Kentucky Medicaid officials outline $2.8 million procurement estimate to reprocure MCO contracts

At a meeting of the Senate Appropriations and Revenue subcommittee in Frankfort, Lisa Lee, commissioner of the Kentucky Department for Medicaid Services, told senators the department expects to request roughly $2.5 million to $2.8 million in administrative funding to reprocure the state's managed-care organization (MCO) contracts.

The money would cover development of a new request for proposals, contract provisions and additional oversight, plus IT changes to accept encounter and claims data if incumbents change. The department said that estimate would be requested as an additional administrative budget item because it is not in the current baseline.

The department's estimate traces to prior procurement spending and an assumption of growth. "Back in 20182019 when we procured last time, that's how much we spent ' 2,500,000.0 at that time," said Steve Bechtel, chief financial officer for the department. "So what we did was we gave ourselves a little bit of 10% growth and rounded up to 2,800,000.0. And that's how we came up with the number."

The department told senators the previous RFP-development contract totaled about $2 million and the agency spent approximately $1.9 million on that work. Commissioner Lisa Lee said reprocurement includes not just drafting the RFP but also implementation tasks: systems integration, onboarding of new MCOs and establishing oversight protocols.

"We have to get them to be able to send us encounter data ' which is their claims data. We have to be able to accept that data. We have to put it in a certain format," Lee said. "And that's a lot of back and forth, us making our system talk with their systems. And so that's where the IT and the implementation side comes in."

Senators pressed the department on whether the administrative procurement cost is intrinsic to the program regardless of whether the legislature changes the number of MCOs in statute. "It sounds to me like what you're describing, though, is regardless of the renewal point, these costs are going to be incurred as a normal programmatic cost," the committee chair said. Commissioner Lee agreed that the department would have to request the funding in the next budget cycle because "it's not in our baseline."

Officials also described federal requirements that affect the RFP. "CMS came out with some managed care final rules ... this past summer," Lee said, adding the department must incorporate those federal rules into any new procurement. The department also clarified federal match rates: administrative contract costs draw a roughly 50/50 federal match, while benefit (capitation) payments are subject to the roughly 80/20 match for benefits.

Senators raised implementation concerns and potential savings. Senator Meredith said reducing the number of MCOs could generate administrative savings for providers dealing with fewer payer systems, which might produce net savings when provider transaction costs are considered. Department staff cautioned that member transitions, possible MCO mergers after award and unpredictable changes in health care (including new technology) make precise savings difficult to quantify.

The department said the time to draft and complete an RFP varies. "I've seen it last as long as six months; I've seen it last as long as eight months," Lee said. She also suggested that foster-care populations previously included in broader RFPs may be carved out in future procurements.

The committee did not take final action on legislation during the discussion. Senators and department staff agreed the funding for procurement work is likely to be submitted as a separate request in the next biennial budget cycle. The department said it will return with timelines if the committee provides a definitive schedule for reprocurement.

Ending: The subcommittee left the issue open for further budget review. Department officials said they will prepare a formal budget request for the next biennium and can return with more detailed timelines and cost breakdowns if the committee requests them.