Image courtesy Army Medicine

At a legislative meeting this week, lawmakers and state officials started to lay out their visions for changes to the state’s Medicaid program.

By Rose Hoban

In a legislative meeting Tuesday, lawmakers and officials from the state Department of Health and Human Services debated changes to the state’s Medicaid program and what the program might look like in the future.

At issue is the question of whether the state will change the structure of the program or invite private companies to manage Medicaid, which pays for medical and other forms of care for close to 1.8 million North Carolinians.

Since coming into office in January, Gov. Pat McCrory and DHHS Sec. Aldona Wos have repeatedly claimed that Medicaid is “broken” and lawmakers have argued that spending is out of control.

The governor cited issues with the Medicaid program as a rationale for not expanding the program under the federal Affordable Care Act and for pushing the effort to privatize.

Currently, most of Medicaid is paid by the state on a fee-for-service basis, with the not-for-profit program Community Care of North Carolina coordinating services for the majority of people in the program.

Earlier this month, McCrory named his three selections for a Medicaid Reform Advisory Group, including the former head of Cone Health in Greensboro, an anesthesiologist and the head of a large mental health provider organization.

Two state legislators have also been named to the group, one each from the House and Senate.

Not much managed care

According to Bob Atlas, a consultant hired by DHHS to advise on Medicaid reform, North Carolina has one of the lowest rates of Medicaid “managed care,” a method of managing the program wherein public or private entities receive set monthly payments to pay for all care for everyone in the program. That method of payment is called “capitated care,” or “capitation.”

Atlas showed data from 2010 indicating that 11 other large states, from California to Tennessee, have varying rates of capitated care, from 85 percent of care provided by managed care providers in Arizona to 2 percent in Illinois. He estimated North Carolina’s capitation rate at about 15 percent to 17 percent, mostly in the mental health system.

Since 2010, the provisioning of mental health services has been shifted into 10 managed care organizations backed by the state. Many advocates have complained that some of those managed care organizations have denied needed care, and the MCOs have been engaged in multiple lawsuits over provision of care.

“The big fear on managed care is that if you have [a managed care company] at risk on a capitated basis, that they’re going to deny care; they’re going to deny necessary care,” Atlas told the committee. “There’s always going to be arguments about that.”

He said, however, that states are designing “robust” processes for quality assurance and measuring quality, measuring access to care, addressing consumer complaints and having appeals provisions, the last two of which are required by federal Medicaid law.

Atlas also said some states are requiring minimum medical spending ratios to assure that the majority of the dollars being spent in the contracts are going to health care, not profits or overhead.

“There are a variety of protections that can be put in place,” he said. “The good news of North Carolina not being a trailblazer on this is that there are many, many lessons already learned by other states, and we have the benefit of those lessons.”


Lawmakers from both sides of the aisle expressed skepticism of the picture Atlas drew of managed care’s successes, including Raleigh Republican Marilyn Avila, who asked about other states that started out positively in the direction of managed care. “But then we’re finding that when some of these contracts come up for renewal, and the hard negotiations start, you have companies that are pulling out of those states,” she said.

That happened in recent years in Kentucky, where the state privatized its Medicaid program, giving contracts to three statewide vendors. But earlier this year, managed care company Centene (operating under the name Kentucky Spirit) pulled out of the program, throwing that state’s system into turmoil.

“You end up by default with just one or two plans in the state,” Avila noted.

Atlas told Avila that DHHS is looking at dividing the state into five to seven regions to provide care, “rather than putting the whole state on single contracts.”

This development contradicts statements made by Wos earlier this year, when she said the Medicaid program would be converted to three or four statewide Medicaid managed care plans that would compete for providing all the care for all kinds of patients.

Atlas also said that one of the problems with managed care is the same issue that attracts so many lawmakers to this way of paying for care: “You get budget predictability, but sometimes a state is looking to solve a budget crisis by cutting a capitation rate maybe more aggressively than it ought to be cut, and that’s when contractors can say that level is not survivable.”

“You need to set a capitation rate that’s high enough to keep the participants interested but low enough that you don’t end up in the papers,” Atlas said.

Sen. Tommy Tucker (R-Waxhaw) noted that Atlas has a reputation as being a consultant who has worked with other states to convert them to managed care. He has publicly objected in the past to Atlas’ $250 an hour consulting fee.

Continued debate over administrative costs

The discussion over the future of Medicaid came in the context of an earlier presentation over administrative costs of the program.

During an audit delivered in January, State Auditor Beth Wood presented data purporting that North Carolina’s administrative costs were about 30 percent higher than in similar-sized states.

An investigation published by North Carolina Health News last month questioned those results, noting that outgoing DHHS officials from the Perdue administration had presented data that showed that DHHS administrative expenditures were actually lower than other states’ once the costs of managed care administration was taken into account.

That defense of administrative costs was edited out by officials in the incoming McCrory administration.

The argument resurfaced at the legislative hearing in a presentation by Steve Owen from the legislative Fiscal Research Division. Owen found that North Carolina’s administrative costs were lower, and he argued that the state auditor’s numbers needed to include managed care expenditures. Without them, Owen said, it was not possible to make an “apples-to-apples” comparison across states.

When given the opportunity to respond to the information Owen presented at the meeting, Wood stood by her audit numbers. She reiterated her argument that the data on managed care organizations used by Owen and by Perdue DHHS officials were unaudited and could not be used to make a comparison.

She argued that one cannot add administrative costs of capitated managed care rates because companies handling that care are paid on a per-person, per-month basis.

“That is definitely not apples to apples,” Wood said.

In an interview after the meeting, Wood expressed frustration that the comparison of administrative costs had been “misused.”

“One thing that I don’t want the committee to lose sight of is the fact that the audit that we did showed that if North Carolina is going to continue to be a fee-for-service state, that there’s a lot of issues with how the administrative costs at DHHS are being handled, and that needs to be looked at,” Wood said.

She said the audit was never intended to look at administrative costs and determine whether the state should continue with its current means of providing Medicaid services or move to MCOs.

Fait accompli?

Rep. Beverly Earle (D-Raleigh) said that is seems like state health officials have already made the decision that North Carolina is going to managed care.

“At some point, I understand that we might get to vote for it?” Earle asked, provoking scattered laughter in the crowd.

“You’ll still have something to say about that,” Atlas said.

He said that DHHS was in the process of developing a proposal that’s due to the General Assembly in March, and that the proposal would not move the state immediately to “100 percent managed care.” He said the proposal would have “different solutions” for different patient groups – women and children, elderly long-term-care patients and people with mental health and developmental disabilities – a proposal that, again, contravenes what Wos talked about earlier this year.

“As someone who will be serving on the advisory committee, I have a lot of questions about this presentation, as well as some others,” said Cary Republican Nelson Dollar, who is the House member for the Medicaid Reform Advisory Group. “But I would just assure you, Representative Earle, that I don’t think anything is set in stone.”

Dollar has been a supporter of Community Care of North Carolina. Several studies have shown that CCNC has saved the state billions over the past decade, and the program has won national accolades.

“I think that North Carolina is uniquely positioned, and that we’ve done a lot of work over the last three years, as well as before that, and I think we need to build on North Carolina’s strengths,” Dollar said.

“I look forward to seeing us have reform that builds on the things that are unique to North Carolina and what North Carolina has, in some cases, been a leader in the nation on,” he said.

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