Conway announces $26.4 million settlement with Passport members

By Beth Musgrave
bmusgrave@herald-leader.com

FRANKFORT — Four members of Passport Health Plan will repay $26.4 million to the managed care organization that provides health care to the poor in 16 counties as part of a settlement reached with Attorney General Jack Conway’s office.

Conway said Thursday at a Capitol press conference to announce the settlement that the first payments by the organizations will begin in the next 10 days with final payment to be made by January 2016. The money will go back to Passport to be used for Medicaid patients.

Norton Hospital, Jewish and St. Mary’s Inc., University Medical Center and University Physicians Associates were founding members of Passport Health Plan when it began in 1997. Each of the organizations invested money in starting the managed care program that serves Medicaid patients, a federal-state health care program for the poor.

However, the member organizations received a total of $30.5 million in disbursements in 2008 and 2009. Those payments were illegal and improper, Conway said. By statute, nonprofit corporations cannot pay dividends or any part of income of a corporation to its members. Moreover, payment to its members violated the organization’s own by-laws, Conway said.

The board of Passport voted for the disbursements right before it was negotiating a new contract with the state. At the time of the negotiations, Passport had more than $77 million in excess funds, Conway said. Passport officials were trying to get an increase in its rate with the state for health care services. By giving the money back to the member organizations, Passport was in a better position to negotiate a rate increase, state officials have said.

In 2010, the Passport contract was a little less than $800 million. It serves more than 160,000 people in Louisville and the surrounding area.

The first $10 million of the $30 million was earmarked as a repayment for the founding organization’s initial investment. The second $20 million was to go toward indigent care — or people who had no insurance. However, Conway said Thursday that University Physicians Associates– one of the member organizations — admitted that the money actually went to pay for software, physician salaries and other benefits that were not related to indigent care.

Conway said Thursday that there was little discussion during the board meeting about the transfer of $30 million.

“There was very little discussion of the legality of this,” Conway said.

Under the terms of the settlement, each of the following entities will be required to repay the following to Passport:
University Physicians Associates — $14.38 million
Norton Hospital — $4 million
Jewish and St. Mary’s Inc. — $4 million
University Medical Center — $4 million

The Louisville/Jefferson Primary Care Associates, another member of Passport, will not be required to repay $2.61 million it received. Primary Care Associates did use the money to serve Medicaid patients, Conway’s office said.

In addition, the attorney general’s office determined that University Physicians Associates used $1.5 million on a software system that did benefit Medicaid patients. They will not be required to repay that $1.5 million.

Thursday’s announcement is just the latest in a series of problems for Passport. Passport was the subject of a scathing November audit by State Auditor Crit Luallen, which found a series of questionable spending at the organization.

The audit found that the four-person staff of Passport, “traveled frequently, stayed in luxury resorts, used limousine services, ate expensive meals and purchased numerous gifts – all with funding received from Medicaid and many without a clear business purpose.”

Since the audit, there have been changes at Passport, including the firing of the top executives, the hiring of more compliance officers and the restructuring of the Passport board.

Conway declined to say Thursday if there is an ongoing criminal investigation of Passport. The Cabinet for Health and Family Services, which oversees Medicaid and managed care, has also restructured Passport’s contract and increased the group’s reporting requirements.

The cabinet signed a contract with Passport on July 1 along with three other organizations that will provide managed care throughout the state to more than 800,000 Medicaid patients.

Sen. Tim Shaughnessy, D-Louisville, applauded Conway on Thursday for being able to recover the money. For a long time, many of the organizations defended the transfer of funds, saying it was not improper, Shaughnessy said.

Shaughnessy has questioned the transfer of the money for nearly two years. Shaughnessy requested that Luallen look into Passport in February 2010 after hearing about the $30 million in disbursements to the member organizations. Shaughnessy also requested that Conway investigate the disbursements in November 2010, after Luallen’s audit questioned whether the transfer of money was appropriate.

Shaughnessy questioned why Norton Hospital was the only member organization that will repay its $4 million to Passport immediately. The other three organizations will repay the money over time. University Physicians Associates will repay $7.2 million of its $14.38 million in the next 10 days. The remainder will be paid out through July 31, 2015.

University Physicians Associates and University Medical Center, both part of the University of Louisville, have assets that they can tap to repay Passport now, Shaugnessy said. Instead, they are going to repay most of the money over several years at no interest, he said. It shows that the University of Louisville affiliates are not putting the needs of Passport or the people it serves first.

“Their needs are more important than Passport’s needs,” Shaughnessy said Thursday.

Conway said Thursday that if the organizations do not adhere to the civil settlement and do not repay the funds on time, his office can go after the groups for triple the amount that they owe.

Filed Under: Featured • Jack Conway • State Government