Growth of Medicaid expenditures 2002-2012
Growth of Medicaid expenditures 2002-2012


Leaders at the state’s Department of Health and Human Services believe they have a good idea in their Medicaid reform plan. And they’re sticking to their guns, despite the displeasure of the North Carolina Senate.

By Rose Hoban

When Bob Atlas was hired to come to North Carolina last August to work on a reform plan for the state’s Medicaid program, many observers noted with skepticism that Atlas had a history of helping other states bring in managed care organizations to run Medicaid.

At the first Medicaid Reform Advisory Group meeting in December, some of that skepticism was confirmed when the nationally known consultant gave a presentation that highlighted other states’ transformation from Medicaid programs run by state bureaucracies to programs run by for-profit companies that move much of the financial risk of caring for patients onto doctors and hospitals.

“For North Carolina, I started out thinking about managed care as the solution,” Atlas admitted recently.

But somewhere along the line, his thinking shifted.

In February, Atlas presented the DHHS plan for transforming many of North Carolina’s Medicaid providers into new accountable care organizations. ACOs are networks in which hospitals, clinics and doctors take on financial risk for treating a set population of patients, but also can gain financially if they meet quality benchmarks, improve patient health, reduce overuse of health care resources by patients and save Medicaid’s money in the process.

“When ACOs first appeared on the national landscape, I was skeptical,” he said. “I became convinced after numerous months after gaining familiarity with the facts on the ground here that this would be worth trying.”

But Atlas’ work was thrown into jeopardy with the approval of the Senate budget on the last day of May. That budget calls for DHHS to “cease any activities related to implementing Medicaid reform based on its proposed accountable care organization (ACO) model.”

Despite the harsh rhetoric in the Senate budget, Atlas is doubling down on ACOs for North Carolina Medicaid. And in an  interview with North Carolina Health News last week, he reiterated his belief that ACOs are a good way to organize health-care delivery – as long as the incentives are right.

Community Care sets the stage

North Carolina is not the only state contemplating creating ACOs to deliver Medicaid services. Arkansas, Vermont and Colorado are among those asking federal officials for permission to implement ACOs for Medicaid.

And in their quest to organize ACOs, many of those states are looking at Community Care of North Carolina, one of the largest experiments using the idea of a patient-centered medical home. A medical home involves either a doctor or a clinic developing a relationship with a patient with prevention and wellness as the focus of care, as opposed to waiting to treat the patient when things go wrong.

NCHN editor Rose Hoban (L) looks through data on patient-centered medical homes provided by Dr. Paul Grundy (R).
NCHN editor Rose Hoban (l) looks through data on patient-centered medical homes provided by Paul Grundy (r) at the legislative building in Raleigh last week. Photo credit: Greg Griggs

Since the late 1990s, state health care planners have worked with physicians around the state to create networks to care for patients, with one clinic being the entry point for care for patients. These community-care networks have been integrated into the state’s Medicaid system, and now more than a million adults and children who receive Medicaid in North Carolina have a medical home.

State health leaders give CCNC credit for keeping North Carolina’s year-over-year growth in Medicaid costs at a nationwide low between 2007 and 2010 after having some of the fastest growth in costs through the ’90s.

Many health-policy leaders around the country took a close look at CCNC. These included Paul Grundy, a consultant who directs health care transformation at IBM and works throughout the country.

“You have to change the doctor’s behavior” to get a handle on costs, Grundy said. “You have to have the data available for them to use. You have to have them understand how to use the data. You have to hold them accountable to use the data. And that’s a huge shift.”

Grundy has spent several years studying CCNC, and has visited 20 or more clinics around the state to see how they’re doing business. He said that doctors who participate in CCNC are in many ways ahead of the national curve.

“Community Care begins to underpin and support the physicians to have a healing relationship with patients and to begin moving from delivering an episode of care to managing a population’s health,” Grundy said.

Grundy praised CCNC’s emphasis on collecting data on patient outcomes, on how often patients end up in the emergency department, on medication use and on other metrics to help drive physician behavior.

He said the kind of feedback physicians from CCNC get about what they can do better to help their patient population is something insurers in the rest of country are only beginning to do, but that CCNC has been doing for more than a decade.

Grundy pointed to an example from the Community Care network in Charlotte, where data identified the 12 most frequent emergency-room users. By bringing those 12 patients to a clinic one day each week to see primary-care doctors, psychiatrists and social workers, and to receive auxiliary services, the network was able to save $250,000 in six months.

“You identify those people, you put them in a medical home, you be proactive, you begin to manage them – whatever it takes. It’s cheaper than paying for the hospital every month,” Grundy said.

“I have sent people from Arkansas, from Georgia, from Vermont … to come down here and look at CCNC,” he said. “I have people coming here from New Zealand to come over here and study it.”

