Medicaid Managed Care and Sole Source Contract

By: Jeffrey S. Baird, Esq. and Pam F. Colbert, Esq.

With the shifting sands of the Affordable Care Act (“ACA”), and with 78 million Baby Boomers retiring at the rate of 10,000 per day, there is more need – but less funding – for state Medicaid programs. State Medicaid programs are seeking a path to provide benefits to their enrollees … while grappling with the ability to pay for those services. Many states have sought refuge under the Managed Care Organization (“MCO”) umbrella where the states hope to incur less costs, gain more services, and have someone else handle the administration of the Medicaid programs.

Background – Medicaid and MCOs

Many states have contracted with MCOs to administer their Medicaid benefits, only to find a big difference in processes and cultures. State Medicaid programs have been traditionally based on a fee-for-service (“FFS”) model. Under the FFS model, detailed information is collected and made available regarding the products and services provided to enrollees. On the other hand, MCOs provide states with “encounter data” which may include little to no detail; this, in turn, makes it difficult to know what products and services are and are not provided. Encounter data generally only provides the number of encounters and level of illness. The cultures are also very different: Medicaid is a government agency not focused on generating a profit, while MCOs are business entities focused on profits. Medicaid has governmental agency regulations and stakeholders, while MCOs have corporate guidelines and shareholders.

Sole Source Contracts – Excludes all Other Suppliers

Traditional Medicaid, like Medicare, allows providers and suppliers to enroll and provide products and services to the program’s enrollees; this provides choice and geographical coverage. By contrast, MCOs create their own “provider networks.” Recently, MCOs in several states have executed “Sole Source Contracts” that (i) give exclusive rights for providing identified products and services and (ii) exclude all other providers/suppliers for these products and services. This (i) may result in reduction in services to enrollees and (ii) most certainly has a devastating financial impact on the excluded providers/suppliers.

For example, one of Texas’ Medicaid MCOs, Superior HealthPlan, a subsidiary of Centene Corporation (“Superior”), has executed a Sole Source Contract with Medline, a manufacturer and distributor of medical products based in Illinois. This Sole Source Contract provides Medline the exclusive right to provide 244 unique DME items to Texas Medicaid enrollees. The contract excludes Texas DME suppliers from providing these 244 items. Further, the contract removes the prior authorization requirement for the 244 DME items provided by Medline.

Superior also mandated that Medicaid enrollees (receiving the 244 items) be transferred from their existing DME suppliers to Medline on or before the effective date of the Sole Source Contract.

It was not until Texas DME suppliers, like Alliance Medical Supply and others, took action by (i) filing complaints against Superior with Texas Medicaid, (ii) contacting their state elected officials, and (iii) rallying DME associations and stakeholders, that this critical matter came to light. The legal arguments asserted include:

• The patient’s choice of supplier will be denied.
• Competition is needed to provide options and reduce costs to the Medicaid program.
• The Sole Source Contract is contrary to the Texas HHSC MCO Policy prohibiting the removal of choice.
• The removal of the prior authorization requirement for the exclusive DME supplier (for 244 DME items) may result in a number of problems, including unnecessary products being delivered to enrollees.
• There is an incentive provided to prescribing physicians to use Medline by removal of prior authorization requirements for Medline.
• As a result of Medline being given authority to “pre-populate” or “fill-in” an incomplete or missing prescription from the ordering physician, and then have the physician sign the prescription, problems may arise such as prescriptions that do not match the patient’s needs.
• Being excluded from providing the 244 items will have a devastating impact on the Texas DME suppliers.

Fortunately, the efforts of Alliance Medical Supply and the other Texas DME suppliers have resulted in Texas Medicaid requiring Superior to provide an “opt out” option to Superior’s enrollees which transitioned the contract from a Sole Source to a “preferred provider” contract. This gives the enrollees the right to continue to use their existing DME suppliers.

Texas is not the only state where a “Sole Source Contract” is being proposed. This type of arrangement is being implemented by other Centene Medicaid MCOs and will negatively impacting DME suppliers in other states.

It is important that DME suppliers monitor MCO network contracts and address these Sole Source Contracts to avoid being excluded from servicing their own state Medicaid enrollees. State Medicaid programs have entrusted their enrollees to MCOs and may be unaware of these Sole Source Contracts unless the DME suppliers raise concerns.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.

Pam F. Colbert, JD, is an attorney with the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. She represents pharmacies, HME companies, and other health care providers throughout the United States. Ms. Colbert can be reached at (806) 345-6378 or pcolbert@bf-law.com.