Program Review and Investigations Committee



<MeetMDY1> June 13, 2013


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> June 13, 2013, 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 Christian McDaniel, Co-Chair; Representative Fitz Steele, Co-Chair; Senators Tom Buford, Perry B. Clark, Ernie Harris, Jimmy Higdon, Dorsey Ridley, and Dan “Malano” Seum; Representatives Dwight D. Butler, Leslie Combs, Jim DeCesare, Terry Mills, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.


Legislative Guest: Representative Susan Westrom.


Guests:  Eric Friedlander, Deputy Secretary, Cabinet for Health and Family Services. Lawrence Kissner, Commissioner, Department for Medicaid Services, Cabinet for Health and Family Services. Dr. Stephanie Mayfield, Commissioner, Dr. Connie White, Deputy Commissioner, Clinical Affairs, Department for Public Health, Cabinet for Health and Family Services. President Robert L. King, Council on Postsecondary Education.


LRC Staff:  Greg Hager, Committee Staff Administrator; Chris Hall; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; William Spears; Joel Thomas; Stephanie Love, Jessica Sapp, Graduate Fellows; Ashlee McDonald, Committee Assistant.


Approve minutes for December 13, 2012, and February 25, 2013.

Upon motion made by Representative Simpson and a second by Representative DeCesare, the minutes of the December 13, 2012, and February 25, 2013 meetings were approved by voice vote, without objection.


Status of implementation of Medicaid Managed Care

Mr. Friedlander introduced Mr. Kissner, who made the presentation. For fiscal year 2013, the $5.79 billion Medicaid enacted budget is divided approximately equally between managed care and fee-for-services funding. However, 85 percent of Medicaid members are with managed care organizations (MCOs). Mr. Kissner described the categories of expenditure, how members are assigned to MCOs, and the division of Kentucky into eight managed care regions. The numbers of members and rates paid to MCOs vary by region and over time. If an MCO’s members are healthier, the rate is decreased; if its members are sicker; the rate is increased. These changes are reallocations of funding, not new funding. Management of the MCOs encompasses monthly reporting, oversight by the managed care branch, and continual audits, including those done by the Island Peer Review Organization. Two MCOs, Kentucky Spirit and Coventry, were rated as deficient based on the results of audits done by Rector and Associates. Audit results included measures of risk-based capital and whether proper procedures were followed for appeals and grievances.


In response to questions from Senator McDaniel, Mr. Kissner said that risk-based capital considers more than liquid assets as a percentage of claims, but that this is the basic idea. It is a statutory requirement. When a member of an MCO is denied a service, the member has the right to appeal through a process established in the contracts between the state and the MCO. Samples of appeals and grievances are audited to determine whether the procedures are being followed.  As part of the corrective action plan, letters of concern were sent to Kentucky Spirit and Coventry.


Representative DeCesare asked what was happening with the patient as the process was proceeding and whether a member could switch to another MCO during this process. Mr. Kissner said switching MCOs under such a circumstance was not permitted. Some of the cases were resolved in favor of the member, but there could still be a deficiency if all procedures were not followed correctly or required documentation was missing.


In response to a question from Representative DeCesare, Mr. Kissner said that the member could suffer harm due to the length of the appeal the process, but there is an expedited appeal process for medical emergencies.


Senator Buford noted that the presentation shows that WellCare has many more appeals (3,018) than the other MCOs, even after taking into account that it has more members. [Kentucky Spirit had 924 appeals, Coventry had 1,744, and Passport had 380.] He would like to know how many of WellCare’s appeals were overturned.


Representative Steele said that this information should be provided to all members of the committee.


Mr. Kissner continued the presentation with an overview of processing of prompt pay issues by the Department for Medicaid Services (DMS). Of the 5,031 claims resolved by DMS, 4.5 percent contained prompt pay violations. The Department of Insurance began handling prompt pay issues on April 15, 2013.


In response to a request from Representative DeCesare, Mr. Kissner said that he would provide information on how many of the prompt pay claims were pharmaceutical and how many were medical.


Mr. Kissner described statewide improvements in vaccinations and performance measurement and specific improvements made by each MCO.


In response to a question from Representative Palumbo, Mr. Kissner said that the two different indicators of improvement in diabetes testing by Kentucky Spirit were accurate, but measured different things.


Continuing the presentation, Mr. Kissner said that such improvements are important because Kentucky ranks poorly among the states in many health-related measures. The measures mentioned by Mr. Kissner included smoking (Kentucky ranks 50th), obesity (40th), sedentary lifestyles (43rd), and diabetes (41st). 


Senator Seum questioned the validity of these rankings. In response to questions from Senator Seum, Mr. Kissner said that the rankings are compiled by United Health Foundation, a nonprofit foundation created by UnitedHealth Group.


Senator Seum said that several years ago, a presentation referred to how Kentucky ranked badly on education measures, but that no one could explain where the numbers came from.


