In Depth: State Audit Raises Questions About Health Provider

Kentucky’s largest state contract is with a non-profit corporation providing medical services to Medicaid recipients in the Louisville area. But a scathing state audit is raising serious questions about the contract.

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Medicaid was created in 1965 to provide medical services for the poor and disabled. It’s a federal/state partnership, with Washington putting up most of the money. But Medicaid costs have skyrocketed, and even with the federal match, Kentucky now spends over $5 billion per year on Medicaid services.

In 1997, hoping to control some of the costs, Kentucky contracted with a Louisville-based, managed-care provider called Passport Health Plan. Passport now provides medical services to 164,000 Medicaid recipients in 16 Louisville-area counties. No other region in the state has a similar service.

But State Auditor Crit Luallen believes Passport has lost sight of original cost control goals.

“Auditors found that Passport staff 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,” said Luallen.

Revealing the contents of a 229-page state audit, Luallen says Passport amassed cash reserves of almost $77 million – even after distributing $30 million to its original investors, including the University of Louisville, Jewish Hospital and Norton Healthcare.

“I believe this organization, as it grew and as it achieved more financial success – generating excess reserves – treated itself more like a business model than a public agency,” said Luallen.

In recent years, the non-profit spent $14 million on consultants, $1 million on lobbyists, and gave two executives huge salaries and bonuses. And that’s not all, says Luallen.

“There are sponsorships for a Kentucky Derby Festival 2009 inflatable character sponsor – $10,000,” said Luallen. “Our point is, this is an organization that receives money to provide medical services to the poor and disabled.”

But Luallen says the audit found no criminal wrongdoing. Passport’s parent company, University Health Care, agrees with some parts of the audit, disagrees with others, but says it receives the report “in a spirit that strives for improvement.”

Health and Family Services Secretary Janie Miller promises the cabinet will do a better of job of overseeing the $800 million annual contract.

“What’s important to us is that Medicaid dollars be spent wisely,” said Miller. “The taxpayers deserve that these dollars be used to support health care services to Medicaid recipients.”

Gov. Steve Beshear agrees.

“Those are all taxpayer dollars, every last one of them,” said Beshear. “And those dollars need to be spent where they belong, which is delivering services to Medicaid recipients. And if they’ve got extra money after they do that, then it ought to come back to the state so that we can spend it in other areas.”

Seconding that is Rep. Jimmie Lee, D-Elizabethtown, who says there should be language in the contract stipulating the return of excess funds.

“All Medicaid comes out of a finite pot,” said Lee. “And for every dollar that we spend out of that pot for anything that’s not appropriate for the acuity of those eligible’s, that means that that provider down in Maysville or somewhere, he has to do without that money.”

The audit does not evaluate the quality of healthcare services provided by Passport, but the program is ranked the 13th best Medicaid plan in the nation, in terms of access to care, overall member satisfaction, prevention services and treatment.

By Tony McVeigh

Veteran broadcast journalist Tony McVeigh has been covering Kentucky politics since 1986, reporting for Clear Channel Communications before joining Kentucky Public Radio in 2004. His stories are aired by seven KPR affiliates, whose signals blanket the Commonwealth and parts of surrounding states. McVeigh began his broadcasting career at WRFC in Athens, Georgia, while earning a Bachelor of Arts in Journalism from the University of Georgia. He has extensive anchor/reporter experience, including stints with South Carolina Network and Georgia Radio News Service in Atlanta. In 2007 and 2008, McVeigh was named Best Radio Reporter in the Kentucky Associated Press Awards. He also picked up consecutive AP Awards for Best Political Coverage. McVeigh won four Kentucky AP Awards in 2009, six in 2010 - including Best Political Coverage and Best Hard News Feature - and three in 2011. His coverage of the 2007 Kentucky governor's race topped the Political Reporting category of the Society of Professional Journalists Green Eyeshade Awards of 2008. In 2009, McVeigh placed second in Courts and Law Reporting in the Atlanta-based competition for journalists in 11 Southern states. McVeigh is also the proud recipient of an Individual Liberty Award from the Kentucky Association of Criminal Defense Lawyers. The Brunswick, Georgia, native is a die-hard UGA football fan who enjoys photography, astronomy, live music, hiking Kentucky's Red River Gorge and exploring the state's beautiful back roads. McVeigh and his big, fat, black cat Simon, reside in Frankfort, KY.