Kentucky Association of Health Plans Expresses Deep Concern Over Bill That Weakens Medicaid Fraud Controls

KY’s largest provider of Medicaid behavioral health services is under active FBI investigation and now working to rig state laws in their favor

Frankfort, KY – The Kentucky Association of Health Plans (KAHP), the trade association representing Medicaid managed care organizations and commercial insurers in the Commonwealth, today expressed strong disappointment in the Kentucky House Health Services Committee’s passage of Senate Bill 153, a measure that severely undermines the state’s ability to prevent fraud, waste, and abuse in Medicaid.

The legislation is supported by Addiction Recovery Care (ARC), the Commonwealth’s largest provider of Medicaid behavioral health services. The company is the subject of an active FBI healthcare fraud investigation.

On Feb. 26, ARC Chief Legal and Government Affairs Officer, Jessica Burke, testified in support of the bill in the Senate Health Services Committee.

Prepayment review is a targeted process that is only utilized in rare cases, specifically with a very small number of outlier providers where health plans have identified negative health outcome patterns and billing irregularities. This ensures that services were actually rendered before taxpayer dollars are spent. Importantly, every instance of prepayment review requires approval from the Kentucky Department of Medicaid Services (DMS) to ensure fairness and accountability.

SB 153’s move to weaken prepayment review increases the risk of improper payments from billing errors or outright fraud.

KAHP was signed up to testify but was not allowed to speak.

“At a time when Kentucky lawmakers are actively working to rein in Medicaid spending and ensure the program’s long-term sustainability, SB 153 moves in the exact opposite direction,” said Tom Stephens, President & CEO of KAHP. “The federal government is cracking down on waste, fraud, and abuse. What kind of message does it send that Kentucky is doing the exact opposite? This bill weakens oversight, increases fraud risk, and threatens the integrity of Medicaid, ultimately leading to higher costs for taxpayers and poor outcomes for patients.  Stripping away one of the few mechanisms available to detect and prevent fraudulent claims is a puzzling policy direction to say the least.”

Weakening prepayment review, not only debilitates one of the few safeguards in place to verify whether claims are legitimate or if services were ever provided but further emboldens unscrupulous providers. Given that prior authorization is extremely limited, Medicaid plans lack critical tools to catch improper claims before taxpayer dollars are spent.

Additionally, the elimination of prepayment review will inevitably lead to an increase in back-end audits, as Medicaid managed care organizations (MCOs) are required to ensure improper payments are identified and addressed. Both the state and MCOs could be subject to payment recoupments, further straining taxpayer resources.

Health care fraud is a significant issue, with estimates suggesting it accounts for up to 10% of Medicaid spending. Even at a conservative 3% estimate, Kentucky’s $19.1 billion Medicaid benefits budget could be losing as much as $573 million annually due to fraud.

KAHP urges lawmakers to reconsider this harmful legislation and instead prioritize policies that strengthen—not dismantle—Medicaid integrity safeguards.