has provided this leadership to many areas of the state and most specifically region 5 which
is made up of Fayette and 20 other central Kentucky counties.

The region 5 health care partnership will provide medical services to 74,000 Medicaid
recipients in the central Kentucky area under a managed care approach. This provider-driven
plan is unique to Kentucky and will allow providers to be responsible for managing the health
care needs of the Medicaid population. Except for the exclusion of the nursing home
population and some other similar groups, participation by Medicaid beneficiaries will be
mandatory.

To this extent the University of Kentucky Medical Center, along with other providers in the
region, formed a planning committee to do the initial planning activities for the partnership.
The region 5 planning committee has been meeting since March 1996, and has overseen the
development of the organizational design and the reimbursement models. The planning
committee has formally organized into a corporation and that corporation will join CHA
HMO, Inc. to contract with the state as the Medicaid Partnership for region 5. CHA HMO,
Inc. and its parent corporation CHA Service Company, Inc. are working with providers in
region 5 to raise the needed capital to start the system. If the system functions as
anticipated, the investments will be repaid at the end of the contract with the State. The
University currently holds a majority interest in the CHA Service Company, Inc.

Contract negotiations with the state are ongoing, for a late fall implementation. If the state
cannot enter into a financially sound agreement with a health care partnership that will
provide greater access, higher quality of health care and a reduction of the overall rate of
growth in medical costs, it will proceed with a competitive bid process for the Medicaid
Managed Care Program. A competitive bid process could reduce total provider payments
greater than the partnership approach by redirecting dollars to marketing activities and other
administrative overhead requirements.

The University Hospital has significant dependence on the Medicaid population both in
terms of support of its teaching mission and overall utilization. Medicaid utilization for the
fiscal year ended June 30, 1996 was 33.1% of inpatient days and Medicaid net
reimbursement accounted for approximately 22.0% of total cash resources for the same
period.





Action taken:       Approved       U Disapproved           Other