Beshear Seeks Fix for Kentucky Medicaid Cuts Threatening to Devastate Care

Governor Steve Beshear of Kentucky has given lawmakers less than two weeks to approve his plan to come up with $165 million for Medicaid or he’ll cut payments, which he said may devastate the state’s health-care system.

The first-term Democrat who took office in January 2008 faces a local variation on a problem vexing governors across the U.S.: when Kentucky lawmakers approved an $18 billion biennial budget last year, they overestimated federal Medicaid funding. That created a $165 million hole that balloons to $600 million this year with the loss of U.S. matching aid. To fill the gap, Beshear wants to tap next year’s Medicaid budget, which is fully funded, and private-sector-style managed care to cut costs.

The state has notified doctors that absent the transfer, it will be forced to cut their payments by 35 percent. As a result, care for poor pregnant women, diabetes programs and therapy for coal miners suffering black lung disease may be ended, said Janie Miller, secretary of the Cabinet for Health and Family Services, and according to the state’s health-care association.

“There is no acceptable alternative to this plan,” Beshear, 66, said of his proposal in a telephone interview last month from the state capital, Frankfort. Without the funds transfer, health-care providers and hospitals may make service cuts that “would be devastating,” he said.

Competing Plan

Beshear called a special session of the Legislature that started March 14, and he’s set an April 1 deadline to approve the changes or he’ll cut reimbursements, said Kerri Richardson, a spokeswoman. Republicans, who control the senate, advanced a competing plan that would make about $35 million more in Medicaid-spending reductions than Beshear initially proposed.

Beshear, a lawyer from Dawson Springs whose father was a Baptist minister, said he never planned to be governor during the most prolonged U.S. recession since World War II, which brought deficits to plague his and other states. He’s rebalanced Kentucky’s budget eight times in three years and cut $1 billion in spending, he said, without reducing funds for education or public safety.

After serving three terms in the Legislature in 1974-79, Beshear was Kentucky’s attorney general and lieutenant governor. He ran unsuccessfully for the top job in 1987, after which he returned to private practice, focused on his family -- a wife and two sons -- and did some community banking. A “good life,” he said.

Candidate Search

In 2006, Beshear and other prominent Democrats were searching for a candidate to run against Republican incumbent Governor Ernie Fletcher. After several people asked Beshear to seek the nomination, he carried a seven-way primary by 41 percent and ousted Fletcher by 17 percentage points.

Beshear must close the Medicaid funding gap as he faces re- election in November. Senate President David Williams, a Republican from Burkesville, is his prime opponent.

At stake is the future of Medicaid, the state-federal health program for the poor, aged and disabled, which has grown to cover one in five Kentuckians since the recession started in December 2007. Almost 32 percent of people in the state are deemed obese, and 80 of 100,000 die from lung cancer compared with a U.S. rate of 55 per 100,000, according to the non-profit Foundation for a Healthy Kentucky.

Life Expectancy

The number of Kentucky residents who die before age 75 is 20 percent above the national rate and the state’s life expectancy of 75.5 years is below the U.S. figure of 78 years, according to the non-profit Kaiser Family Foundation.

Kentucky, with the fourth-highest number of farms of any U.S. state, also ranks fourth in car and truck production from plants such as Toyota Motor Corp.’s factory in Georgetown. The state’s resource economy was dominated by coal, timber and agriculture before a wave of postwar industrial growth.

Beshear said he’s talking with 248 companies about making $2.2 billion worth of investments in Kentucky that would create almost 15,000 jobs. The state’s unemployment rate was 10.4 percent in January, 1.4 percentage points above the national rate at the time.

The coming fiscal year is shaping up as one of the most difficult state budget years. So far, some 44 states and the District of Columbia are projecting budget shortfalls totaling $112 billion for fiscal 2012.

When Kentucky lawmakers passed their two-year $18 billion budget in May, they assumed an additional $100 million in federal matching funds for Medicaid that wasn’t approved. Beshear said the second year of the plan didn’t count on the higher level of funding.

Reducing payments to address the shortfall may mean the closure of some cash-strapped hospitals, said Elizabeth Cobb, vice president for health policy at the Kentucky Hospital Association. It could also prompt some physicians to cut programs for poor, rural and obese Kentuckians, she said.

Extra Savings

Senator Bob Leeper, a Republican from Paducah, said lawmakers are prepared to plug the $165 million hole provided the governor agrees to the extra savings through managed care and cuts across the board. “We don’t have the confidence that he’s going to be able to do that,” he said.

Dennis Meyers, president and chief executive officer of the 63-bed Manchester Memorial Hospital in Manchester, said many lawmakers don’t understand the complexities of the Medicaid debate.

He said Medicaid enrollees and the uninsured make up 20 percent of the emergency-room patients in his hospital, which gets back only about 80 cents on the dollar for the care.

Future Care

“I’m concerned about our bottom line but, beyond that, the biggest concern I have is whether we’ll be able to take care of people in the future,” Meyers said. “We’re a microcosm in the health-care community of what the big picture is, and we have to worry every day.”

Meyers said programs that don’t make money for his hospital include obstetrics, gynecology and assisting older coal miners with respiratory illness. The cuts Beshear has warned of may mean layoffs among his 535 employees and service cuts to so- called loss-leaders, he said.

Making the situation drearier is the fact that the growth of Medicaid costs is due largely to people losing benefits as jobs disappeared, Beshear said.

“We have people in the Medicaid program who never thought in their wildest dreams that they would qualify for Medicaid or for unemployment benefits,” Beshear said.

The governor said U.S. voters “sent a very clear message to Washington” last November when they handed Republicans a majority in the U.S. House of Representatives. He said he’s hopeful his message of fiscal restraint will resound with voters and that cooler heads will prevail in the Medicaid debate.

Leeper said political questions go with the turf.

“This is the state capital,” he said. “Politics is everywhere.”

Steve Beshear at a Glance

Born: Dawson Springs, Kentucky, Sept. 21, 1944.

Party: Democrat.

Spouse: Married since 1969 to Jane Beshear, former teacher and real estate agent. She manages the family farm in Clark County.

Children: Jeff, 36, veterinarian; Andy, 33, attorney. Grandchildren: Nicholas, 7; Will, 20 months; Lila, 8 months.

Career: State representative, 1974-79; attorney general, 1979- 83; lieutenant governor, 1983-87; attorney in private practice 1987-2006; governor 2007-present.

Education: Undergraduate and law degrees from the University of Kentucky.

Noteworthy: Beshear’s father and grandfather were Baptist ministers. He has been active with civic groups including Commerce Lexington Inc., the Kentucky Horse Park Foundation, God’s Pantry Food Bank, Bluegrass Tomorrow, the Kentucky World Trade Center and the U.K. College of Law Visiting Committee.

To contact the reporter on this story: Terrence Dopp in Trenton at tdopp@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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