Mr. Kissner said that footnotes in the rankings reports describe the sources of data and how the rankings are calculated. 


Senator McDaniel asked how many awards are expected under the recent request for proposals (RFP) for the health benefit exchange.


Mr. Kissner said that he could not discuss responses to an active RFP. In response to other questions from Senator McDaniel, he said that school health services and other existing services will be included. Coverage for substance abuse services will be added. It is hoped that more MCOs will respond to the RFP.


Representative Combs stressed the importance of getting participation by more MCOs.


Mr. Kissner said that the federal contribution to the state will be more than $10 billion over the period FY 2014 to FY 2021. The state contribution will be $300 million. Detailed information on the estimated economic impact is available online.


Senator Buford noted that Kentucky ranks high in use of Medicaid services but ranks poorly for many health measures. The focus should be on how to get better outcomes for the spending. "Skinny" plans that do not provide much coverage may meet the requirements of the Affordable Care Act. Some employers are reducing hours of employees so that they do not have to provide coverage. Many employees will be unable to afford the fines for not having mandated coverage. Better outcomes are needed if coverage is expanded for 308,000 uninsured in Kentucky. He asked for per capita comparisons for top and bottom ranked Medicaid states.


Mr. Kissner said that such information can be provided but it will be somewhat dated. Improvements in Kentucky’s rankings are expected as more recent data are analyzed.


Senator Buford said that he is concerned about Kentucky picking up 10 percent of the cost of Medicaid expansion in 3 years.


Senator Higdon asked whether jail inmates will be covered under Medicaid expansion. Mr. Kissner said that inmates who qualify for Medicaid now are covered if they are released from jail to receive medical care. Single males are not covered under Medicaid now but they will be under expansion. 


In response to questions from Senator Higdon, Mr. Friedlander said that inmates in local jails have the same coverage as state inmates, now and under expansion, but that it is hard for the state to separate medical costs for county jails.


Referring to the list of health-related measures on which Kentucky ranks poorly, Representative Westrom asked which ones were related to smoking. Mr. Kissner said that many of the measures are related to smoking. Smoking is often a complicating factor in a condition, for example, diabetes.


Representative Westrom said that if Kentucky reduced its smoking rates and exposure to second hand smoke, we would improve on many of these rankings.


In response to a question from Representative Westrom, Mr. Kissner said that Medicaid pays for smoking cessation and will continue to do so.


In response to a question from Senator Seum, Representative Steele said that the committee would be following up with more testimony on Medicaid.


In response to questions from Senator Seum, Mr. Kissner said that he would provide a copy of the sources of the state rankings referenced in the presentation. A third party is using the same logic to analyze all states.


In response to a question from Representative Palumbo, Mr. Kissner said that 7,000 to 8,000 Medicaid recipients access smoking cessation. He will provide the specific figure.


Resuming the presentation, Mr. Kissner said that 332,000 uninsured Kentuckians can gain coverage through the Health Benefit Exchange, of whom 276,000 will qualify for subsidized coverage. The other 308,000 Kentuckians can gain coverage through expansion of Medicaid. Kentucky does relatively well in insurance coverage for children, so the vast majority of those who will be gaining coverage are adults. He presented a chart showing the projected impacts of the Affordable Care Act and Medicaid expansion. The number of jobs created begins at 7,600 in FY 2014 and increases to 16,700 by FY 2021. Projected annual general fund revenue and savings peak at $270 million in FY 2019. Required annual state funds increase to $219 million in FY 2021, approximately equal to projected general fund revenue and savings of $223 million that year.


In response to a question from Representative Rand, Mr. Kissner said that state spending in the chart is for Medicaid expansion. Mr. Friedlander added that this is general fund expenditure.


Representative Steele asked whether MCOs have improved their payment rates.


Mr. Kissner said that the Department of Insurance now has responsibility for issues related to prompt payment issues. After the governor's discussion of House Bill 5, the three MCOs have had meetings with hospital systems to discuss payments. There is a monthly report of the analysis. The June report will be done this week.


Representative Steele directed that the report be provided to Program Review staff. He said that it takes a long time for legislators to get answers. The situation has improved with the hiring of Colleen [Colleen Hagan, Legislative Liaison, Cabinet for Health and Family Services). He asked whether copies of MCOs’ contracts with independent pharmacists have been provided to Program Review as previously requested.


Mr. Kissner said that he would have to check into the legal issues, but that he doubted that this would be possible because these are not public documents. These are two other parties’ contracts, and confidentiality agreements are involved.


In response to questions from Representative Westrom, Mr. Kissner said that 24 states are expanding Medicaid and that there is no time frame for expansion. The 100 percent federal reimbursement is time sensitive though. 


Representative Westrom stated that employers look to the educational and health levels of states.


Senator Buford said that Kentucky does not have enough doctors and other providers to handle the expansion. It is unlikely that the Department of Insurance will have the teeth to enforce prompt payment. Consideration should be given to expanding what nurse practitioners and physician assistants can do.


