Archive for Sunday, May 30, 1999


May 30, 1999


— The contractor who administered privatized drug and alcohol treatment services and SRS officials agree on virtually nothing, not even on who pulled the plug on their contractual relationship.

The plug is being pulled on a privatized state welfare program that showed early promise as a big money-saver.

The contractor who administered the program says state welfare officials bungled a good deal. Officials for the Department of Social and Rehabilitation Services, the state welfare agency, say they are equally unhappy with the contractor, despite program improvements they don't dispute. Now drug and alcohol treatment centers, including DCCCA of Lawrence, the state's largest single service provider, are waiting to see what happens next.

"SRS business practices are awful. They don't make sense," said Robert Hickey, president of Kansas Foundation for Managed Care Inc. (KFMC), the contracting firm that says it wants nothing more to do with SRS when its three-year work agreement with the agency expires June 30. "The people of Kansas are being so disserved by (SRS) it's unbelievable. They waste millions and millions on an ineffective bureaucracy. Bureaucracy is more important to them than the people they serve"

"What Hickey's doing is a last effort in a long campaign to discredit the drug and alcohol people here (at SRS) before he fades away on June 30," retorted SRS spokesman John Garlinger. "These are old, recycled allegations he's been peddling for two years. Since we started this program two years ago, we've been operating in a toxic and dysfunctional environment based on fundamental misunderstanding of our roles."

Hickey's firm and SRS agree on virtually nothing, not even on who pulled the plug on their contractual relationship. Hickey says his organization told SRS it didn't want to work with the agency anymore. Garlinger says it was the other way around.

Legislative auditors last year confirmed many of the complaints aired by KFMC. They also confirmed program costs had gone down, more treatment beds were created and, accountability for spending of government dollars had improved. But auditors also noted the relationship between the contractor and SRS was "acrimonious" and "accusatory."

Auditors couldn't answer one of the more important questions posed by inquisitive legislators: Were the thousands of Kansans meant to be served by the state's failed experiment better off or worse off because of it?

"It's difficult to measure the effect managed care has had on clients because SRS didn't ensure it would have the kinds of information it would need to make that assessment," auditors stated in a report published in August.

Auditors concluded that philosophical differences between the contractor and SRS were making the relationship unworkable.

"The president of (KFMC) is very concerned about having the most efficient and accountable system possible, a traditional business perspective," auditors reported.

SRS officials "on the other hand ... have a much more traditional government perspective. They also are much more sensitive to the political ramifications of complaints from treatment providers," auditors said.

At one point last year it seemed the differences might be worked out. But that didn't happen. Now SRS officials say they plan to bring the program run by KFMC back in-house July 1. Earlier this month SRS also announced a major reorganization and reassignment of its top drug and alcohol program administrators. But Garlinger said the changes were long contemplated and are unrelated to the tiff with KFMC.

KFMC's origins

In 1995, citing concerns over inefficiency and lack of accountability, SRS launched in Wichita a managed-care pilot program for substance-abuse treatment. The $2.8 million grant for the pilot, which later grew to $3.7 million, was awarded to a consortium of established treatment providers called Kansas Foundation for Addiction Treatment Inc. It was deemed a grant, not a contract, and so was not put up for bid. Nor was paperwork routed through the state's Division of Purchases, a review step necessary for agency contracts but not grants.

Shortly after the grant award, according to SRS, the agency decided to have assessment of clients done by firms separate from those providing treatment services. So, the original grant-holding group was shunted aside and KFMC, which was set up to operate as a managed-care clearinghouse and billing agency, offering no direct services or assessments, was created instead.

The SRS version of what happened in those beginning months of the Wichita pilot makes all seem smooth and orderly.

Hickey's version of what happened is quite different

He said the first group awarded the grant was replaced because state attorneys waved conflict-of-interest red flags. SRS, with checks already cut, had to scramble to salvage the pilot, so KFMC was created.

"At that time the organization didn't exist," he said. "There was no foundation, no offices, no staff, no nothing. After the check had been issued to this organization, then the board of directors was put together slowly and I was hired."

SRS had already delivered the first $1 million for the pilot program, Hickey said. "So, they were scrambling around trying to figure out how to salvage it. They were going to have egg on their face if they didn't get it worked out. In November 1995, I was hired as a consultant. The initial checks were issued in September 1995. For a two-month period someone was just carrying the checks around in their pockets until the organization was formed."

Whatever the genesis of the pilot program, Hickey and SRS, in rare agreement, concur it was a success once it was up and running. Hickey says $600,000 was saved the first year of operation and that waiting lists for services vanished.

