Medicaid managed care company sues outgoing corporate co-owner, alleging ‘sabotage’

The federal courthouse for the Eastern District of Arkansas in Little Rock

This story was updated with additional details at 10:45 a.m., Saturday, Nov. 6.

Empower Healthcare Solutions, a managed care organization that serves almost 20,000 Arkansas Medicaid beneficiaries with complex health needs, filed a lawsuit in federal court on Tuesday against a Boston-based company that owns a portion of Empower but is planning to leave by the end of the year.

The suit accuses Beacon Health Options of “seeking to destroy Empower … from within” to benefit one of Empower’s competitors.

Meanwhile, a letter obtained by the Arkansas Nonprofit News Network shows state Medicaid officials have concerns about Empower’s ability to operate after Beacon’s departure is finalized. The Arkansas Department of Human Services (DHS) said in its Nov. 2 letter to Empower that it has until November 24 to complete a “readiness review” ordered by DHS, which oversees Arkansas's Medicaid program.

Empower is one of four managed care organizations that contract with DHS to pay for and coordinate care for Medicaid beneficiaries with severe behavioral health disorders, intellectual or developmental disabilities, or both. Known as Provider-led Arkansas Shared Savings Entities, or PASSEs, they were created by a 2017 state law that promised to both control spending and provide better services to this high-need, high-cost group of patients. PASSEs basically play the role of insurance companies but must be partly owned by health care providers; they also provide "care coordinators" who act as case managers for beneficiaries.

Beacon, one of the nation's largest behavioral health companies, has owned a 16.66% stake in Empower since the PASSE was formed in 2017. (The rest of Empower is owned by several health care entities based in Arkansas.) Beacon also contracts with Empower to provide administrative services and has played a critical role in Empower’s day-to-day operations.

But in 2020, Beacon was acquired by insurance giant Anthem. Anthem also owns a stake in another Arkansas PASSE, Summit Community Care, a rival of Empower. A state law passed earlier this year prohibited ownership in more than one PASSE, and Beacon began separating itself from Empower.

Now, Empower’s lawsuit says Beacon has been “intentionally attempting to sabotage Empower” on its way out the door.

“Since the merger, Beacon has engaged in conduct that suggests that it is functioning as a Trojan-horse for Anthem,” Empower's complaint says. Empower claims Beacon has refused to turn over phone numbers, email accounts and critical databases and documents as the two companies finalize their divorce.

A representative for Beacon did not respond to a request for comment on the lawsuit. But a letter Beacon sent to DHS August 26 show Beacon has had its own complaints about the separation.

The Aug. 26 letter, obtained from DHS with a public records request, described a dispute over Empower's adoption of new policies for credentialing health care providers in its network after Beacon leaves. Beacon has been responsible for provider credentialing as part of its management services to Empower. The letter indicated Beacon considers the fruits of that work to belong to it alone not Empower — and suggested Empower's board was attempting to "negate Beacon’s credentialing of its own network."

“The proposed Credentialing policy could have the effect of invalidating the credentialing decisions of our existing network,” wrote Melissa Ortega, a vice president of Beacon based in Little Rock. “Beacon obviously cannot agree to any policy that will have this result. Empower has been combative and non-cooperative in addressing these concerns.”

In its lawsuit, Empower cites this episode as further evidence of Beacon's alleged attempts to sabotage Empower. "Beacon made false representations about Empower to DHS, which representations (if believed by DHS) could jeopardize Empower's future participation in the PASSE program," the complaint says.

The Department of Human Services pays each PASSE a fixed monthly amount per beneficiary enrolled. PASSEs must then cover the cost of care for those members, which can include costly services such as inpatient treatment or at-home help for disabled people. In 2020, the cost to Medicaid for the roughly 50,000 PASSE beneficiaries in Arkansas was almost $1.3 billion, according to documents provided to a legislative committee in June. (Empower's revenues for 2020 were over $460 million, according to the lawsuit.)

Empower's complaint says that Beacon was "essentially the operations manager" for the PASSE. Under the terms of a service agreement between the two companies, Beacon provided all "services required for [Empower's] performance of the PASSE Contract [including] all staffing and administrative services." Beacon was "compensated handsomely" for these services, the complaint says, receiving "more than $52 million in 2020 alone."

But because Beacon has played such a large role in Empower's day-to-day operations, the impending breakup raises questions about what comes next for the PASSE and the beneficiaries who rely on it.

The same day Empower filed its lawsuit, Nov. 2,  DHS sent it a letter warning the PASSE that it had yet to complete a mandatory “readiness review” in advance of Beacon’s exit on Dec. 31. DHS gave Empower until November 24 to address a list of outstanding requirements. If the PASSE misses that deadline, the letter suggested, it could be in danger of losing its contract with the state — its sole source of business.

DHS is obligated “to ensure a smooth transition and continuation of services for any Medicaid enrollee of a managed care entity whose contract is terminated or dissolved for any reason,” wrote DHS Division of Medical Services Director Elizabeth Pitman in the letter. The agency “must be able to make a final decision” by Dec. 1, she added, so that beneficiaries “and their receiving PASSEs have adequate notice to ensure continued services and as smooth a transition as possible.”

A DHS spokeswoman did not respond to questions about steps DHS might take if the Nov. 24 deadline is not met or whether Empower’s members would be assigned to one of the other PASSEs.

Empower CEO Mitch Morris said in an email that the company was “prepared to demonstrate compliance to DHS and remain[ed] very confident that it will provide formal approval for Empower to continue operating as an Arkansas PASSE for calendar year 2022 and beyond.” Morris declined to comment on the lawsuit.

When provided with the Nov. 2 letter for review, Thomas Nichols, a lawyer with the advocacy organization Disability Rights Arkansas, said DHS was likely “covering their bases to make sure there’s not a gap in services” for beneficiaries.

PASSE members can’t afford any disruption in their coverage, Nichols said, because they are so deeply reliant on the services Medicaid pays for. “Folks aren’t relying on this just for primary care appointments,” he said. “You have people who require 24/7 staff because they need that in order to live safely in a community setting. Folks rely on this sometimes for tube feedings … Some people rely on this for life-saving medication."

"These are things that people have to have every single day. They have to be paid for every single day."

Nichols said the uncertainty around Empower’s future illustrated the pitfalls of transferring responsibility for Medicaid to managed care companies.

“It is predictable that privatizing Medicaid services and feeding it to a for-profit world would result in the types of potential harms we now have,” he said. “It is inexcusable that individuals with significant developmental disabilities and mental illness are suddenly on the brink due to mergers and acquisitions.”

In addition to Beacon, Empower is co-owned by five other health care organizations. They are Arkansas Community Health Network, a consortium of four hospital systems; Statera, a long-term care company; Independent Case Management, a provider of home and community-based services for people with developmental disabilities; The Arkansas Healthcare Alliance, a group of providers for behavioral health and developmental disability services; and, ARcare, a network of clinics and other providers.

According to documents provided to a legislative committee in June, Empower has the largest share of beneficiaries among the four Arkansas PASSEs, with almost 20,000 members. Summit Community Care, the PASSE that is co-owned by Anthem, had more than 16,000 members. Arkansas Total Care, which is partially owned by health insurance company Centene, had over 13,000 members. The fourth PASSE is a newcomer to the state: CareSource PASSE, partially owned by an Ohio-based managed care company, was licensed earlier this year.

This story is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans.

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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.