But in their budget, the Senate orders the state to stop contracting with CCNC, something Grundy said is shortsighted.

“I would love to have some of the senators sit in one of your primary-care practices here in rural North Carolina and then sit in one in Texas,” where much of the care is paid for by managed care, Grundy said.

“I have, and it’s not pretty,” he said.

From CCNC to ACO

Grundy said CCNC does have limitations. For one thing, if a physician’s outcomes are not improving there’s little way to get that doctor to change behavior.

CCNC has not been aggressive about throwing physicians out of the system for not meeting their benchmarks, but he believes that the financial incentives built into an ACO system would provide that.

Atlas said he was not as enthusiastic about CCNC as Grundy when he came to North Carolina.

Growth of Medicaid expenditures 2002-2012
Growth of Medicaid expenditures 2002-12

“I’ve drunk no one’s Kool-Aid in this process, in terms of believing that they will do what they say they will do,” he said. “But there is evidence of good things coming out of CCNC.”

“As Dr Grundy has said, it’s a start, but we need to move it into the 21st century to strengthen that.”

Atlas said he believes that adding “downside“ financial risk is part of that answer, in addition to offering “upside” financial rewards for doing work that changes patient outcomes and reduces cost.

“I became convinced after numerous months gaining familiarity with the facts on the ground that this would be worth trying,” he said. “But Gov. McCrory said to us, ‘I want there to be benchmarks, as in performance benchmarks, and if we don’t get what we were expecting then we tighten the screws.’

“And we told that to the provider community, and they have accepted that as a fact of life.”

Those ideas were incorporated into the ACO plan Atlas presented to the legislature this winter. He said the General Assembly could put requirements for benchmarks into law, ask for analysis on the targets and keep monitoring the program’s progress.

Paul Mahoney, CCNC’s director of communications, said that for the most part, doctors don’t need to have many “screws tightened,” because most physicians participating in the program really want to do the right thing.

“I spent eight years with HMOs trying to get doctors to change the way care is delivered,” he said, referring to his previous job. “[CCNC] has no role in price and we can get better traction.

“The best thing would be an ACO world where there’s a shared sense of mission and cooperation like what we have with CCNC now.”

Managed care no panacea

Nationwide, about 70 percent of physicians see Medicaid patients, but in some states that number drops to as low as 40 percent. New research shows that about a third of doctors across the country say they won’t see new Medicaid patients.

Right now, about 80 percent of all physicians in North Carolina participate in Medicaid and more than 95 percent of primary-care providers take Medicaid patients.

Per patient per month Medicaid spending in patient-centered medical home pilot project in upstate New York. Graph courtesy Paul Grundy & the Advisory Board Company
Per patient per month Medicaid spending in patient-centered medical home pilot project in upstate New York. Graph courtesy Paul Grundy & the Advisory Board Company

“Our primary-care physicians are paid better in this state, which I think shows the value that the state has placed on them,” said Mardy Peal, who has worked with Atlas on crafting the Medicaid reform plan.

But under managed care, that would invariably change, Peal said. Managed care companies function by giving physicians a set amount of money per month for patients, with no incentive for doing the care well. She said many doctors would drop out of providing Medicaid.

In other states that have moved to managed care, “the managed companies actually increased the primary-care rates to get the doctors to join the network,” she said.

Peal also said that the rest of the health care world is moving toward an ACO model, and that many physicians would like to see Medicaid move that way too, so that all their payers – commercial insurance, Medicaid and Medicare – are reimbursing similarly.

Per patient per month spending for commercially-insured patients in patient-centered medical home pilot project in upstate New York. Graph courtesy Paul Grundy & the Advisory Board Company
Per patient per month spending for commercially-insured patients in patient-centered medical home pilot project in upstate New York. Graph courtesy Paul Grundy & the Advisory Board Company

“Then you’re not asking one- and two-office doctors to run two or three different business models out of the same small practice,” she said. “They are ultimately small businesses.”

Atlas also said that there’s reason to believe that moving toward managed care would not produce the large savings the Senate is hoping for, in part because of a new tax on Medicaid managed care that’s included in the Affordable Care Act. He said it adds up to about 3 percent of managed care revenue.

Around the country, Medicaid managed care companies are asking states to increase their contracts by 3 percent to cover their losses on the tax.

“The Wall Street analysts are watching this very carefully – which states are folding to the demands of the managed care companies with respect to this tax,” Atlas said.

He said that if the state Senate is looking for a 5 percent savings from a managed care company, it could quickly shrink to a savings of only 2 percent after the state pays for the managed care tax.

“And we think we can ramp up ACOs immediately and get to about 3 percent [savings] – and that’s a conservative projection – without blowing up the system,” Atlas said.


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