Legal fight over $10B in Kentucky Medicaid contracts may be over, at last

The fight over who gets to share in managing $10.7 billion worth of state Medicaid business appears to have been settled by the state Court of Appeals.

A three-judge panel has upheld the state's 2020 selection of five companies to manage care for most of the 1.6 million Kentuckians, including 600,000 children, who are covered by the government health plan for low-income and disabled individuals.

As a result, the five health insurance companies − known as managed care organizations, or MCOs − will retain contracts with the state while Anthem Blue Cross and Blue Shield will be excluded, according to the appeals court opinion released Friday.

Under a lower court ruling in 2020, Anthem, which had filed a lawsuit after it was not selected, had been added as a sixth contractor while the legal dispute over the contracts was pending.

Unless a further appeal should change the outcome, that leaves as successful bidders Aetna Better Health of Kentucky, Humana Health Plan, Wellcare Health Insurance of Kentucky, United Healthcare and Molina Health Care (which took over the business of Passport Health Plan and is known as Passport by Molina).

Susan Dunlap, a spokeswoman for the Cabinet for Health and Family Services, which includes Medicaid, said absent further court action, Anthem "would no longer be a managed care organization contracted with the cabinet."

The current contracts for the other five companies expire Dec. 31, 2024, Dunlap said.

Anthem is "reviewing our options," Michael Perry, public relations director for the company, said in an email.

"We remain steadfast in our commitment to our Kentucky Medicaid members to ensure they live healthy, happy, productive lives by providing accessible, innovative, high-quality healthcare and support services," Perry said.

Anthem serves about 177,000 of the 1.5 million Kentuckians enrolled with managed care companies that oversee their Medicaid coverage.

At a legislative hearing Thursday, state Sen. Steve Meredith, R-Leitchfield, asked state Medicaid official Veronica Judy-Cecil whether the abrupt loss of Anthem would "create chaos."

Judy-Cecil, Medicaid deputy commissioner, said the matter won't become final until time for an appeal is exhausted. And if it does become final, the state would have three months to reassign Anthem members or let them choose another company.

"We do have a plan in place," she said, speaking at the Medicaid Oversight and Advisory Committee.

Parties in the legal dispute, which involved several claims and counterclaims, have 30 days to appeal the Sept. 9 decision written by appeals Judge Pamela Goodwine with Judges Irv Maze and Allison Jones concurring.

The ruling overturns a decision last year by Franklin Circuit Judge Phillip Shepherd who, citing flaws in the contract selection process, ordered the contracts with the five successful bidders thrown out and rebid.

But before the state could do that, several other of the companies with disputes over the ruling challenged Shepherd's order, landing the case before the state appeals court.

In its Franklin Circuit Court lawsuit, Anthem had alleged various errors in the process used by the state to evaluate and score the proposals submitted by the vendor. It also said the process was tainted by an alleged ethical violation after Molina, one of the successful bidders, hired as a consultant a former member of Gov. Andy Beshear's transition team.

Shepherd agreed and said multiple flaws "cast a cloud over the process's legitimacy."

But the appeals court disagreed, finding the alleged flaws were not sufficient grounds to throw out all the bids and order a new round of bidding − as well as Shepherd ordering the state to include Anthem as a vendor while the dispute was pending.

"A court may not ursurp an agency's authority over procurement to compel a contract be awarded to a specific offerer," the opinion said.

However, it did uphold Shepherd's decision upholding the right of Molina to take over members of Passport, a Louisville-based health plan Molina had acquired. Humana had protested the state's decision to allow Molina to do so.

The case now returns to Shepherd to issue an order carrying out the appeals court findings.

While the appeals court decision appears to settle the fight over the 2020 contract awards, the dispute reaches back even further.

A first round of contracts was awarded in 2019 during the final days of the administration of former Gov. Matt Bevin, a Republican who unsuccessfully tried to restructure the state's Medicaid program to add work requirements and other provisions.

After Beshear, a Democrat, took office in December 2019, he ordered the first round of contract awards thrown out and rebid, citing questions about the awards.

But after a second round of bidding, the same five companies who won the first round were again selected as successful bidders.

The appeals court decision leaves those bidders in place.

And that outcome still will be likely questioned by some lawmakers who have repeatedly urged the cabinet to have fewer companies in charge of Medicaid to streamline work for doctors, hospitals, pharmacies and other providers who must deal with multiple companies when filing Medicaid claims.

Contact reporter Deborah Yetter at dyetter@courier-journal.com or on Twitter @d_yetter.