DHS continues to reimburse Medicaid managed care company co-owned by Preferred Family Healthcare

A Preferred Family Healthcare site in Morrilton
UNDER FIRE: A Preferred Family Healthcare site in Morrilton.


A Preferred Family Healthcare site in Morrilton
UNDER FIRE: A Preferred Family Healthcare site in Morrilton.


The Arkansas Department of Human Services continues to use a provider-led Medicaid managed care company that is part-owned by Preferred Family Healthcare, despite the DHS' recent decision to cut other ties with the Springfield, Mo.-based nonprofit enmeshed in multiple corruption scandals.

Empower Healthcare Solutions is one of four companies in the state known as PASSEs (Provider-led Arkansas Shared Savings Entities) that are offering services for certain high-needs Medicaid beneficiaries beginning this year. PFH has a 14.284 percent stake in the company. Under the first phase of this new program, which began earlier this year, the four PASSEs are providing care coordination for around 22,000 beneficiaries with severe mental health needs and around 8,000 with developmental disabilities, in exchange for Medicaid payments of $173.33 per patient per month. Empower has 12,220 beneficiaries enrolled in its network.

The agreement with Empower — and the Medicaid reimbursements — remain in place for now, even as the state has otherwise turned off the tap for PFH. On June 29, the state announced it was suspending PFH from the state’s Medicaid program, halting reimbursement payments to the nonprofit’s 47 health care service sites across the state. PFH is appealing the decision. The state also announced that it would immediately exercise termination clauses in non-Medicaid contracts with PFH, for services such as substance abuse treatment, youth services and therapeutic foster care. The announcements came after the arrest of former PFH executive Robin Raveendran on Medicaid fraud charges; other PFH executives have been implicated in multiple indictments and guilty pleas of former Arkansas lobbyists and lawmakers.

“Our most pressing issue was the contracts with PFH,” said DHS spokeswoman Amy Webb. “Those took priority — that and dealing with the fact that they’re a Medicaid provider. The PASSEs are a new thing and it’s going to take a little bit more time for us to wade through that but it is definitely something we’re looking at, we just have to figure that out.”

“PFH is not Empower, PFH is part of Empower, but they’re not the whole of Empower,” said Paula Stone, deputy director of the DHS’s Division of Medical Services. According to paperwork filed as part of its application for a license with the Arkansas Insurance Department, acquired by Freedom of Information Act request, Empower’s seven corporate members have equal equity stakes. In addition to PFH, Equity is co-owned by Beacon Health Options, the Arkansas Healthcare Alliance, Stratera, Woodruff Health Group, Independent Case Management and the Arkansas Community Health Network.

The PASSEs were created by Act 775, passed by the legislature in 2017, as part of a compromise reached after Governor Hutchinson's controversial efforts to turn over certain parts of the Medicaid program to managed care companies in order to reduce costs. Many provider groups opposed the idea. Aided by the powerful nursing home lobby, long-term care providers negotiated to avoid managed care altogether, receiving a special carve-out to develop their own cost-saving plan. The behavioral health and developmental disabilities providers, meanwhile, ended up in a hybrid model established by Act 775. Rather than contracting with a traditional managed care company, the state instead licensed the PASSEs as a new category of “risk-based provider organizations.”

The PASSEs will operate much like managed care companies — they will provide services to this population for an agreed-upon price that is below the baseline expected cost of traditional fee-for-service Medicaid. The state and the federal government, which jointly fund the Medicaid program, are guaranteed those savings. The PASSEs take on the risk if their costs run over the target and reap the rewards if they can generate more savings still.

What makes the PASSEs unique is that they must be majority-owned by Arkansas Medicaid providers. Providers themselves, therefore, will have ultimate control over the sorts of decisions and policies that would normally be entirely up to an outside managed care company — provider reimbursements, administrative procedures, data reporting, protocols for ensuring best practices, coordination of care, IT systems, beneficiary outreach, financial risk or incentive structures for individual providers, member enrollment and claims processing, and so on.

This year, the PASSEs are only providing care coordination, on a fee-for-service basis. The second phase of the program begins in 2019, when each PASSE will receive a “global payment” — a per-person lump sum — in lieu of fee-for-service reimbursements. The PASSE will then be responsible for the total cost of care for beneficiaries, taking on the full financial risk if costs are higher than expected. The budgetary stakes are enormous: The 30,000 individuals currently enrolled in PASSEs account for around $1 billion annually in state and federal Medicaid spending in Arkansas (out of around $7.6 billion total in fiscal year 2017).

The suspension of PFH raises a number of questions for Empower, issues that are currently being examined by the two agencies that oversee the PASSEs, the DHS and the Insurance Department. The law requires that each PASSE be at least 51-percent owned by Arkansas Medicaid providers — including requirements that ownership include certain types of providers — and offer a statewide network that gives beneficiaries adequate access to service providers. The suspension of PFH appears to potentially impact both the ownership structure and the provider network of Empower.