It worked well enough that SRS decided to take the managed-care program statewide. Again, it was not put up for bid. KFMC received the grant and signed a three-year agreement with SRS in 1996.

Shift to managed care

Prior to managed care, SRS awarded grants to dozens of treatment providers across the state. Dollars were disbursed to the providers based on estimates they provided to SRS of how many clients they expected to serve.

"Generally, providers estimated the number of people they expected to serve and received a grant based on that number," legislative auditors explained in their report. "According to (SRS), providers who didn't serve that many people in that year could keep the full grant award if they met certain requirements. These providers also would assess clients' needs and provide services they determined were necessary. ... Commission officials told us they'd become dissatisfied with the lack of accountability inherent in the grant system. In addition, they said they were concerned too many clients were receiving more services than they really needed."

So the new managed-care approach was meant to improve financial oversight, discouraging the suspected padding of services by providers.

Apparently, it worked. Hickey says KFMC repeated its success demonstrated in the pilot, saving $1.2 million the first year the program operated statewide. SRS spends about $18 million annually on its drug and alcohol programs.

"With (KFMC) there was some accountability," said the director of a treatment firm who asked not to be identified for fear of alienating SRS officials. "You had to prove you provided a service. Documentation was infinitely better than it ever had been."

Cost savings wasn't the only indicator that the program was working. The number of treatment beds statewide also increased, and waiting lists for services dwindled or disappeared.

SRS officials acknowledge the gains but say they now are in the position to preserve them and make further improvements by administering the program themselves.

"Despite whatever problems we've had with Hickey and that organization, in all fairness we have to say they've been pretty efficient getting providers under contract and monitoring their billing for accuracy," Garlinger said. "The real question is, is that worth $500,000? Our assessment is that it is not."

SRS has been paying KFMC a flat rate of $500,000 per year to administer the managed-care program.

Honeymoon is over

Problems in the relationship developed soon after the program went statewide.

Hickey, citing one of many grievances, says SRS frequently was late with its monthly payments to KFMC, which needed the money to reimburse service providers. SRS, he said, without KFMC knowledge would negotiate exceptional terms with providers that were supposed to deal with KFMC.

"SRS was end-running the whole privatization process," Hickey said.

"Hickey was a good businessman, very organized," said the anonymous provider executive. "I think SRS had separation anxiety from losing so much control when they privatized. So, they continued to be on his case."

"We really didn't have any kind of problems with (KFMC)," said Steve Hageman, director of alcohol and drug services at East-Central Kansas Mental Health Center in Emporia. "Our relationship was very courteous and professional. There just was not a problem there."

But some providers did have complaints about KFMC as well as SRS, which they revealed to legislative auditors in confidential surveys.

Many complained of the increased paperwork required as they documented the services provided. Some complained that KFMC was too heavy-handed and demanding.

"Managed care could possibly be a good thing," one told auditors. "It is not, however. There is no agreement about what should or should not happen. KFMC refuses to follow the directions of SRS. They also rule by threatening to cancel contracts. We are told we cannot appeal their payment decisions. It is a frightful scenario."

Hickey said his group had good relations with competent service providers but ran afoul of the inferior ones and SRS when it demanded competence and full accountability for expenditures from those who weren't delivering on KFMC expectations.

"One of the provisions of the agreement with the state was we were to contract with quality providers," Hickey said. "There was a provider in Kansas City, Kansas, that the state's own licensing people said shouldn't get contracts. We were concerned about malpractice issues, that if somebody was hurt or injured or treated in subpar manner we would be liable. So we told the state we didn't want to contract with them anymore. All they did was tell us, 'OK, you don't have to contract with them anymore.' We were giving them $300,000, so the state turned around and gave them $500,000" outside the KFMC arrangement.

When auditors looked into the situation, SRS officials acknowledged Kansas Multicultural Alcohol and Drug Treatment Center in inner Kansas City had "documentation" problems. But, they said, the organization was effective at treating clients and "it is better to fix a broken wheel than to throw it away."

Now, with SRS poised to resume its management role, service providers are waiting to see exactly how deprivatizing managed care will affect them. On the record, most said they anticipate no problem dealing with SRS. But off the record, they acknowledged uncertainty. Some said they are operating on three-month transitional contracts with SRS until the dust settles and new agreements are redrawn.

SRS, for its part, says it plans to maintain much of the managed-care system implemented by KFMC, but with greater emphasis on prevention.

"They may call it managed care," said a provider. "But it's certainly not going to be independent."

-- Mike Shields' phone message number is 832-7144. His e-mail address is

Commenting has been disabled for this item.