In response to a request from Representative Palumbo, Mr. Kissner said that he would provide information on the number of people who get prescriptions filled for smoking cessation products.


Representative Steele said that Senator McDaniel would now preside over the meeting.


In the interest of time, Senator McDaniel said that the next two presentations should be limited to 10 minutes each. He asked that committee members hold their questions until the end of each presentation.


Tobacco use and Medicaid

Dr. Mayfield introduced herself and Dr. White and began the presentation. Her presentation covered trends in smoking (28 percent of Kentucky adults smoked in 2012, no change from 2011), smoking by gender (more males smoke), smoking by race (a higher percentage of blacks smoke than white, Non-Hispanics), smoking by age group (the highest percentages are for the 25-44 group), smoking by region (the highest percentages are in eastern Kentucky), smoking by education level (the highest rate is for those with less than high school education), and smoking by income (the higher the income category, the lower the prevalence of smoking). Nearly half of those without health care coverage smoke. Less than 25 percent of those with health care coverage do. Based on an average price per pack of $4.78, the typical adult smoker in Kentucky spends $2,237 per year for cigarettes.  Among the estimated smoking-related economic costs are $1.5 billion in health costs and $140 million in state Medicaid costs (65 percent of Medicaid recipients smoke). In Kentucky, there are 6,100 new youth smokers and 7,800 adult smoking deaths per year. State health departments and Medicaid are encouraged to provide free or low-cost access to smoking cessation counseling and medications. Dr. Mayfield provided an overview of counseling and medications—for which no co-pay is required—available through Medicaid. Medicaid smoking cessation counseling spending increased from less than $37,000 in 2011 to more than $112,000 in 2012. From 2011 to 2012, smoking cessation drug expenditures more than doubled to $527,289.


In response to a question from Senator McDaniel, Dr. Mayfield clarified that the 65 percent figure for Kentucky Medicaid recipients who smoke is for those 18 and older. Kentucky has a relatively high percentage of youth smokers though.


Senator McDaniel asked what percentage of smokers are on Medicaid. Dr. Mayfield said that she would get this information.


In response to a question from Senator Clark, Representative Rand stated that the tax revenues from cigarette sales are $250 million. Senator Clark noted that this is should be compared to the costs attributable to smoking.


In response to a question from Representative Rand, Dr. Mayfield said that the national smoking rate was 21 percent in 2011.


Representative Rand asked why smoking rates have not gone down given that Medicaid spending for smoking cessation has been increasing. Dr. Mayfield said that expenditures for smoking attributable morbidities for Medicaid recipients decreased in 2012.


In response to a question from Representative Westrom, Dr. Mayfield said that smoking-related costs presented do include those due to secondhand smoke.


Funding and cost drivers of higher education

Dr. King provided an overview of FY 2011 current funds revenue by source: net tuition (17 percent of total); state appropriations (19 percent); gifts, endowment income, and investment returns (5 percent); federal appropriations, government grants, and contracts (25 percent); hospital sales and services (20 percent), and auxiliary enterprises and independent operations (14 percent). Percentages vary by type of institution. Adjusted for inflation, revenue for each source has increased since FY 2005 except for state appropriations, which declined 51 percent. Adjusted for inflation, total current funds revenue increased from $4.114 billion to $5.155 billion over this period. In FY 2011, 26 percent of expenditures were for instruction, 10 percent for research, 14 percent for public service, 7 percent for academic support, 5 percent for student services, 8 percent for institutional support, 6 percent for scholarships and fellowships, 7 percent for auxiliary enterprises, and 16 percent for hospital services. Percentages vary by type of institution. Of the major sources of cost increases, the principal one is enrollment growth. The number of full-time-equivalent students in Kentucky increased 13 percent from 2004 to 2010. The number of executive, administrative employees per 100 full-time-equivalent students is 1.0 for the research institutions, 1.1 for the comprehensive institutions, and .04 for the 2-year institutions. Average full-time faculty salaries at 2-year and 4-year institutions are lower in Kentucky than in the region and in the US.


In response to a question from Representative Rand, Dr. King said that Kentucky tuition and fees are higher than the regional average at the community and technical schools, approximately the same at the comprehensive schools, and lower at the research schools. He said that he was less familiar with the national averages.


Representative Rand noted that state appropriations have decreased, but that total revenue for higher education has increased. Dr. King said that part of the revenue increase is because there are more students. The reduction in state support has not been offset by the increased tuition.


Upon motion made by Senator McDaniel and a second made by Representative Steele, committee staff were directed to study the cost drivers for higher education and how students pay for higher education.


Representative Palumbo noted that the percentage change in appropriations has been approximately the same for all universities. Funding for the University of Kentucky should be prioritized. It is the state’s flagship university and has a state goal of becoming a top 20 university.


The meeting adjourned at 12:14 PM.