DHS officials said that because PASSEs are new entities, some of this is uncharted territory, and there are tricky technical questions to parse. For example, PFH has been suspended from receiving payments, but as a legal matter, it is still a Medicaid provider — it has not yet been excluded from providing services.

“That is a question we’re working out the kinks of — what’s the difference between a suspension and an exclusion, and how that applies to this new model with the PASSE and their ownership,” Stone said.

She said that the Insurance Department, which licensed Empower as a risk-based provider organization, is currently looking into how the suspension of PFH as a Medicaid service provider would impact the company’s status. “We’re starting with that first: How any suspension would affect the licensing.”

Asked about its review of Empower’s license, K. Ryan James, a spokesman for the Insurance Department, said, “The Department does not acknowledge open examinations, nor does it offer comment on any that may exist.”

As for whether the suspension of PFH would leave Empower with an insufficient number of providers in its network — an issue that the DHS rather than the Insurance Department would regulate — Stone pointed out that Empower had other large Medicaid providers in its network in addition to PFH.  "PASSEs would be responsible for their networks, so if they lose providers in a certain area of the state, it would be their responsibility to bring on new providers and meet the needs of all their beneficiaries," she said.

The suspension of PFH also raises the issue of how beneficiaries were assigned to Empower in the first place. Assignment to PASSEs this year was based upon a complicated formula that is heavily impacted by which providers are in each PASSE’s network. In the case of Empower, it had a major leg up in gaining assignments for beneficiaries with an existing relationship with a PFH provider because PFH refused to contract with any other PASSEs.

Stone acknowledged that many beneficiaries were assigned to Empower because the now-suspended PFH was their provider. She said that beneficiaries have the option to switch to a new PASSE this year for cause, or a pick a new PASSE in October when open enrollment begins for the second phase, with the PASSEs covering full services for beneficiaries. In the interim, “DHS has not discussed reassignment,” she said. She said that the DHS has actively encouraged providers to join all networks rather than exclusively contract with one PASSE, as PFH did with the company it co-owns. “Many of our behavioral health and developmental disabilities providers did not join multiple networks,” she said. “I think you’ll see a big shift in that when we get to Phase 2 [in 2019]."

Nicole May, the interim executive director of Empower, declined to respond to specific queries when asked about the suspension of PFH from Medicaid, but she provided a prepared statement: “Empower Healthcare Solutions is committed to ensuring that all members of our PASSE have access to high-quality appropriate care through a provider of their choice. Our care coordinators are working to ensure that members are aware of all options for receiving their treatment. We continue to operate under our mission to empower individuals to lead fuller, healthier lives at home and in their communities.”

PFH is not the only corporate member of Empower that has links to Arkansas officials accused of corruption. The Arkansas Healthcare Alliance is a group of 22 behavioral health and developmental disabilities providers that was affiliated with Raveendran — the former PFH executive and DHS staffer who was recently arrested on fraud charges. This LLC was formed specifically to participate in the PASSE. As of Thursday, its webpage listed Raveendran and Bess Ginty — currently the Alliance president — as contacts. By Friday, Raveendran's name had been removed. (According to a recent Arkansas Business profile, Ginty also served as president of a different group of providers — the Alliance for Health Improvement — for which Raveendran was executive director.)

"We've received notice from the Arkansas Healthcare Alliance that they no longer have any involvement with [Raveendran]," Stone said. Ginty, who also serves as a board member at Empower, did not respond to repeated requests for comment.

Stratera, another corporate member with a 14.284 percent stake in Empower, is a network of nursing homes, rural health clinics, pharmacy resources and Medicare Advantage plans. It's led by Chief Executive Officer David Norsworthy, a co-owner of Michael Morton’s network of nursing homes in the state and a board member of Arkansas Health Care Association, the lobbying arm of the nursing home industry. Defrocked judge Mike Maggio pleaded guilty to accepting a bribe after reducing damages against one of Morton’s homes around the same time he received campaign contributions from Morton; Morton has not been charged and said that he did nothing wrong. Norsworthy himself has been in the news because of an unexplained $80,000 wire transfer that he gave to former state Sen. Jake Files, who pleaded guilty to unrelated federal corruption charges earlier this year. Both Files and Norsworthy have declined to comment on that transaction. No charges have been filed, but the Sebastian County Prosecutor has requested the appointment of a special prosecutor to investigate the transfer.

This reporting is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan project dedicated to producing journalism that matters to Arkansans. Find out more at arknews.org.

The Arkansas Nonprofit News Network is an independent, nonpartisan news organization dedicated to producing journalism that matters to Arkansans. Our work is re-published by partner newsrooms across the state.