The Kentucky ‘Wrap’: Decreasing Administrative Costs for Medicaid and FQHCs in MCO Payment Reconciliation

States that have implemented managed care in their Medicaid programs face the complex and time consuming task of reconciling managed care payments to federally qualified health centers (FQHCs) to ensure they are at, or above, their Prospective Payment System (PPS) rates. Several senior Medicaid officials raised this issue during a recent NASHP meeting on the inclusion of health centers and other safety net providers in state payment reform efforts. As more states move some or all of their Medicaid beneficiaries into managed care, there is a need for more efficient processes. Kentucky Medicaid believes its automated system offers a solution. Since implemented in June 2014, the system is already saving the Medicaid agency and Kentucky FQHCs valuable staff time and resources.

Federal law (BIPA, 2000) requires Medicaid programs to reimburse FQHCs at their PPS rates—minimum reimbursement rates for clinic visits with Medicaid beneficiaries. PPS reimbursement becomes increasingly complicated for states with managed care because PPS rates are frequently higher than those paid by managed care organizations (MCOs). In order to ensure an FQHC’s Medicaid payments are equivalent to its PPS rate, Medicaid agencies must reconcile the payment made by the MCO against the FQHC’s PPS rate for each encounter. If the MCO payment is lower than the PPS rate, Medicaid agencies must make a supplemental payment to make up the difference, called a “wrap payment.”

To learn more about Kentucky’s automated system, I talked to Lee Guice (LG) and Teresa Cooper (TC) of the Division of Policy and Operations within the Kentucky Department of Medicaid Services who shared their insights on the system’s impacts and lessons learned for other states considering an automated reconciliation system.

What were Kentucky’s goals for developing an automated Medicaid reconciliation process for FQHC PPS payments?
LG: Our goals were to build a system that reduced administrative burden, made the process more cost efficient, and made the process timelier to help support the financial solvency of our state’s clinics.

What challenges did Kentucky face in reconciling FQHC PPS payments prior to implementing its automated system?
LG: When Kentucky implemented managed care in 2011, the state did it quickly, in less than three months. We did not pay a lot of attention to this issue initially; once managed care had been implemented we immediately put in place a manual reconciliation process until we could develop an automated process within Kentucky’s Medicaid Management Information Systems (MMIS). In the manual process, reconciliations were done monthly; it was very time intensive for Medicaid staff and wrap payments lagged for clinics. The manual process also introduced the potential for errors within Medicaid and the clinics. Once we began to develop an automated system, we realized that the data we received from MCOs were not complete enough for us to reconcile the claims.

TC: Approximately 90 percent of the encounter data the Department [of Medicaid Services] received for all provider types did not contain all the necessary information, and therefore some of these encounters were not being captured by the Department’s MMIS. In addition, specifically for FQHCs we have to ensure claims are rendered by eligible provider types. MCOs are required to report the “Rendering Provider” number to us; however, the MCOs were not reliably capturing this data at that time.

How does Kentucky’s automated system work?
TC: We built this system into our MMIS, which is operated by our fiscal agent, Hewlett Packard. MCOs submit the encounters to our MMIS system. When the system first receives an encounter, it makes sure the claim is for a covered service and is made by an eligible provider. Once the system establishes that it is an eligible claim, the amount the MCO paid to the clinic is posted. If the payment is less than the PPS rate, the system automatically generates a supplemental claim on the encounter and issues a wrap payment. Reconciliation through the system is done weekly.

The system took about 12-18 months to implement, which includes the time we spent working with the MCOs on their data and testing the system. When we were developing this system, we realized that most MCO representatives did not realize FQHCs and rural health clinics (RHCs) were paid differently and had not built their data systems to accommodate this different type of encounter. The process has improved over time, but we are still struggling with MCOs submitting incomplete encounters (and thus the claims are not getting paid). To try to address this challenge, Kentucky has refined the MCO contract language to include fines for not submitting timely and complete data.

What does the system cost to administer?
LG: Since it was built into our MMIS, there is no additional cost. The automated system is more cost efficient and has reduced the administrative burden on the Medicaid agency. The system is definitely saving the state money since it has dramatically reduced the amount of administrative time spent by staff reconciling claims and making wrap payments. For example, I used to spend two days per month working on PPS reconciliation under the manual system and now I spend about two hours per month; Teresa used to spend 60 to 70 percent of her time working on PPS reconciliation and now she spends two days a month.

How have FQHCs responded to the system?
LG: As with any type of change, it took time to educate providers and secure their buy-in. Now clinics are on board with this system. The automated system has actually decreased the administrative burden on clinics as well.

If you could turn back the clock, would you implement this system again? What lessons learned can you share with other states interested in implementing a similar system?
LG: We did not understand the issues with MCO data until we began this process. I would recommend that other states engage MCO leadership and involve their technical staff from the outset so they can be refining their data systems while the reconciliation system is being developed.

If you would like to learn more about Kentucky’s automated reconciliation system, you can contact Teresa Cooper ( )