CORBIN — By Ronnie Ellis/CNHI News Service

Gov. Steve Beshear called for the termination of the entire management team at Passport, the Medicaid managed care system which was the subject of an unflattering state audit, or see its nearly $800 million annual state contract terminated in June.

Beshear met Wednesday morning with representatives of the investor organizations which formed Passport – the University of Louisville, Jewish and St. Mary’s Healthcare, Norton Healthcare, and the Louisville/Jefferson County Primary Care Association — and told them the “management of Passport must change and it must change now” or the state will not renew its contract next June.

He presented them an 11-poiint corrective action plan which requires the termination of three top executives, CEO and President Dr. Larry Cook, Executive Vice President Shannon Turner, and Associate Vice President Nici Gaines; employment of a compliance officer and an internal auditor; ending all lobbying expenses; review of all expenditures; and the requirement that board meetings be open to the public.

Beshear said the representatives understand the need for changes in the program and he doesn’t anticipate having to terminate the contract.

“I think it’s fair to say we got a very positive reaction,” Beshear said. “They acknowledged that hard decisions are going to be made and they are willing to make them.” He said the state will ask for any inappropriate expenditures by Passport to be returned.

Beshear also signed off on the board’s pick for interim CEO: Mark Carter, an accountant with Dean Dorton and Ford CPA firm who previously worked for Jewish and St. Mary’s. He said he “had no objection” to Carter “subject to periodic performance reviews” and the understanding by Passport’s board that Carter’s nephew is a policy advisor in the administration. Cook stepped down as CEO though he previously said he planned to remain chairman of the board. That seems unlikely after Beshear’s statement Wednesday.

Passport issued a press release Wednesday afternoon announcing Carter’s appointment as interim CEO but it did not address Beshear’s call for the termination of Cook, Turner and Gaines.  The press release said Carter began his duties Wednesday and will serve “for up to three months.” Passport said on its website it is “reviewing the Governor’s list of changes” and “we’ll be making changes as needed.”

Senate President David Williams, R-Burkesville, who is running for the Republican nomination for governor, later called Beshear’s action equivalent to “a government takeover of Passport.” Williams made the comment during a meeting of the legislature’s Medicaid Cost Containment Task Force as state Auditor Crit Luallen explained the Passport audit.

Luallen’s audit found the partnership of health care providers had generated several million dollars of excess reserves which could have been used to lower state contract costs, expended money on questionable expenses and high salaries, and used state and federal tax dollars to lobby both the legislature and administration.

But Williams sought to place blame on the Cabinet for Health and Family Services which administers Medicaid. He said Passport did “nothing illegal or unethical” and Beshear’s plan to seek for-profit managed care providers will use tax money which the vendor will seek to turn to profit, which is all Passport did. He suggested the fault lay with the cabinet because of its inadequate oversight.

“Whose malfeasance was larger here?” Williams asked Luallen. “The cabinet which remains intact or Passport which has been decapitated?”

Luallen answered that each shared blame but she refused to excuse Passport its portion, noting that its board met last week and, “There was a clear signal they were not making changes.” All of Passport’s revenue comes from tax dollars, Luallen added.

She defended Cabinet Secretary Janie Miller, acknowledging she helped bring Miller into state government in a previous administration, but arguing the problems with Passport began before Miller’s administration and Miller had reduced the rate of increase in the state contract over the past three years.

House Speaker Greg Stumbo, D-Prestonsburg, said nonetheless “there was a breakdown at the cabinet level” and lawmakers need to find ways to avoid such breakdowns. The legislature is interested in expanding managed care wherein the state pays a fixed per-patient fee for the year rather than a fee for each medical service the patient receives, believing it will save the state money.

Luallen’s audit did not examine the quality of Passport care which has been recognized nationally or provide a cost comparison with fee-for-service systems. The audit determined the state increased the contract amount by an average of about 6.5 percent. The largest amount was by 10.8 percent in 2007, the year before Passport began accumulating large reserves.

Miller, Cook and Turner were scheduled to appear Wednesday before the Task Force but Chairwoman Sen. Katie Stine announced Miller had rescheduled for the group’s meeting on Thursday. She said Passport’s board directed Cook and Turner not to appear. Turner was Medicaid Commissioner for Gov. Ernie Fletcher, resigning in 2006 to take a position with Passport.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort, Ky. He may be contacted by email at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.