar. He is concerned that legislators, who are held accountable by the taxpayers, are not getting answers to questions. The lack of oversight and lack of a clear answer on the return of investments should concern everybody.


In response to a question from Senator Smith, Mr. Wise said that the cabinet is on goal to meet the targets that were set forth in the past session.


Senator Smith said that he sensed resistance on providing information on the return on investment and other analysis. He asked why there would be such a delay. Mr. Wise said that during the special session the cabinet presented numerous times on the progress of the ongoing initiatives. A quarterly report is sent to staff of the Interim Joint Committee on Appropriations and Revenue, which tracks those initiatives. The cabinet has sent the report in a format that it developed and has not received any feedback from the committee. The cabinetís understanding is that the requirements set out in statute are being met. If not, cabinet staff need to understand what else needs to be done.


In response to a question from Senator Smith, Mr. Wise said all ongoing items had been reported on. Managed care has not been reported on yet because it is in the middle of procurement. The cabinet has reported on the initiatives presented during the special session.


Senator Smith said that he is agreeable to meet again in 24 hours to receive updated information to pass on to the people in his district.


Senator Pendleton said that the Program Review and Investigations Committee has the authority to subpoena people and to put them under oath, but he hoped they would not have to do that. He hoped that by giving the cabinet more time, the cabinet can explain their response to what committee staff found because he has full confidence in the staff.


Senator Stine suggested that the cabinet take a look at the recommendations in the report that before it enters into new contracts, that there should be measurements in place, that there should be transparency and guideposts for operating. She suggested that cabinet officials a look at pages 57 to 59 of the report, on the need for consolidation of data to ensure program integrity and look at the different streams of services to see if there is overlap, and reduce any duplication.


Senator Stine said she would like to hear from the Office of Inspector General (OIG) as well as the Attorney General. She noted that the report said that OIG no longer sends to the Attorney Generalís Medicaid Fraud Control Unit notification of hotline complaints involving only recipient fraud and abuse. She said that the report states that the cabinet said that in April 2011 that method-of-payment information, as recommended by the 2003 Prescription Drug task force, will be captured. Such information would help identify Medicaid recipients.


Senator Stine asked whether the system is in place. Ms. Guice said the KASPER system is moving to a different platform that will capture the payment data. They did not make the April goal because of technology personnel issues. They are changing to ASAP 2009, a Pharmaceutical Association standard of data fields, which will capture payment data. It is anticipated to be completed by the end of 2011.


Representative Steele said the Cabinetís written responses to the recommendations covered in the staff report should be submitted to Program Review staff by May 23.


Senator Stine said that she hoped that the co-chairs would consider utilizing the committeeís subpoena power if necessary.


Mr. Denham said that for Federal Fiscal Years 2009 and 2010, the $112 million in recoveries and awards that the Medicaid Fraud & Abuse Control Division received were generally from civil cases or criminal cases that they prosecuted or litigated that were awarded either by a jury verdict or fines and penalties, or criminal cases that were settled and the unit received recoveries. The return on investment for those two years was nearly $20 per dollar spent, both federal and state monies. The state receives a quarter because the unit is funded by a federal grant. Since January 2008, they have recovered nearly $175 million.


Senator Smith asked if any outside agency confirms these reported numbers. Mr. Denham said that the auditorís office audits all state agencies annually, but was unaware whether the quoted numbers were audited. He could provide the actual settlement documents that showed those numbers and an actual spreadsheet that indicated the amounts of recoveries and the dates they were recovered.


Representative Steele requested that Mr. Denham provide that information to Program Review staff by May 25.


In response to questions from Senator Seum, Mr. Denham said the $175 million recovered included federal and state dollars as well as costs. They participate in global cases through the National Association Medicaid Fraud Control Units; a portion of that recovered money stays in their office and the rest gets paid to Medicaid. It is not entirely accurate to say that the state gets 30 percent of the $175 million; it depends on the type of case. That would be generally accurate for global cases. When recovered money is received, a portion stays in their office, a portion is paid to outside counsel and the rest is paid to Medicaid. He said the Department of Medicaid Services would be able to indicate what happens to the money it receives. He agreed to provide the breakdown of who received what portion of the recoveries.


Senator Pendleton said that his research indicated connections between what has happened with the Illinois retirement system and the Kentucky Teachers Retirement System and the State Employees Retirement System. He asked that this be put on the forefront for follow-up and for seeking a dual investigation of the retirement systems.


The meeting was adjourned at 11:15 a.m.