The Associated Press November 15, 2010, 4:37PM ET

Ky. gov looks to private sector to manage Medicaid

Despite lavish spending by a Medicaid contractor, Gov. Steve Beshear said Monday he wants to enlist more private-sector businesses and groups to manage portions of the state program that provides medical care for more than 815,000 poor and disabled Kentuckians.

Beshear told reporters at a Capitol news conference that contracting with private managed-care organizations could help plug a $100 million deficit in the Medicaid program and prevent cuts to medical services that other states have implemented.

Beshear's proposal came a week after the release of a state audit that found Passport Health Plan, a Medicaid contractor serving the Louisville area, had spent heavily on luxury hotels, meals, salaries and lobbying over the past three years.

"We've expressed our extreme disappointment about the findings in that audit and are demanding corrective actions," Beshear said Monday. "But that doesn't mean managed care is not a good tool for us to use to control costs."

The governor said the Passport spending irregularities could be avoided in the future with contract language putting limits on how contractors can spend state money.

Beshear's latest proposal to balance the Medicaid budget also involves shifting about $139 million that would have been used next fiscal year to cover this fiscal year's costs. Beshear said the Medicaid budget, based on current estimates, will be balanced next fiscal year, and that the recommendations he made Monday could save $142 million.

Some 13 states have reduced benefits to Medicaid recipients to rein in costs, and more than 30 others have cut or frozen payments to medical providers.

"Kentucky isn't to that point yet, and with this plan we are unveiling today, we hope to avoid measures such as these," Beshear said.

State Auditor Crit Luallen called last week for stricter accountability for Passport Health Plan, a Medicaid managed-care provider that serves 164,000 people in Louisville and more than a dozen nearby counties.

"If the state is going to continue to use this model or consider additional managed-care approaches, it's critical that there is strong accountability and oversight of these public funds," Luallen said.

Beshear proposed that future government contracts include language that would specifically bar spending that could be considered extravagant. He said that would include spending money to lobby state government.

Passport Health Plan holds the state's largest contract, receiving $793 million in state and federal money in the last fiscal year.

Auditors found that Passport spent $1 million for lobbying and public relations and $73,000 on meals over the past three years. The review found that Passport Executive Vice President Shannon Turner had an average annual income of $285,000, and that Turner also received compensation as a partner in a consulting firm working with Passport.

State Health and Family Services Cabinet Secretary Janie Miller said Passport must work with state officials to "restore our confidence" and to "return the plan to one of integrity, transparency and trust."


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