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Judge rules Kentucky Spirit can’t pull out of Medicaid contract a year early

May 31, 2013 | | Comments 0

By Beth Musgrave
bmusgrave@herald-leader.com

FRANKFORT — A Franklin Circuit judge ruled Friday that Kentucky Spirit, a Medicaid managed care company that last year served more than 125,000 Kentucky patients, cannot terminate its contract with the state on July 1.

The company — which employs 200 people in Lexington — could face fines if it pulls out of the state before its three-year contract is complete in July 2014, according to the decision by Judge Thomas Wingate.

In a 13-page order released Friday, Wingate ruled that the subsidiary of Centene Corp. could not terminate its contract on July 1, a year before it is set to expire.

Kentucky Spirit was one of three managed care companies hired by the state in November 2011 to manage care for more than 540,000 people in the state-federal health care program for the poor, disabled and elderly.

Kentucky Spirit announced in October that it was losing too much money in Kentucky and would terminate its contract early. The company alleged in a lawsuit that state officials provided bad data to the three managed care companies before the contract was bid, causing large cost overruns.

The Cabinet for Health and Family Services contested that claim and accused Kentucky Spirit of breaching its contract with the state.

In court, Kentucky Spirit argued that the contract allows the company to terminate its relationship with the state if it gives six months notice.

Wingate, however, ruled that the six-month notice provision could only be interpreted to mean six months prior to the end of the three-year contract. Otherwise, there would not be enough time for the state to move hundreds of thousands of people from Kentucky Spirit to another Medicaid managed care provider. In October, Kentucky Spirit had between 125,000 to 140,000 Medicaid patients.

Of the three managed care companies hired in 2011, Kentucky Spirit made the lowest bid. On average, it receives about $100 less per month for each patient than the other two companies, Coventry Cares and WellCare.

Wingate also ruled that Kentucky Spirit did not breach its contract by providing notice that it wanted to terminate the agreement early, which the state had argued. Wingate said Kentucky Spirit would only be subject to fines if it pulled out of the state before July 2014.

Jill Midkiff, a spokeswoman for the cabinet, said state officials were thrilled with Wingate’s decision.

“The cabinet’s priorities are the members who receive health care through Medicaid and the taxpayers who pay for the program,” Midkiff said. “This is the right decision for both. ”

A spokeswoman for Centene said the company was analyzing the ruling and evaluating its legal options, which include appealing.

Friday’s decision was Kentucky Spirit’s second loss in Franklin Circuit Court this week. Judge Phillip Shepherd ruled Tuesday that Kentucky Spirit must reimburse health departments for services provided by school nurses to Medicaid-eligible children. The state estimates health departments are owed nearly $8 million in back payments from Kentucky Spirit.

The other two managed care companies have reimbursed health departments for services provided by school nurses.

Kentucky Spirit’s legal battles are part of ongoing tensions between the state, doctors, hospitals and the Medicaid managed care companies. Hospitals and doctors have repeatedly complained that the managed care companies have delayed payments. Earlier this spring, Gov. Steve Beshear ordered the managed care companies meet with hospitals and other providers to rectify past-due bills.

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