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Lawmakers Contemplate Overhaul of State Medicaid Department

September 25, 2014 by Editor in Featured, Medicaid, State Health Policy


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In the first of a series of meetings during this legislative interim, lawmakers started considering a radical overhaul of the program that provides health care to the state’s low-income patients.

By Rose Hoban

Lawmakers began hearings on reorganization of the state’s Medicaid program Tuesday In a legislative committee meeting that echoed the bitter disagreements that marred the recent General Assembly session and delayed its closure.

In a three-hour meeting of a subcommittee of the Oversight Committee on Health and Human Services, lawmakers heard first from Department of Health and Human Services Sec. Aldona Wos, who objected to pulling the Division of Medical Assistance, which runs the state’s Medicaid program, out of the larger DHHS.

Medicaid-Logo“A decision to remove Medicaid from the department would be in direct contrast to the path we’re on now,” Wos said, calling the idea of creating a standalone Medicaid department “disruptive” and telling lawmakers that creation of such a department would divert resources and attention from day-to-day operations.

Wos also defended her department, saying that her team has been “aggressive” in updating the management and administration of Medicaid, which, she said, has “resulted in measurable progress.” Wos alluded to her report to lawmakers last week that Medicaid finished the year with funds left over.

But as soon as Wos left the room, legislators turned their attention to contemplating exactly what she had asked them not to do: namely, the prospect of moving Medicaid into a different department.

Different models

Lawmakers have looked at Medicaid reorganization before, most recently in an evaluation performed by legislative staff at the beginning of 2013.

Carol Shaw from the legislative Program Evaluation Division told the committee that her division’s analysis found most states manage Medicaid as North Carolina does, embedded in a larger department that focuses on human services.

But Shaw highlighted states that have taken alternate paths, such as the ones that Oregon and Washington have chosen in recent years. Those states created standalone medical authorities that control all health care programs managed by the state, such as prison health, state employee health plans and Medicaid.

“They … wanted to attempt to leverage the purchasing power of multiple health care programs, to focus state health reform efforts and also to improve program efficiency and effectiveness,” Shaw said.

Other states, such as Oklahoma and Ohio, created separate Medicaid agencies in order to elevate the program’s status in state government and provide stronger leadership and more accountability.

But Shaw gave lawmakers a warning: “All emphasized the importance of transition planning before changing the administrative structure of Medicaid programs.”

Those states took six months to two years to complete their transitions to the new structures. Shaw also said officials from those states got buy-in from all of the stakeholders involved in the process. And, with the exception of Oklahoma, the changes to Medicaid’s organization were driven by initiatives from the executive branch, not initiated by those states’ legislatures.

“Wouldn’t it be very challenging to be in the process of a one-to-two-year transition of separating out all of the complexity of Medicaid from the Department of Health and Human Services while at the same time attempting … major overhaul of the Medicaid program itself?” asked Rep. Nelson Dollar (R-Cary). He also pointed out that creating a separate agency could potentially create more bureaucracy and duplication of functions in state government.

“You can’t know until you decide how to divide the baby,” Shaw responded.

Legislators also heard from Marcia Morgan, who formerly headed the Medicaid program in Kentucky and now works with the government consulting firm Mercer. She emphasized the difficulty of making an “apples-to-apples” comparison between any two state’s Medicaid programs because of the complexity of the program and the differences in how states organize their governments.

She said one of the issues legislators really should resolve before making changes is whether they want to hand the management of Medicaid over to managed care or accountable care organizations.

“Function and form should be established, because it does influence the way to set up the organization,” Morgan told lawmakers. “If you’re going to become a contract-monitoring entity, it’s important when it comes to … the types of functions you want to have performed.”

“It does influence, in my opinion, that you should know what direction you’re going in,” she concluded.

Chambers still divided

Legislators have been pondering the prospects of creating a separate Medicaid department for several years, but the issue came to a head this past summer when the House and Senate proposed competing bills on how to move forward with reforming Medicaid. House members signaled their comfort with keeping the program, which spends close to $14 billion in state and federal dollars annually, where it is as a division in the larger DHHS.

Senators, on the other hand, insisted that the program – which covers the care for some 1.4 million low-income children and pregnant women, seniors in nursing homes and people with disabilities – be taken away from DHHS. In addition, the senators in the Republican majority signaled in no uncertain terms that they would like to see management of the program handed over to organizations that would bear the full financial risk for the program.

Both sides dug in their heels this summer and the Medicaid disagreement was one of the factors keeping lawmakers in Raleigh this summer, long past the beginning of the fiscal year on July 1.

Wednesday’s meeting demonstrated that neither side has really altered its position since the end of the legislative session.

For example, after hearing presentations from legislative staff and government consultants about strategies used by other states to organize their Medicaid agencies, Sen. Ralph Hise (R-Spruce Pine) maintained he wasn’t interested in any of the other states’ strategies.

Hise said of all the ideas he heard Wednesday, he still preferred the strategy floated by the Senate this summer of a Medicaid program managed by a board chosen by legislators and the governor.

“The board would be able to present to the legislature what changes would bring us back into the budget,” he said after the meeting.

Hise argued that the Medicaid budget lacked predictability. He also said that while there’s been a lot of stakeholder input into Medicaid over the past two years, in the end what happens is a decision for the legislature.

“The approval of everyone receiving payments from the system may not be the direction you look for when you are trying to make a system that controls cost,” Hise said, while admitting that without buy-in from all quarters there could be an exodus of providers from the system. “I think we have one of the highest rates of provider involvements in the nation right now, and I think most have a business model built on serving Medicaid patients.”

In contrast, Rep. Marilyn Avila (R-Raleigh) said she couldn’t see the rationale for pulling Medicaid out of DHHS, especially without a clear idea why.

“We first have to be able to verbalize clearly what our problem with Medicaid is. Is it waste fraud and abuse? Is it a bureaucratic mumble-jumble of delays and obstacles and paperwork? That’s what I want to clarify,” Avila said. “What do we see as our problem? That will dictate what we should or should not do.”

She worried that pulling Medicaid out of DHHS would trigger a repeat of the problems that resulted after reforming the state’s mental health system in the early 2000s. Avila also said that she failed to see how removing Medicaid from DHHS would solve the program’s problems.

Other House members echoed her doubts.

“I think some of the issues are debatable; for example, transparency. Why would a separate agency be more or less transparent? You have to have the same level of transparency whether the agency is inside HHS or outside HHS,” Dollar said. “I don’t quite grasp that.”

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