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DMS reports show rising Medicaid service spending and a $300M state rebate appropriation; MCO payouts dominated by pharmacy
Summary
DMS told the Oversight Board that fee‑for‑service spending rose by roughly $450M year‑over‑year across categories and that state share increases for the first three quarters total about $140M; Commissioners also explained a new pharmaceutical rebate fund that raised restricted appropriations by about $300M.
The Department for Medicaid Services told the Medicaid Oversight Board that Kentucky’s Medicaid spending profile has shifted this fiscal year, with notable increases in several service categories and significant accounting changes driven by a new pharmaceutical rebate fund.
Steve Bechal, DMS chief financial officer, said a three‑quarter comparison shows about $191 million more spent on waiver services and roughly $450 million in additional fee‑for‑service payments across nursing facilities, federally qualified health centers and community behavioral health centers. Bechal said those quarter‑to‑quarter tabulations must be read across worksheet tabs to capture traditional Medicaid, expansion and CHIP populations together.
Bechal also said managed care organization payouts are concentrated: pharmacy, inpatient hospital and outpatient hospital payments together account for about two‑thirds of MCO outlays so far this fiscal year. “Pharmacy is by far the largest,” he said during the board presentation.
Commissioner Lisa Lee described a legislatively required Medicaid pharmaceutical rebate fund (account 13VG) that collects state‑share rebate dollars and requires restricted appropriations to spend those dollars. She said treating state rebate receipts as a revenue stream increased the appropriation baseline by about $300 million without increasing total program spending. ‘‘It made it look like our budget increased by $300 million in appropriations but not in total spend,” Commissioner Lee said.
Members asked for additional breakdowns, including separate lines for administrative costs, recoupment/recovery details from MCOs and estimates of how a pending CMS proposed rule on state‑directed payments could affect providers. Bechal and other DMS staff said administrative fees and program adjustments appear on later report tabs and that DMS has been sharing information with the Kentucky Hospital Association about federal proposals.
Auditor Allison Ball raised audit findings alleging substantial capitation overpayments and high error rates. DMS disputed parts of the $836 million characterization, saying some figures did not account for dual enrollments and covered the COVID period; DMS said it is reviewing eligibility systems and expects continued collaboration on error rates.
The board did not vote on budget items. Members asked DMS to add recoupment counts to future MCO reports and to provide any analysis of the CMS proposed rule’s fiscal impact when available.
