Kelly administration counters AG’s opinion on extending $4 billion Medicaid contracts

Governor, Schmidt clash on legislative push for 1-year, no-bid extension

By: - March 29, 2022 8:58 am
Attorney General Derek Schmidt, a Republican, and Gov. Laura Kelly, a Democrat, are running for governor in 2022. Schmidt's campaign released a six-point plan for addressing school firearm violence in Kansas. (Tim Carpenter/Kansas Reflector)

Attorney General Derek Schmidt, a Republican, and Gov. Laura Kelly, a Democrat, are running for governor in 2022. Schmidt’s campaign released a six-point plan for addressing school firearm violence in Kansas. (Tim Carpenter/Kansas Reflector)

TOPEKA — The administration of Gov. Laura Kelly sent a letter to leaders of the Kansas Legislature urging removal of a budget provision mandating a one-year extension of the $4 billion Medicaid contracts because the move raised constitutional questions and conflicted with decisions of the Kansas Supreme Court and past opinions of the state attorney general’s office.

Will Lawrence, chief of staff to the governor, forwarded Monday a letter to more than a dozen legislators and Attorney General Derek Schmidt pointing to legal risks of a moratorium on rebidding the contract for services to approximately 500,000 Kansans enrolled in Medicaid. GOP legislators sought delay of work updating the KanCare contract until after the November election in which voters will decide whether to re-elect or replace the Democratic governor. Schmidt is campaigning for the GOP nomination for governor.

Legislation introduced in the House to freeze the contract with three managed-care companies until the end of 2024 generated no public support, but passed a GOP-led committee. Instead of campaigning for that bill, Republican lawmakers simply dropped a provision into a budget bill requiring the delay.

The Kansas Department of Health and Environment would be required to request permission from federal regulators at the Centers for Medicare and Medicaid Services for a delay in renewing the contracts. In addition, KDHE would negotiate to lengthen contracts with KanCare’s managed-care companies — Sunflower State Health Plan, United Healthcare and Aetna Better Health of Kansas.

Four House Democrats uncertain if it was legal to circumvent scheduled expiration of the state’s Medicaid contract asked Schmidt for a legal opinion on Feb. 15. On Friday, Schmidt responded by declaring the Legislature possessed authority to prevent the Kelly administration from proceeding with work on revising and rebidding the Medicaid contract.

Schmidt said there wasn’t a constitutional or statutory requirement that state contracts go through a competitive bidding process. He said the Legislature, as the appropriating authority for the state, had “constitutional power to determine how state funds are allocated and spent.”

“The Legislature may lawfully alter the procurement process for a state agency through new legislation,” the attorney general said. “This includes modifying, delaying or eliminating the competitive bid process and directing the (state agency) secretary in its management of the KanCare system.”

 

On the other hand

Lawrence’s letter said Schmidt’s “cavalier-at-best” response omitted previous attorney general opinions and a decision of the Kansas Supreme Court indicating intrusion by the Legislature into the executive branch’s contracting responsibilities violated the Kansas Constitution. The state’s highest court said nearly half a century ago the issue boiled down to separation of powers, he said.

“For the intrusion by one branch into the duties of another to be unconstitutional, the intrusion must be significant,” Lawrence said. “Here, the intrusion of the Legislature into the administration, as opposed to just the funding of the states Medicaid program, is a significant intrusion.”

The bill and budget proviso regarding the Medicaid contract envision the full Legislature or the Legislative Coordinating Council, which includes House and Senate members of both political parties, would assume responsibility for reviewing all major adjustments of KanCare until Jan. 1, 2025. The Kelly administration or a successor governor would be stripped of that power.

Lawrence said an attorney general opinion in 2006 indicated what the Legislature contemplated and Schmidt endorsed was unconstitutional. The issue raised in the past centered on an office lease entered into by a state agency. An attorney general opinion said the Legislature could block funding for a lease. However, the opinion said the Legislature couldn’t prospectively mandate an executive branch agency secure approval of a legislative committee before entering a contract for office space.

Lawrence said the House bill and the companion budget provision regarding Medicaid would “go well beyond legislative oversight of already approved contracts to an attempt to expand its role to one of shared administration.”

Lawrence took issue with Schmidt’s placement in a footnote of his opinion the potential of the U.S. Department of Health and Human Services withholding federal funding from Kansas if the state extended the contracts without permission of Medicaid regulators.

“There is very little rationale as to why a bill which had no proponents and a multitude of opponents has advanced this far,” Lawrence said. “We have moved from a discussion of bad policy to one of severe legal consequences.”

He said the budget proviso regarding the Medicaid contracts should be deleted from the state appropriations bill and House Bill 2463 accomplishing the same objective ought to be abandoned.

 

KDHE secretary’s thoughts

Janet Stanek, secretary of the state Department of Health and Environment, amplified on Lawrence’s letter by wading into complexities of the Legislature unilaterally altering the state’s procurement process by extending terms of the competitively bid Medicaid contract.

She said in a lengthy letter to the attorney general that allowing direct involvement of legislators in administration of KanCare by reviewing “substantive” or “material” changes would impair KDHE’s duty to function as the state Medicaid agency.

Stanek said the mandate “dangerously” relied on the assumption contract extensions with the three for-profit KanCare companies could be negotiated and that the federal CMS would agree to the change.

Here is what the federal government says about usurping KDHE authority of KanCare: “If other state or local agencies or offices perform services for the Medicaid agency, they must not have the authority to change or disapprove any administrative decision of that agency, or otherwise substitute their judgment for that of the Medicaid agency with respect to the applications of policies, rules and regulations issued by the Medicaid agency.” 

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Tim Carpenter
Tim Carpenter

Tim Carpenter has reported on Kansas for 35 years. He covered the Capitol for 16 years at the Topeka Capital-Journal and previously worked for the Lawrence Journal-World and United Press International. He has been recognized for investigative reporting on Kansas government and politics. He won the Kansas Press Association's Victor Murdock Award six times. The William Allen White Foundation honored him four times with its Burton Marvin News Enterprise Award. The Kansas City Press Club twice presented him its Journalist of the Year Award and more recently its Lifetime Achievement Award. He earned an agriculture degree at Kansas State University and grew up on a small dairy and beef cattle farm in Missouri. He is an amateur woodworker and drives Studebaker cars.

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